THE CASE FOR THE EXPORT–IMPORT BANK

In 1986, President Ronald Reagan signed a bill extending the charter of the Export–Import Bank (EXIM) by an additional six years. In a signing statement attached to the bill, the President declared that “[t]his sends an important signal to both our exporting community and foreign suppliers that American exporters will continue to be able to compete vigorously for business throughout the world.”34 As a candidate for President, Ronald Reagan was opposed to EXIM, but as Pres- ident, he learned the challenges America’s businesses face when competing for opportunities overseas, and his position on EXIM evolved. As President Reagan once famously remarked, “Why would I want our businesses competing with two hands tied behind their backs?” On January 30, 1984, the President said, “Exports create and sustain jobs for millions of American workers and contribute to the growth and strength of the United States economy. The Export–Import Bank con- tributes in a significant way to our nation’s export sales.”

President Reagan was exactly right. EXIM provides a mechanism that American companies can use to vie for projects that would otherwise be out of reach, notably deals that the banking industry won’t finance because of the risk associated with the host country or because the host nation itself requires a sovereign guarantee in order to submit a bid. EXIM is the only American vehicle that can provide that sovereign guarantee.

Since Reagan’s presidency, the global economic order has shifted dramatically, and a rising China has completely disrupted the export credit sector.

In Reagan’s era, export credit financing was a means for nations to compete for and win projects overseas in order to create more jobs at home. It was a benign tool for economic expansion. China, however, has morphed export credit financing into a weapon of national security. Where most nations have just one export credit agency (ECA), China has three, all targeted for specific stages of economic and industrial development. The amount of money China has put behind these three instruments is staggering.

It is estimated that in 2018, China provided more than $500 billion in export credit, approaching in that one year the total amount of financing EXIM has provided in its 90-year history.

China’s export credit activity is greater than that of the ECAs of the entire G7 combined. Today, China is the world’s largest official creditor, maintaining a portfolio more than twice the size of the World Bank and International Monetary Fund combined.

China’s highly aggressive Belt and Road Initiative, which has prompted international criticism for ensnaring the developing world in “debt-trap diplomacy,” has created a sphere of economic and strategic influence that includes about 150 countries, rivaling the relationships of the United States and her allies.

Unlike America and the G7 economies, China does not subscribe to the rules- based order that has governed export credit financing for nearly a century. As in so many other things, China plays by its own rules and is opaque in how it operates, weaponizing its export credit financing deals by offering developing nations terms that are often “too good to be true.” Once the project is underway, the Chinese have been known to change the terms, making a project unaffordable for the purchasing country. These tactics have yielded China important strategic plunder like mines and critical minerals, satellites, and even ports like those in Hambantota, Sri Lanka, and Mombasa, Kenya.

Export credit is a strategic weapon in China’s whole-of-government approach to enhance its global power, economic might, and national security. The only country that has the economic heft to counter China’s aggressions in export credit financing is the United States. Not only do American companies risk losing out to Chinese competitors for international opportunities if EXIM is not there to offer support, but a United States without a functioning export credit agency also leaves an unchecked China with a wide-open field to claim jurisdiction over swaths of ocean and shipping lanes, expand its economic influence, and create major changes in the global balance of power.

In response to Chinese aggression in export credit, the ECAs of other coun- tries have reacted defensively to change their policies and programs to avoid losing access to large chunks of global markets. Many countries, including strong U.S. allies like the United Kingdom, Canada, Japan, and Italy, have changed the mission of their ECAs from one of leveling the playing field for their exporters to hunting proactively for transactions for their businesses and advancing their national strategic interests over the long term. In addition, foreign buyers, par- ticularly those looking to build large international projects, have been indicating that the availability of government-backed financing is a core component of their evaluation of bids and identification of sourcing. Allied nations have taken steps like lowering their content requirements in order to lure more deals, often at U.S. expense.

Meanwhile, U.S. content requirements have remained constant, and the United States continues to abide by traditional Organisation for Economic Cooperation and Development (OECD) rules. For example:

The United Kingdom offered Boeing financing backed by Britain’s ECA if Boeing would put Rolls Royce engines on its jets instead of GE engines. Italy’s ECA offered General Electric export credit financing in exchange for moving the production of some of its turbine components from the United States to Italy.

China’s tactics, as well as those of some of America’s allies, have been success- ful in drawing manufacturing and the jobs associated with that production away from U.S. soil. EXIM’s 2018 Competitiveness Report accurately documents how extensively foreign ECAs have expanded programs aimed at embedding their small and medium-sized exporters into the global supply chain to the detriment of U.S. exporters, particularly small businesses.35 To ignore these changes and leave the United States without its own export financing weapon is to resign the United States to a reduced role in world geopolitical affairs and accept fewer jobs and lower standards of living for many Americans.

Critics of EXIM employ a host of defamatory slurs like “crony capitalism” and “Bank of Boeing.” The “Bank of Boeing” moniker is particularly misleading, as it was born in the wake of the 2008 financial crisis when the airline industry was par- ticularly hard hit and private-sector financing was not available for many airlines looking to purchase Boeing aircraft. EXIM’s portfolio tends to be cyclical with different industries relying on export credit financing at different points in time, depending on economic conditions.

The truth is that EXIM provides financing only when the private sector will not or cannot (a concept known as additionality). In addition:

When EXIM does provide financing, usually in the form of a loan or loan guarantee, the borrower pays interest rates that are driven by the market. EXIM does not undercut the private sector. It does not solicit any applications for financing, and all applications are judged on the merits of the transactions.

All transactions must have “reasonable assurance of repayment,” which is why EXIM has an exceptionally low default rate, historically hovering around 0.5 percent—a default rate that is the envy of private banking.

When EXIM enters a deal, the American taxpayer is always protected first. If a deal goes into default, the U.S. taxpayer is paid back before any other lender. Borrowers are loathe to default on the United States of America.

This ability to manage risk successfully is why EXIM actually makes a profit for American taxpayers, described in government parlance as “negative subsidy,” sending more than $9 billion to the U.S. Treasury for debt reduction since 1992. The bank has also supported hundreds of thousands of U.S. jobs, most of them in manufacturing, during the past decade.

Export credit financing has become a critical lever for macroeconomic growth for many countries, allies and competitors of the U.S. alike. Other nations are using ECAs strategically to influence decisions and procure economic opportunities, hindering the participation of U.S. firms and costing American jobs, particularly in manufacturing.

China’s aggressive actions in export finance bleed beyond economic advance- ment and are clearly an effort to expand both its national security and its global power. The United States would be foolish to abandon this field of play, surren- dering it to China and other nations, and to relinquish EXIM as a powerful tool in America’s asymmetrical warfare toolbox.