Politics of Exports

61ae8-exim-bank1Yesterday’s WSJ article titled“Exporters Fear Credit Crunch” (reprinted here in a previous post) once again highlighted the debate on Ex-Im’s reauthorization and listed the pro and con issues from both sides of the political isle. As half of my immediate family is involved in financing international trade, the topic of the Bank’s reauthorization is ever present around our dinner table. Yesterday, we once again raised the question of why would a respected member of the US Congress so blatantly oppose  a proven export finance tool, which contributes real money to the US Treasury and supports countless jobs?

The answer is – because he can and because Ex-Im is an easy target for partisan politics. Export Import Bank of The United States (US Ex-Im, Ex-im) is one of the smallest agencies of the US Government, but one which has disproportionately high visibility. Certainly restructuring half a floor at the Department of Commerce (which probably employes about the same number of folks as the entire Ex-Im Bank)  would not garner the Good Congressman from Texas the same publicity and power. By blocking the reauthorization, Congressman Hensarling and his allies are able to deliver effective blows to the Presidential Administration and to the Bank’s leadership. Yet the hardest blow their efforts deliver are to the US economy.

I generally believe in government minimizing its involvement in business regulation and personally try to stay out of politics.  Yet it is not always possible, as politics and business are often intertwined and business is negatively impacted by actions such as those of the Good Senator and his supporters.  My sympathies certainly do not lie with the current Administration, whose list of missteps, fumbles and incompetencies is quite long. I did applaud the President’s National Export Initiative until it sort of sputtered, along with subsequent reset attempts. Yet given the phenomenal importance of exports to our (or for that matter to any) economy, it is gross malpractice for any politician(elected, or otherwise) to undermine exports, reduce their economic effect and interfere with the lives of real people who make those exports happen.

Let’s put some things in perspective. USA exports roughly $2.3 Trillion of goods and services annually. Of that amount, US Ex-Im Bank finances about $25 Billion annually, only slightly more than one percent of the total. Seemingly doing away with the Bank will not be a huge loss to the American economy.  Since some of the exporters dropped by Ex-Im would find financing in the private sector, net-net US will probably lose less than one percent of its exports. Not a big deal? Consider that just slightly under $5 billion of the exports financed by the US Ex-Im are financing small businesses just like companies mentioned in the WSJ article. Those companies represent tens of thousands of jobs, which would be lost, or not gained if Ex-Im were to close.

They call Ex-Im “the Bank of Boeing”.  TRUE.  That company is the biggest recipient of Ex-Im financing, but how many small businesses in its supply chain benefit from the aircrafts sold on the world markets, how many jobs are created in post sales service and support – hundreds of thousands. Politically, US image benefits when Boeing Airplanes and other American brands are seen around the world. Ex-Im is a large contributor to that global image building process.  If we close Ex-Im, European credit agencies financing Airbus planes will get an advantage and more Airbus planes will be sold in the world giving a financial and political edge to our European allies. “Better than going to China or Russia” some may say, but “better” is not enough to put food on the dinner table for a family of four in South Carolina, whose breadwinner has been laid off due to loss of international orders.

My experience working with Ex-Im Bank goes back over a decade, I have seen a lot of things at this Agency, which could use improvement and even structural change. Yet in the realm of Federal Government Agencies, Ex-Im is pound for pound among the most effective. Its 400 employees returned over $600 million into the US treasury, That is over $ 1.5 million PER employee, and is equivalent to productivity of many solidly performing companies of the private sector, and that is in the world where deficit, consumption and spending rule. Yet, Congressman Hensarling wants to close this small and profitable Agency down, WHY?  As part of reauthorization compromise, some in Congress want to saddle Ex-Im with new reserve requirements to cushion possible future defaults. Yet, high default rates have not been a problem at Ex-Im, whose rate of default is comparable with that of large commercial lenders taking similar risk. If anything, the bank has been too conservative in its underwriting. Problem with personnel turnover, yes, problem with defaults, not at all. I could and will make a case that because of the uncertainty in reauthorization Ex-Im has lost some of its best people over the last year. More senior people with decades of experience left in the last 12 months than in the previous five years combined.

It is ironic that the labor unions – one of the groups that benefited greatly from Ex-Im’s financing have also been behind the effort to dismantle Ex-Im. When Delta Airlines, bloated with uncompetitive and overpriced labor force, tried to block foreign sales of US made airplanes financed by Ex-Im, the Airline resorted to using political pressure to try and wreck exportamericanflagEagle financing and destroy jobs of people at companies that could compete and deliver economic gain to the US. The absurdity of the situation cannot be understated. It is another example of politics undermining exports.

Of course, there are certainly positive effects of politics on exports. Chief among them are various trade partnerships and free trade agreements. When they work, these agreements are magical and provide fantastic economic benefits to US producers and exporters. Yet those agreements take years to negotiate and ratify, causing lost revenue and loss of competitive position in many markets where other countries outmaneuver US and pass their own agreements quicker. Thus rather than destroying a good and solidly performing Export Credit Agency, which benefits many thousands of people throughout the US, Congressman Hensarling and his colleagues should focus on making sure PTTs are negotiated and ratified faster, so US can produce and export more.

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

4 Responses to Politics of Exports

  1. roblevin1 says:

    Let’s not forget that other countries are subsidizing exports.

  2. Clem Miller says:

    Alex, your points are all good ones, but I would point out that Jeb Hensarling is a Representative, not a Senator. His influence derives not from Senatorial prerogatives such as the filibuster but from his chairmanship of the House committee overseeing Ex-Im.

    • Clem, you are absolutely correct and I agree with yo that Congressman Hensarling is abusing his Chairmanship, but he is representative of all political forces in the Senate and the House that meddle in the reauthorization process

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