Trump’s Disappointing Flip-Flop on the Export-Import Bank

By Diane Katz, Research Fellow in Regulatory Policy at the Heritage Foundation

President Donald Trump has apparently changed his mind about eliminating the crony Export-Import Bank, opting to “reform” the swamp rather than drain it.

As bad as this flip-flop is, his excuses for doing so are downright pitiful.

As a candidate in August 2015, Trump categorized the bank as “feather bedding,” adding, “I don’t like it. I think it’s a lot of excess baggage. I think it’s unnecessary. And when you think about free enterprise, it’s really not free enterprise.”

He was right, of course, but that was then.

On Friday, the president announced his intention to nominate former New Jersey Rep. Scott Garrett as bank president and former Rep. Spencer T. Bachus III to the Ex-Im board.

If the two are confirmed, the bank will return to full operation after 21 months without a board quorum—which prohibited deals exceeding $10 million.

And that means billions of taxpayer dollars to foreign firms and foreign governments with which to purchase exports from favored multinational companies such as Boeing, General Electric, and Caterpillar.

The best course of action would be to eliminate the bank altogether. There is no shortage of private export financing, and the subsidies distort credit and labor markets.

Perhaps worst of all, unsubsidized American companies are placed at a competitive disadvantage compared to the foreign firms collecting Ex-Im subsidies. (Delta, for example, loses out when Air India gets a sweetheart deal from Boeing by way of Ex-Im.)

A Meritless Flip-Flop

The White House is making much of the fact that Garrett has been a critic of Ex-Im, twice voting against renewal of the bank charter. That supposedly portends reform, although Congress has previously tried to do so without appreciable effect.

No amount of bureaucratic tinkering can shield taxpayers from bailouts in the event that bank reserves run dry—as occurred in the 1980s—nor protect American businesses from the disadvantages of the U.S. government subsidizing their foreign competitors.

In an April 12 interview with The Wall Street Journal, Trump acknowledged that he had been “very much opposed” to the bank but changed his mind because “lots of small companies will really be helped.

“But also maybe more importantly,” he said, “other countries give it, and … we lose a tremendous amount of business.” He also added, “So instinctively you would say it’s a ridiculous thing but actually it’s a very good thing and it actually makes money. You know, it actually could make a lot of money.”

All of which is nonsense.

Bank proponents focus on small firms to deflect attention from the fact that the vast majority of Ex-Im beneficiaries are titans of industry that are well-positioned to prosper without Ex-Im subsidies.

They do not lack access to private capital, and most have billions of dollars of backorders with which to keep production going.

In recent years, the bank supported less than half of 1 percent of small businesses—which in many cases aren’t so small.

(The bank’s definition of “small business” includes manufacturers with as many as 1,500 employees and service firms and retailers with as much as $20.5 million in annual revenues.)

On their own, businesses with fewer than 500 employees account for 98 percent of all firms exporting goods, and exports have reached high levels in recent years. In fiscal year 2016, for example, U.S. exports totaled $2.2 trillion, with Ex-Im supporting just 0.22 percent ($5 billion).

That makes one thing very clear: Export financing obviously is not a problem for small firms in the aggregate.

This is further validated by the fact that small businesses ranked “Exporting My Products/Services” as the least problematic of 75 business problems assessed in the 2016 annual survey by the National Federation of Independent Business Research Foundation.

(The cost of health care ranked as the most severe problem. The president would do well to focus on that rather than resuscitate Ex-Im.)

In the event that a small business cannot access private capital, it can seek to export through wholesalers or associate its business operations with larger firms or with global supply chains.

The real beneficiaries are the big boys like Boeing (market cap $110 billion), and the extent to which the bank caters to the company is staggering.

As of March 2014, at least 28 percent ($32 billion) of Ex-Im’s total portfolio was devoted to financing wide-body jets. In 2013, the bank authorized financing for the purchase of Boeing aircraft in 25 countries, including China, Russia, and the United Arab Emirates.

Subsidies for air transport, in general, comprised more than 45 percent of all export subsidies that year.

General Electric (market cap $256 billion) is another top Ex-Im beneficiary. The company began 2017 with a record backlog of $321 billion. Likewise, Caterpillar (market cap $54 billion) posted a backlog of $12 billion at the end of 2016.

Ex-Im Doesn’t ‘Level the Playing Field’

The claim that U.S. companies will lose sales to foreign competitors without Ex-Im financing is also drivel.

Economist Veronique de Rugy of the Mercatus Center has documented that only about a third of Ex-Im financing—which benefits just 2 percent of all U.S. exports—is designated in bank records as necessary to counter subsidized foreign competition.

A whopping 66 percent of the financing classified as necessary to counteract foreign competition went to Boeing.

In other words, Ex-Im Bank financing counteracts foreign subsidies for less than 1 percent of U.S. exports—with more than half the benefit accruing to Boeing.

Finance costs are only one among a variety of factors that affect a purchaser’s choice of supplier. Availability, reliability, and stability all play significant parts in purchase decisions. There should be no question that U.S. firms are capable of competing successfully without corporate welfare.

The claim of “competitive disadvantage” is further belied by the agreement among 31 member countries of the Organization for Economic Cooperation and Development to abide by a set of financing rules covering loan term limits, minimum fees, and other practices.

There is rarely such a thing as a “level playing field” in trade. Every country has advantages that others lack.

The ingenuity and drive of American companies can, in many instances, trump the export subsidies doled out by foreign governments—assuming, of course, that tax and regulatory barriers do not further restrict free enterprise.

It is silly for Ex-Im advocates to cite China’s massive subsidies as proof that Ex-Im is necessary. Do they really want America to emulate a country in which all the largest enterprises are owned by the state?

As reported in The Wall Street Journal, almost 14 percent of China’s listed, nonfinancial companies’ profits are attributable to government support, according to an analysis by Wind Info.

And let’s not forget that Trump campaigned on challenging China’s trade practices. He cannot now claim with any credibility that we must match its subsidies to stay competitive.

An Anti-Market Institution

Perhaps most disappointing, though, is the president’s defense of Ex-Im based on its potential to “make money.” That statement, out of all his others, insults the very concept of free enterprise and limited government.

By that rationale, Washington should assume control of all profitable companies to feed its insatiable appetite for spending.

In any event, the claim that Ex-Im is profitable is illusory: The bank uses “accrual” accounting, which does not factor in the risk of defaults related to bank financing.

For example, under current accounting methods, bank officials claim that Ex-Im will return a $14 billion surplus to taxpayers in the next decade.

But the Congressional Budget Office reported in 2014 that Ex–Im programs, if subjected to the fair value accounting methods required of private banks, actually operate at a deficit that will cost taxpayers some $2 billion over 10 years (in addition to the bank’s operating costs).

Ex-Im advocates offer myriad excuses for maintaining government interference in export financing, including job creation, gaps in private investment, and government subsidies lavished on foreign firms.

Such justifications do not stand up to the facts, and the purported benefits—if any—are not commensurate with the risk to taxpayers.

The president has made a huge mistake on Ex-Im, but it isn’t too late for him to change direction—back to where he was in the first place.

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Washington — Last week, interim House Budget Chairwoman Diane Black (R-TN) 85% told reporters in Philadelphia to “expect that (Obamacare repeal) probably toward the latter part of February, or the first part of March.” Her comments came as congressional Republicans first self-imposed deadline passed. Senate Majority Leader Mitch McConnell (R-KY)…


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By Beverly Hallberg,  President of District Media Group It’s no secret that conservatives love numbers. Numbers are often cited as reasons one, two, and three to change an existing law or introduce a new initiative. Numbers matter. Numbers should be used to defend whatever policy position you take. But Americans don’t…


Did Obamacare Really Insure 20 Million?

The real numbers are much lower than liberals are claiming.…


Congressional Delay Threatens Obamacare Repeal

By James Wallner, Group Vice President for Research at The Heritage Foundation The effort to repeal Obamacare may be headed in the wrong direction. That it could be so was unthinkable just a few short weeks ago when the GOP triumphantly returned to our nation’s capital with majorities in the…


CFPB’s Regulation of Auto Lenders Ripe With Abuse

Last week, the House Committee on Financial Services released the third in its series of reports outlining a string of missteps by the Consumer Financial Protection Bureau’s (CFPB) regulation of auto-lenders. After the recent Circuit Court’s ruling declaring the structure of the CFPB unconstitutional and congressional pressure to fire Director Richard Cordray, the state of the…


Trump Wants to Slash Regulations by 75%. Here’s How Regulatory Reform Could Boost US.

By Diane Katz, Research Fellow in Regulatory Policy at the Heritage Foundation During a White House meeting with business leaders on Monday, President Donald Trump pledged to slash regulations by at least 75 percent. Activists were positively apoplectic, of course, and media ridicule was swift. But exaggerated as the comment…


Popular NY Restaurant Shuts Its Doors, Blames ‘Suffocating’ Government Regulations

By Chris White, Reporter for The Daily Caller News Foundation A popular New York City restaurant is closing its doors after 25 years because of what the owners call a stifling regulatory environment that treats the restaurant as a “cash machine.” China Fun, a Chinese restaurant in Manhattan, announced its Jan.…


The CFPB is in the Crosshairs, Exactly Where it Belongs

By Norbert Michel, Heritage Foundation Financial Regulations Expert The Consumer Financial Protection Bureau (CFPB) has been one of the most controversial components of the 2010 Dodd-Frank Act.  It has issued contentious rules, tortured data to make other rules, engaged in an extravagant spending spree, and even found itself blasted by the Government Accountability…


5 things Steven Mnuchin should do in his First 100 days as Treasury Secretary

Undoing the damage of the Obama administration is going to be a massive undertaking.…


New Small Businesses Face $83,019.23 Regulatory Cost in First Year Alone

By Gloria Taylor The National Association of Small Business released the results of their Small Business Regulations Survey this week. The survey confirms that out of control federal regulation has crippled the ability of small business to create jobs and contribute to economic growth. The report confirms the unbelievable regulatory…


Full Repeal: The Insurance Mandates Need to Go

By Gloria Taylor Last week, both the House and Senate took the first step toward fully repealing Obamacare. Each chamber passed a budget resolution with instructions for the relevant committees to begin writing the budget reconciliation repeal bill. This process, called budget reconciliation, allows Obamacare repeal to pass with a…


Business Owner Legislative Strategy Call 01/18/17

Yesterday, conservatives working in the business community all came together for a our Monthly Legislative Strategy Call. During the call, we discussed the current Congressional efforts to repeal Obamacare through budget reconciliation and efforts to repeal the Obamacare of the financial industry - Dodd Frank. If you were unable to…


What Comes After Repeal? How to Fix American Health Care, Part 2

By Heritage Foundation President Jim DeMint Thursday, I laid out the case for why Obamacare should be repealed, instead of propped up and tinkered on by additional top-down, boardroom thinking. It’s clear that whatever replaces Obamacare must focus on quality and incremental local solutions, not one-size-fits-all government mandates. In this…


“Yes” On Obamacare Repeal Budget Resolution (S. Con. Res. 3)

On Friday, the House will consider a concurrent resolution (S. CON. RES. 3). While the resolution will technically set the congressional budget for the United States Government for the remaining eight months of fiscal year 2017, its only functional purpose will be to produce reconciliation instructions that unlock fast track…


Conservative Senators Call on Trump to Fire King Richard Cordray

Earlier this week, Senators Mike Lee (R-UT) and Ben Sasse (R-NE) called on President-elect Donald J. Trump to remove the director of the Consumer Financial Protection Bureau (CFPB) – Richard Cordray – from office. In a letter written to Vice-President-elect Mike Pence, Senator Lee and Sasse cite the regulatory burden…


What Economic Recovery? 95 Million Americans Out of the Labor Force

By Gloria Taylor In the remaining weeks of his Presidency, Obama has been quick to tout his economic legacy. Yet the last job report of this administration highlights what we’ve seen the past eight years--lackluster economic growth. After the slowest economic recovery since the Great Depression, millions of Americans are…


Repeal the Durbin Amendment: Restore the Rule of Law

By Norbert Michel, Heritage Foundation Financial Regulations Expert Consumers started relying on plastic cards instead of checks to make their purchases back in the 1980s. Almost immediately, retailers started fighting with card network companies and the banks that issue cards.  The problem centered on high credit card fees. Retailers charged that the…


Why the Repeal of Obamacare Must Come Before Replace

President Obama met with Democrats this week in a last ditch effort to save his signature healthcare law. But instead of working on a strategy to help Republicans repeal and then replace Obamacare with reforms that would expand choice, improve care and lower costs, Democrats came up with a new…


Congress Should Repeal the Death Tax

This Wednesday, Rep. Mac Thornberry (R-TX) introduced legislation to fully repeal the federal estate and gift tax named the Death Tax Repeal Act (H.R. 198). A similar bill previously passed the House of Representatives in 2015 but never received a vote in the Senate. The current death tax rate is…


REINS Act Will Check Executive Overreach, Restore Constitutional Balance

By Rep. Doug Collins (R-GA) As a new Congress begins, Republicans have made it clear that regulatory reform is a priority that puts the interest of all Americans first, especially concerning the economy. It’s been said that sometimes government rules “have gotten out of balance, placing unreasonable burdens on business—burdens that…


Freedom Caucus Releases List of Regulations for Trump to Gut

By Gloria Taylor Last month, the House Freedom Caucus dropped a new report outlining 228 rules and regulations for the Trump Administration to tackle in its first 100 days. President-elect Trump championed cutting regulations and rescinding executive orders on the campaign trail and now has the opportunity with a unified…


How to Improve the Replacement Plan for Dodd-Frank under President Trump

In 2016, Chairman Jeb Hensarling (R-TX) successfully passed his Dodd-Frank replacement bill out of the House Financial Services Committee. Named the Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs Act (H.R. 5983), Financial CHOICE Act for short, the passage of this bill out of committee was a significant first…


6 Political New Year’s Resolutions You Should Make

By Sondra Clark, Digital Director of Heritage Action As the calendar year ends, minds quickly turn to losing weight, eating healthy, saving money, and spending more time with family. But just as 2016 caused us to rethink politics, it’s time to rethink this year’s New Year’s resolutions. The voice of the…


Obamacare Repeal Must Be on Day One: Congress Has No Excuses

By Heritage Foundation President Jim DeMint In less than three weeks’ time, when Donald Trump becomes our next president, he will take an oath to preserve, protect, and defend the Constitution of the United States. It is fitting, then, that Trump has committed to repealing and replacing one of his…


Here’s How Low-Income Americans Feel About the Obama Administration’s New Lending Regulations

By Kelsey Harkness, senior news producer at the Daily Signal In order to crack down on what’s known as “predatory lenders,” the Obama administration proposed new rules that require short-term lenders to ensure customers have the ability to repay their loans. In requiring lenders to assess their financial background—including…


Supreme Court Refuses to Hear Challenge to Colorado’s Internet Sales Tax

Last Monday, the U.S. Supreme Court declined to hear a challenge to a Colorado state law forcing out-of-state retailers to report their customer’s purchases to state tax collectors. While the law does not directly force retailers without a physical location in the state to collect Colorado sales tax, it does…


Why Congress Should Fully Repeal Obamacare through Budget Reconciliation

Since Obamacare was first signed into law in 2010, Republicans promised to repeal it, campaigned in Senate and House races to repeal it, and voted over 60 times to repeal parts or all of President Obama’s failed healthcare law. Earlier this year, President Obama vetoed an Obamacare repeal bill (H.R.…

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