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The Export-Import Bank of the United States (Ex-Im Bank) was established in the 1930’s to ensure that there would always be a source of competitive export financing to support U.S. manufacturers when they wanted to export their products around the world, especially capital goods that are critical to infrastructure growth globally.
As Emerging Markets like China, India and South-East Asia, Sub-Saharan Africa, Brazil, Chile and Central and South America, Southern and Eastern Europe, the oil-rich Middle East and the Central Asian States all seek to improve the lives of their citizens, the importance of an Ex-Im Bank has proven so valuable that today there are more than 80 countries which have created such agencies to support their local manufacturers and exporters.
The 2008 Financial Crisis spurred on the creation and expansion of the mandates of many of these export credit agencies (ECAs) as commercial banks long experienced in export finance essentially ceased participating in long-term capital goods sales or financing project finance transactions. Driven by stringent banking requirements and a higher cost of capital, the returns provided through trade and export finance do not warrant the capital commitment required.
The consequence is that exporting countries have turned to their ECAs as flexible sources of financing for their exporters, resulting in increased job growth while generating hundreds of millions in profit from the ECA financing.
The result of this evolution is that success in exporting manufactured equipment is now as much about the competiveness and availability of the export financing as about the quality of the export itself.
In 2009 through 2014, the U.S. Ex-Im Bank provided export credit financing that enabled the sale of more than $200 billion in U.S. exports, supporting over 1.3 million private-sector American jobs, including 164,000 jobs in FY 2014, the last year the Bank was fully open.
In that year, Ex-Im Bank financed the sale of $27.5 billion in exports through more than 3,700 transactions, including nearly $16.6 billion in manufacturing exports. But, moreover, in FY 2014, nearly 90 percent of Ex-Im Bank’s transactions—more than 3,340—directly supported American small businesses. A number that does not include the vast number of small businesses benefiting indirectly as part of the supply chain of Ex-Im Bank’s small, mid-market and larger customers.
Also in that year, as has been the case now for decades, Ex-Im Bank operations did not cost the taxpayer a penny. In fact, due to fees and interest, Ex-Im Bank generated $675 million, which was returned to the Treasury at year-end. Over the last two decades, the Bank has wired $6.9 billion to the U.S. Treasury to support deficit reduction.
In 2015, the Congress failed to reauthorize the Bank, shutting it down completely on June 30, 2015 until its reauthorization was finally approved in December of that year. Since that time, the Senate has failed to ensure a functioning Bank Board, which, among other things, is required to approve any transaction greater than $10 million.
So, while the hobbled Bank has managed to support small and mid-market exporters, it currently cannot finance larger transactions, with the consequence that more than $20 billion in exports is currently in jeopardy, with several billion in additional exports likely lost because of the impaired position of the Bank.
Some have argued that tax reform can address the exporters needs but that thinking fails to recognize the reality that competitive export financing is needed at the time of sale, or the buyer will go elsewhere.
To support the jobs that can be generated through exports, the new Administration needs to nominate new Ex-Im Bank leadership and Bank Board members to enable the Ex-Im Bank to again become fully operational.