An Urban's Rural View

If the nations of the world followed -- to the letter and without exception -- free-market principles, no country would offer cheap interest rates or other financial incentives to promote its exports. Governments would butt out and let the market determine the winners and losers of the international-trade game.

But for better or worse, that's not how the world works. Sixty countries, including ours, provide export credit. In many cases they do it in self-defense. If we stop and others don't, they reason, the market distortions will continue anyway, but we'll lose the business. It would be tantamount to unilateral disarmament.

Apparently, many of our Congressmen don't care if we unilaterally disarm. They have refused to renew the charter of the Export-Import Bank, Uncle Sam's export-credit agency. Congress let that charter lapse as of June 30 and the Ex-Im antis are maneuvering furiously to prevent the renewal from being reconsidered. If they get their way, the U.S. will forego export credits.

Other countries will not.

The free-market legislators don't call this unilateral disarmament, to be sure. They call it a fitting end to "corporate welfare." And without question, big companies like Boeing, the free-market fans' favorite target, benefit. For example, in fiscal 2014 aircraft and avionics snagged $8.4 billion of the Ex-Im Bank's $20.5 billion authorizations of loans, loan guarantees and export insurance (http://tiny.cc/…).

But while the bank's critics call this "welfare," taxpayers don't subsidize the Ex-Im Bank the way they do, say, food-stamp recipients. Using the accounting method required by law, the Ex-Im Bank actually returns money to the Treasury. From 2015 to 2024 it expects a profit of $14 billion from its six largest credit programs.

Granted, if the bank charged market rates of interest, the return would be $16 billion. Thus, because the bank loans at lower rates that don't fully compensate for the risks it is taking, taxpayers are $2 billion poorer. The Congressional Budget Office recommends an accounting method that would make that $2 billion "subsidy" explicit. (For more details on the competing accounting methods, see http://tiny.cc/… and http://tiny.cc/…)

But for this to be a subsidy you have to make some highly theoretical assumptions. If the bank charged market interest rates, after all, it would extend few if any export credits in the first place. Other things being equal, American exporters would lose every bidding war with foreign competitors backed by below-market rates. The effect would be the same as letting the bank's charter lapse: unilateral disarmament.

The Congressional free marketeers say the Ex-Im Bank is unneeded; private banks can do the job. If that were the case, you'd think the private banks would be hailing the lapse in the bank's charter. Instead, they've been lobbying to save it. As one of their spokesmen put it, "Ex-Im does not compete with the private sector. It fills gaps in trade finance by working with financial institutions to ensure that U.S. businesses operate on a level playing field as they compete for international business" (http://tiny.cc/…).

Calling export credits "corporate welfare" makes them reek of taxpayer gifts to Wall Street fat cats. In reality the beneficiaries include workers and communities across the country. Take Boeing, the nation's biggest exporter, with 80% of its sales overseas. It has more than 135,000 employees in nine U.S. states and its American suppliers have countless tens of thousands more (http://tiny.cc/…).

Boeing does hand-to-hand combat with Europe's Airbus for every aircraft order. For sales in Asia, Africa and Latin America, both sides have traditionally come armed with export credits. With the bank lapsed Boeing no longer has export credits to offer. Airbus does. The Europeans aren't joining us in disarming. Unlike the subsidy, the jobs at stake aren't theoretical.

Should farmers care? In fiscal 2014 the Ex-Im Bank says it authorized $501 million in support of "more than $1.2 billion of U.S. exports of agricultural goods and services, including commodities, livestock, foodstuffs, farm equipment, chemicals, supplies, and services." It says 83% of these credits "directly supported small business exports," meaning the credits weren't mostly for combines and tractors. Although $501 million comes to only a fortieth of the bank's business, it's not a sum to sneeze at.

Farmers have to wonder, too, where Congress' free-market perfectionists will strike next. If they're aiming to end all government subsidies to private business, USDA's $15 billion a year in farm-program spending makes a fat target. There's nothing theoretical about that number, either.

Some Congressional leaders are hoping to revive the Ex-Im Bank by attaching a belated renewal of its charter to a must-pass bill. They may succeed, but even if they do the pressure from the free-market fans to be rid of export credits won't go away. The challenge for Congress is to get the whole world, and not just the U.S., to observe free-market principles.

The U.S. and four European countries -- France, Germany, Spain and Britain -- already abide by a mutual disarmament pact of sorts. Under this so-called Home Country Rule (http://tiny.cc/…), airlines in the five countries don't receive export credits for the purchase of Airbus or Boeing planes.

Convincing other governments with export-credit agencies to embrace that agreement would be a worthy goal. Expanding mutual disarmament to other industries would be even worthier. And there are other steps our trade representatives could take, too, like negotiating for tougher caps on all export subsidies.

But the key words are mutual and negotiating. Unilateral disarmament won't make the international market any freer. It will just make it harder for our exporters to compete in it.

Urban Lehner

urbanity@hotmail.com

(CZ)

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