As flashpoint issues go, the Export-Import Bank is an unlikely candidate. And yet, here we are.
Called Ex-Im for short, the agency provides financial assistance to United States exporters and their customers abroad, though critics argue Ex-Im is prone to corruption and cronyism. Unlike most other agencies, Congress has to periodically renew Ex-Im’s charter or it will shut down. The House is voting this week on a bill from Rep. Maxine Waters to reauthorize Ex-Im for 10 years, though Senate Majority Leader Mitch McConnell will not act on the bill in the Senate. Meanwhile, the agency is living on borrowed time under the continuing resolution that expires on Nov. 21.
The Waters bill contains no reforms and would actively make the agency worse and less accountable. A Senate bill sponsored by Sens. Kyrsten Sinema and Kevin Cramer suffers similar problems. Meanwhile, the Trump administration is pushing for a “clean” 10-year reauthorization that, while it doesn’t add new problems like the Waters and Sinema-Cramer bills do, it doesn’t solve any of Ex-Im’s cronyism problems, either.
Last time around, in 2014, Ex-Im’s authorization lapsed for the better part of a year after Congress declined to renew it. Even after reauthorization eventually passed in 2015, the agency was unable to perform transactions larger than $10 million, normally roughly five-sixths of its business. Expired board member terms during the lapse left Ex-Im shy of the needed three-member quorum to approve such transactions. The Senate refused to confirm replacements until May 2019.
During this period of reduced activity, annual U.S. exports increased by $128 billion. Boeing, which alone often accounted for half of Ex-Im’s business in most years, enjoyed record profits. Its CEO publicly told shareholders it had no problem finding private financing that normally would have been provided by Ex-Im. According to the Mercatus Center’s Veronique de Rugy, China was the largest foreign destination for Ex-Im financing in 2014, Ex-Im’s most recent year at full capacity. The single largest state-owned beneficiary was China Air. Ex-Im clearly cuts against President Trump’s China policy goals, but he still favors reauthorization.
Ex-Im has no visible effect on the economy but has resulted in dozens of corruption allegations, while mostly benefiting a top-ten list of companies that do not need the help, such as Caterpillar and John Deere. It should be shut down. Since Ex-Im will instead almost certainly be reauthorized, the relevant battleground is now over second-best reforms. The Waters and Sinema-Cramer bills would reauthorize Ex-Im for a decade, more than double the usual interval. Two years would be better, so each session of Congress would have a chance to weigh in on Ex-Im’s performance.
The bills would also raise Ex-Im’s portfolio limit to $175 billion, up from $140 billion. It should instead be set at most to $60 billion, roughly in line with Ex-Im’s current portfolio size.
Most importantly, the bills would essentially remove Ex-Im’s quorum requirement for approving transactions over $10 million. Ex-Im’s board is Senate-appointed, making it one of the few available democratic checks on agency abuses. Taking away this accountability would give more power to an executive branch that already has too much, something Democrats should consider in the age of Trump and something Republicans should consider for when power eventually changes hands.
The bills would put more than $200 billion of additional taxpayer dollars at risk over the next decade, despite a significant risk of recession in the next few years. Precisely because Ex-Im should be closed, there is a real possibility its reauthorization will be folded into a must-pass spending bill, rather than put to a stand-alone vote. This should not be allowed to happen.
Regardless of how this reauthorization battle turns out, the last five years have already been a significant victory for reformers. The Nobel-winning economist Ronald Coase once wrote, “An economist who, by his efforts, is able to postpone by a week a government program which wastes $100 million a year (which I would call a modest success) has, by his action, earned his salary for the whole of his life.” Over the period from 2014 to 2018, Ex-Im’s reduced activity spared taxpayers from nearly $48 billion of risk exposure, or nearly $12 billion per year. Ex-Im’s total portfolio decreased by $52 billion, or an average of $13 billion per year. This is more than a modest success.
Due to Ex-Im’s reauthorization requirement, reformers will have another opportunity in a few years — a lesson in institutional design that should be applied to other agencies.
Originally published at The Washington Examiner.