STRS: Ex-Im Doesn’t Impose Hidden Costs On American Businesses

In testimony to the House Financial Services Committee, Cato Institute’s Daniel Ikenson claimed that Ex-Im creates hidden costs for American businesses and workers. However, Ikenson’s calculations are purely theoretical and when we look closer, don’t apply to the real world.

Below are factual counterpoints to the three types of costs Ikenson purports to exist. Don’t hesitate to reach out if I can be of further help.

Point: Ex-Im creates the “Opportunity Cost,” represented by the export growth that would have been obtained had Ex-Im’s resources been deployed in the private sector

Counterpoint: There’s no opportunity cost with Ex-Im financing because Ex-Im doesn’t divert capital away from better projects. If banks could lend elsewhere on better terms, they would. Ex-Im does not determine who banks lends to.

Point: Ex-Im creates “intra-industry costs” represented by the relative cost disadvantage imposed on the other U.S. firms in the same industry (the domestic competitors) as a result of Ex-Im’s subsidies to a particular firm in the industry.

Counterpoint: Ex-Im financing is available to all firms, big and small. In other words, all benefits experienced by one firm are equally available to another. And when competition for buyers is financing-agnostic, firms can compete on price and quality.

There is no artificial advantage created by Ex-Im and therefore no cost imposed on competing firms. This is an important facet of Ex-Im’s purpose – buyers and sellers seek Ex-Im after a deal is brokered, not the other way around. Ex-Im does not match buyers and sellers.

Point: Ex-Im creates “downstream industry costs,” represented by the relative cost disadvantage imposed on the U.S. competitors of the subsidized foreign customer.

Counterpoint:  Delta attempted to use this argument in court and a judge threw it out, saying,”The record therefore contradicts [Delta’s] presumption that the availability of Ex-Im Bank financing sways foreign airlines to purchase new aircraft they otherwise would not acquire, thereby causing an increase in competition with U.S. airlines that otherwise would not exist.  Rather, the availability of Bank financing — or the lack thereof — is more likely to affect only the secondary decision of whether to purchase aircraft from Boeing or Airbus when a specific need for new planes arises.”
More broadly, Ikenson’s reasoning misses an important point about why Ex-Im exists – if Ex-Im didn’t finance these transactions, another ECA would. When Ex-Im finances the sale of a U.S. aircraft to a foreign airline, it doesn’t disadvantage U.S. airlines because the same foreign airline could always receive similar terms from another ECA. So without Ex-Im, the level of U.S. competition stays the same, while support for U.S. companies and related jobs decreases.