Tea Party conservatives claimed a major victory over crony capitalism when Congress failed to reauthorize the Export-Import Bank. Now, we’re starting to learn the cost of that victory.
The lack of Ex-Im Bank financing has already cost Boeing a couple of satellite sales, and last week a South African airline threatened to cancel a $1.1 billion airplane order. General Electric, meanwhile, is moving jobs to countries that will still finance exports of its gas engines and turbines.
The Tea Party folks argued that private-sector banks would fill the void after the Ex-Im Bank’s lending authority lapsed on July 1. That might happen in an ideal world, but in the real world we’re competing with other governments that are happy to finance their exporters.
Therefore GE’s engines are more profitable when made in Canada instead of Wisconsin, where 350 workers will lose their jobs. GE also will shift 500 jobs away from Maine, New York, South Carolina and Texas, because its turbines are easier to sell if they’re made in France, China and Hungary.
Similarly, Boeing’s South African customer, Comair, knows it could get a better financing deal if it buys planes from Airbus.
“Some specific sectors and industries are really going to be hurt by this,” says Caroline Freund, a senior fellow at the Peterson Institute for International Economics. “And for some small businesses, any exports they do really need the Ex-Im Bank.”
Although Boeing is by far the biggest user of Ex-Im Bank loans, 90 percent of the agency’s transactions were with small companies. Semi-Bulk Systems, a Fenton maker of systems for processing dry and bulk materials, was one of them.
Al Moresi, Semi-Bulk’s controller, said the company hasn’t had any export transactions since July. “It will be problematic if they never approve the Ex-Im Bank again, because we would have to go to somebody who charges higher fees,” he said.
Even companies that don’t deal directly with the Ex-Im Bank are concerned about its inability to lend.
“If Boeing does start to lose aircraft sales, we start to lose business,” said Dan Korte, chief executive of LMI Aerospace in St. Charles.
LMI supplies parts for Boeing airliners, and its 2,000 employees are part of the U.S. aerospace industry’s long and complex supply chain.
“We are only seeing the beginning of the issues related to this,” Korte said.
Freund says that even if exporters can find other sources of financing, they may not be as stable as the 81-year-old Ex-Im Bank. Private lenders can be fickle when a country or an industry experiences an economic downturn.
“If we hadn’t had Ex-Im Bank during the financial crisis, exports would have fallen much more than they did,” Freund said. “That’s the most important function they serve, as a countercyclical smoother.”
Of all the forms of corporate welfare in the federal budget — think about agricultural subsidies or tax breaks for energy producers — it seems odd that the small-government forces have singled out a small, obscure agency that doesn’t even add to the deficit. Last year, the Ex-Im Bank returned $675 million in profit to the Treasury.
This month may be critical to efforts to revive Ex-Im Bank. House Speaker John Boehner supports the export lender but his likely successor, Kevin McCarthy of California, does not.