To the Tea Party, the Export-Import Bank represents corporate welfare run amok. To Duke Manufacturing, an 89-year-old manufacturer on North Broadway in St. Louis, it’s just a program that makes exporting easier.
Duke makes restaurant equipment, and its customers include Subway and Burger King franchises around the world. It can land more sales by offering easier payment terms, but it doesn’t want to risk having to collect a bad debt in a country where courts may not be friendly to foreign creditors.
That’s where the Ex-Im Bank, a little-known federal agency that’s suddenly at the center of a political firestorm in Washington, comes in. Duke pays the Ex-Im Bank to insure its accounts receivable, allowing the St. Louis company to make foreign sales without asking for cash up front.
Jeff Strobach, Duke’s global business development director, doesn’t consider that corporate welfare.
“We are seeing no subsidy,” he said. “We pay a fee, and they are making money off of our business.”
Duke could buy private insurance to cover some of its risk, but Strobach says the Ex-Im Bank operates in some countries where private firms don’t. Besides, he says, the Ex-Im Bank is relatively easy to deal with and offers favorable terms.
“Right now, the Ex-Im Bank is working well for us,” Strobach says.
That may not be true for much longer. The Ex-Im Bank’s charter expires Sept. 30, and several prominent Republicans in the House want to kill it.
Kevin McCarthy, the new House majority leader, came out against reauthorization this month, creating doubt about whether a coalition of Democrats and pro-business Republicans will be able to save the bank.
Big exporters such as Boeing and Caterpillar account for the vast majority of the credit that Ex-Im Bank extends, but 90 percent of its transactions are with small companies such as Duke. The agency says it helped in 3,413 small-business export sales last year.
Caroline Freund, a senior fellow at the Peterson Institute for International Economics, says keeping the Ex-Im Bank should be a no-brainer. Most nations provide trade financing to their companies, and she believes the U.S. would be foolish to unilaterally disarm.
“That would make our competitors more competitive,” Freund said. “That’s going to hurt U.S. exporters and U.S. jobs.”
You can’t make a fiscal argument for killing the Ex-Im Bank: It earned a billion-dollar profit for taxpayers last year. Nor is it crony capitalism: Strobach says the bank requires extensive paperwork, “and from my experience, there wasn’t really any opportunity for abuse.”
Ex-Im Bank’s default rate is less than a quarter of a percent, roughly the same as the whole banking industry reports for its commercial and real estate loans.
Freund says she would buy the corporate welfare argument if we lived in a perfect world, but we don’t. Airbus gets export financing from European governments, and Boeing will lose business if it can’t offer something similar. Small businesses face equally well-financed competition.
“This is such an odd target for people to focus on,” Freund says.
If Republican reformers really want to eliminate corporate welfare, they should go after agriculture or energy subsidies.
Alas, those are defended by extremely powerful lobbyists, so the Tea Party is aiming its anger at an 80-year-old agency that most Americans have never heard of. When you are mad as hell at big government, apparently inflicting collateral damage on small business is no big deal.