Bad Tradeoff: Ex-Im vs. a Weak Dollar

At this point, it looks like Congress will let the Export-Import Bank’s charter expire on June 30. This is not a big deal in grand scheme of things. Ex-Im would continue to service its existing loan guarantees and other financial products, and Ex-Im employees would also review applications for new loans and loan guarantees, though they would not be able to act on them. But suppose Ex-Im does have to shut down operations for good. What other options do export-oriented policymakers have?

Tyler Cowen brings up one option: mess with the price system.

Even a slight depreciation likely would offset the effects of Ex-Im expiration by more than a factor of one hundred, perhaps by more than a factor of one thousand.  Ex-Im is a relatively small program and it has nothing to do with more than 98 percent of American exports.  Many of its foreign beneficiaries, such as Pemex and Chinese state-owned enterprises, don’t need the subsidy to fund their imports.  Boeing is still reporting a robust demand for its planes.

If the goal is to increase exports, a weak dollar is far more effective than any Ex-Im project could ever hope to be. As Cowen says, Ex-Im is involved with less than 2 percent of U.S. exports. Altering the price system itself would affect 100 percent of transactions, exports or not.

Renewing Ex-Im’s charter is a bad idea. Weakening the dollar is a worse idea by at least a factor of 50, even ignoring imports and purely domestic transactions. Every export made cheaper equals an import made more expensive. Every business helped means another one hurt. There is no net benefit.

Many people believe American businesses should export as much as possible, and import only when necessary. But as the Cato Institute’s Dan Ikenson noted in recent congressional testimony:

As Milton Friedman used to say: imports are the goods and services we get to consume without having to produce; exports are the goods and services we produce, but don’t get to consume.

Ex-Im’s very mission, intentionally or not, is to impoverish the U.S. to the greatest extent it can. Imagine working as hard as you can to make something. Then, instead of consuming it and getting value from it, you send it overseas so someone else. Exports do have value, but only because they can be exchanged for imports. Exports are the price we pay for imports. They are not a good thing in and of themselves.

Politicians, especially the populist Lindsey Grahams and Sherrod Browns of the world, would do well to remember that. Ex-Im helps some businesses, but only at others’ expense. The program is a wash at best, and almost certainly harms the American economy on net. Congress should let Ex-Im’s charter expire. More importantly, Congress should also resist the temptation to weaken (or strengthen) the dollar to influence the balance of trade.