Project 2025: Export-Import Bank (EXIM)
/[Let me lay all my cards on the table immediately: I didn’t even know this thing existed. But my inner nerd wanted to learn, so let’s get started.] We’ll start, as always, with the authors. Did you see that? Authors – plural! This is one of only two sections of Project 2025 that offers two opposing perspectives: EXIM should be abolished vs. EXIM should not be abolished. What fun! We’ll begin with the call to abolish EXIM, authored by Veronique de Rugy.
Part 1: EXIM Should be Abolished
About Author #1
The author, per Cato Institute, is a libertarian with a Ph.D. from the University of Paris-Sarbonne. Per Congress.gov, de Rugy is a senior research fellow at the Mercatus Center at George Mason University, and she has testified numerous times before Congress on the effects on the economy of fiscal stimulus, debt and deficits, and regulation. She was previously associated with the American Enterprise Institute, the Cato Institute, and the Atlas Economic Research Foundation. She also oversaw academic programs for the Institute for Humane Studies in Europe.
In a July 2024 article she authored, de Rugy commented on the “new right wing of the Republican Party...including... J.D. Vance... failing to understand that their economic policies would hurt, not help, the working class.” To become the “party of the people,” she explained, means “ending all subsidies, bailouts, tax breaks and other government-granted privileges to big corporations... Taxes are paid only by flesh-and-blood people... corporations don't really pay taxes... ‘At least we stuck it to the corporations!’ the politicians will say as workers tighten their belts another notch.’” Now let’s see what this author says about closing the Export-Import Bank.
Background
EXIM was “established in 1934 to provide export subsidies through tax-payer-backed financing to private exporting corporations [and] to foreign companies buying U.S. exports.” Its ostensible purpose was “promoting American exports, creating jobs, supporting small businesses, improving U.S. competitiveness, and protecting U.S. taxpayers.” She refers to EXIM as “a protectionist agency that picks winners and losers in the market by providing political privileges to firms that are already well-financed.” De Rugy claims that EXIM “risks taxpayer funds as it stymies economic growth.” She characterizes one of the most common mantras of Project 2025 – the need to squelch China – as “a misguided understanding of what competitiveness is and how it is achieved and maintained.” The author even quotes David Stockman, Director of the OMB under Reagan, writing in 1986: “Export subsidies are a mercantilist illusion, based on the illogical proposition that a nation can raise its employment and GNP by giving away its goods for less than what it costs to make them... [They] subtract from GNP and jobs, not expand them.”
Veronique de Rugy writes simply: “The bank should be abolished.” She advises us that EXIM was created “as an export credit agency (ECA) to finance trade with the Soviet Union.” It was to use four main tools: “loan guarantees, working capital guarantees, direct loans, and export-credit insurance.” The bank “became incapacitated,” de Rugy claims, in 2015. It lacked a quorum, couldn’t finance any project above $10 million, and ended “about 85% of the Bank’s financing obligations.” It hasn’t recovered, she says, referring to its “amount of financial exposure” and the risk it takes, “for which taxpayers are ultimately responsible.”
Claims vs. Facts
Here de Rugy offers extended analysis of several claims that she says are “not supported by the facts.” I will try to summarize each briefly:
This is actually “government-granted privilege,” we are told. Boeing gets 40% of the total loans authorized, and small businesses only 25%. On the foreign side, “subsidized financing ... benefits very large companies like Mexico’s Pemex, Ireland’s Ryanair, and Emirates Airlines.” She claims that “American businesses ...are put at a competitive disadvantage by their own government... forced to compete against both domestic and foreign businesses that enjoy access to subsidized loans.”
It “does not maintain or create jobs,” de Rugy explains, as jobs for the subsidized firm are “created through federal spending” and, simultaneously, that “funding for one industry or firm might take more jobs away from other industries and firms [for] a net job loss... most exports financed by EXIM would have taken place without government support... companies have said so.” It’s a redistribution of jobs from unsubsidized firms to subsidized firms.
It “does not promote exports.” It redistributes exporting opportunities, she explains, but does not increase the net number of exports. And, she says, “it slows economic growth.” Her analysis of the bank’s dark period without a quorum (2015-2019) concludes with, “economic growth is the best booster of U.S. exports and job creation...[it] does not depend on EXIM subsidies.”
“Subsidy-boosted exports do not boost economic growth.” De Rugy patiently explains why exports are actually “a cost to the economy,” asserting that “Exports promote U.S. economic growth only if the value of the resources used to produce them is less than the value of... imports in exchange for those exports.” Through these EXIM subsidies, she explains, our total export value is made larger just to obtain imports. She writes, “EXIM thus compels American taxpayers to subsidize foreigners’ standards of living at no appreciable benefit to the U.S.”
It “does not promote growth by leveling the playing field,” she says. The current analysis relies on the belief that EXIM must offset the financing provided by foreign governments to their exporters. The question is inaccurately framed, she explains, “as the amount of business that foreign ECAs are doing relative to EXIM.” She goes on to characterize it as “hand-to-hand subsidy combat between government banks.” She summarizes this false reasoning: “The implication is that ECA export financing improves the overall health of the export market and thereby fuels economic and job growth—which it does not do.” She then offers four specific examples:
Italy’s “hyperactive ECA,” which has “had little impact on ...economic growth or employment”
Germany’s “strong economic performance” has had little to do with the German ECA.
China’s “hyperactive ECA” backed only 2.1% of its exports in 2019.
When the US was noted for its “unusually low level of EXIM-backed exports,” it was a time when “the U.S. economy was thriving, wages and employment were up, and the country still had flourishing trade.”
The author concludes that “ECA financing is irrelevant to the overall health of the export market [or] to economic growth...consistent with what economists know about the impact of subsidies on economic growth.” She points out that “ECA-backed exports are never more than 4.7% of total,” and in 23 of 28 countries analyzed, “ECA financing is less than 2%” – making it “irrelevant to the overall health of the export market [or] to economic growth.” Two specific explanations follow:
“The Bank does not support small business... 10 large domestic corporations have received roughly 65% of [its] total assistance (...closer to 70% today). More than 99.9% of U.S. small businesses receive no benefits from EXIM,” even “amid a pandemic that hit small businesses especially hard, and it continues today.”
“The Bank is not a good deal for taxpayers.” The author cites deficient accounting practices, miscalculations, absolutely false claims, and unreliable reporting procedures. She says the Congressional Budget Office has found that EXIM “will actually cost taxpayers $2 billion.”
Failing to Meet the China Challenge
We are told that a claim that this will help fight China can get you pretty much anything these days, and she seems to accuse both Trump and Biden of playing that card. Then she asks: “how can EXIM help us to fight China while state-owned Chinese companies... have been some of the companies most subsidized by EXIM?” She explains, “If the Bank were serious about... China, it would be targeting the low-income markets where China has been making its most important investments... its obsession with other ECAs,” she says, “has caused EXIM to direct ... [the] majority of its funding to large foreign companies in higher-income nations [more than double that in low-income nations].” She then refers to “the semiconductor industry... a focal point for a governmentwide industrial policy effort to counter China’s ambition to dominate that industry... some want to become more like China to fight China.” But she explains that China’s “costly subsidies” are not yielding the results they want either. She says, “using EXIM as a weapon against China was a bad idea in the first place.”
And then her conclusion: “The Export–Import Bank should be abolished... it wastes taxpayer money, adversely affects American businesses, and does not promote economic growth effectively... Attempts to reorient the agency and make it a weapon... against China are going to fail. Economic fights and national security fights are not won with subsidies.”
Part 2: EXIM Should NOT be Abolished
Now we enter the rebuttal. Let’s first see who has done the writing.
About Author #2
Jennifer Hazelton, according to Pro Publica, was the communications director for the Trump campaign in Georgia, and, before that, a freelance writer. USAID (US Agency for International Development, a government entity) tells us she joined them in 2020 and serves as the Deputy Asst. Administrator of Public Affairs for strategic communications, external communications, intergovernmental affairs and social media efforts. USAID says Jennifer brought 15 years’ experience, including service “as the Senior Vice President of Communications and Marketing at the Export-Import Bank of the United States.” She was also a Capitol Hill communications professional for a congressman and had worked for CNN and Fox News.
It Began with Ronald Reagan...
So, how does Ms. Hazelton begin her EXIM story? She evokes Ronald Reagan, who opposed EXIM as a candidate but supported it as president. Apparently Reagan said, “’Why would I want our businesses competing with two hands tied behind their backs? ...Exports create and sustain jobs for millions of American workers and contribute to the growth and strength of the United States economy. The Export–Import Bank contributes in a significant way to our nation’s export sales.’” To that Hazelton replies, “exactly right.” She says EXIM lets Americans “vie for projects” otherwise out of reach because banks won’t accept the risk of financing them, a risk often associated with the “host country.”
Since Reagan extended the EXIM charter, she says, “a rising China has completely disrupted the export credit sector.” She gives five examples, which I will try to summarize: Back in the mid-80s, export credit financing was a “benign tool for economic expansion,” but now China has made it “a weapon of national security.” China has three ECAs as opposed to one for most nations. “It is estimated that in 2018, China provided more than $500 billion in export credit... the total amount of financing EXIM has provided in its 90-year history.” Hazelton claims that China’s export credit activity is “more than twice the size of the World Bank and International Monetary Fund combined,” and “greater than that... of the entire G7 combined.” Then she mentions China’s “highly aggressive Belt and Road Initiative,” which is a fascinating topic other Project 2025 authors have mentioned. She says it is “ensnaring the developing world in ‘debt-trap diplomacy,’” involving “about 150 countries.”
Now it’s all about China
The author explains that China plays by its own rules – and often changes the terms once the project is underway. Projects that become unaffordable “have yielded China important strategic plunder like mines and critical minerals, satellites, and even ports like those in Hambantota, Sri Lanka, and Mombasa, Kenya.” This is all part of China’s “whole-of-government approach to enhance its global power.” Only the US can counter that, Hazelton says, and, if we don’t, we face “an unchecked China with a wide-open field to claim jurisdiction over swaths of ocean and shipping lanes, expand its economic influence, and create major changes in the global balance of power.” Our allies, she says, are now “hunting proactively for transactions for their businesses and advancing their national strategic interests.” Government-backed financing is critical to foreign buyers seeking to build large international projects. US “content requirements” have remained constant while allies’ have been reduced. The author provides an example of a UK offer to Boeing and an Italian offer to General Electric.
Such behaviors have drawn manufacturing and jobs away from US soil, according to Hazelton, ultimately hurting small US businesses. This trend, she asserts, will reduce our role in world geopolitical affairs and lower our standard of living. Ms. Hazelton takes exception to the “Bank of Boeing” myth, reporting that it was “born in the wake of the 2008 financial crisis when the airline industry was particularly hard hit and private-sector financing was not available...to purchase Boeing aircraft.” She explains that EXIM’s portfolio is cyclical, changing as different industries rely on export credit financing as economic times change.
How EXIM Contributes
Hazelton gives five examples of the positive role EXIM plays:
EXIM borrowers pay the going interest rates.
All EXIM “applications are judged on the merits of the transactions.”
“EXIM has an exceptionally low default rate, historically... around 0.5%... the envy of private banking.”
In case of a default, “the ...taxpayer is paid back before any other lender.”
“Borrowers are loathe to default on the United States of America.
EXIM’s “ability to manage risk successfully,” she explains, “is why EXIM actually makes a profit for American taxpayers,” having added $9 billion+ for US debt reduction since 1992. However, we are told, “Other nations are using ECAs strategically to influence decisions and procure economic opportunities, hindering the participation of U.S. firms and costing American jobs, particularly in manufacturing.” We would be “foolish to abandon this field of play, surrendering it to China and other nations, and to relinquish EXIM as a powerful tool in America’s asymmetrical warfare toolbox,” Hazelton concludes.
And now that I have read and considered both positions on the Export–Import Bank, I am more confused than ever. I hope someone qualified to understand these things will offer helpful comments at the end or contact me to offer a guest article. (At least now I know EXIM exists, and I’ve been introduced to two sides of the story.)