Banking on exports
Congressional defeat of a Reagan administration plan to slash funding for the US Export-Import Bank raises anew the urgent need for the major Western industrial nations to seek international controls on export policies. US lawmakers have wisely decided not to curb the federal financial outlay to Eximbank so long as America's trading partners lavishly subsidize their own exports.
Export subsidies are not the way to go about expanding international trade. They distort the free-market mechanism, work to the unfair disadvantage of efficient firms that happen to be in nations that do not subsidize exports, and are costly to the public. In the case of the US, although Eximbank loans often enable developing nations to purchase goods that they might not otherwise be able to buy, some of the export "costs" involved come out of the pocketbooks of taxpayers rather than out of the profits of the manufacturer. Take interest charges. According to a congressional budget office study, US taxpayers pay between $200 million and $900 million annually in extra interest charges because of Eximbank's impact on capital markets.
Set up back in 1945, the Eximbank is designed to increase US exports by making medium- and long-term low-interest loans to overseas buyers. Arguing that the US business community must share in budget cuts, the Reagan administration sought to trim Eximbank's direct loan level for fiscal year 1981 by some $752 million, bringing the total authorization to a still formidable $5. 148 billion. The administration also sought to reduce the loan "guarantee" level by $1 billion, bringing the guarantee level to $7.559 billion.
After lobbying by firms that use Eximbank financing, Congress last week turned thumbs down on the cuts.
Whether Eximbank financing does in fact substantially bolster US sales abroad has been debated now for years. Supporters insist such loans are essential. However, most of the bank's loans tend to support a handful of giant firms that one might rather imagine already enjoy adequate credit lines from commercial banks. Last year, for example, two-thirds of Export-Import loans involved seven companies: Boeing, General Electric, Westinghouse, McDonnell Douglas, Lockheed, Western Electric, and Combustion Engineering. The average interest rate on most direct loans was a low 8.5 percent. Let a small firm try and get thatm at a neighborhood bank.
Supporters of the bank point out that Eximbank loans support one-fifth of all US manufactured goods sold abroad. Virtually all major industrial nations have somewhat similar export-financing arrangements, which in some cases support an even higher percentage of exports. Competition between nations over loan terms has become fierce during recent months, often making the difference as to which product is sold and by which nation. France, for example, has lent money at rates 2 percent to 3 percent below the lowest US rate.
Under a fairer and more rational free-market system, the US and other industrial nations would bar loans at less than domestic rates, or below that of the average cost of money for most industrial nations. France, however, has repeatedly balked at such requests, and other industrial nations have also expressed reluctance at imposing a base.
For the time being, therefore, the US would probably best be served by continuing full funding for the Eximbank. Otherwise American exporters are at a disadvantage in the world competition for such big-ticket items as commercial planes. Also, for the US to cut back Exim funding at this time would be to take away whatever "bargaining chip" America now has in seeking an international agreement. If the US unilaterally scrapped its subsidy program, firms would merely shift production overseas and seek export subsidies from their host government. That would mean the loss of US jobs.
In the long run, then, a twofold approach seems in order. First, the administration and Congress must undertake a careful review of the actual contribution of the Eximbank to US trade. What, without an international agreement, would be the impact upon the US economy if Exim were to be sharply reduced in scope or abolished?
Second, the White House, through the highest levels of the State Department and Treasury, should bring maximum pressure to bear on the trading nations of the West to sit down and finally work out an international accord on reducing government subsidies -- which grant some firms unfair advantage, dilute the pressure to be competitive in the world market, and make the public bear the cost.