It started in 1935 with a $3.8 million loan to Cuba for the purchase of U.S. silver ingots. That loan, backed by the U.S. government, was the beginning of the Export-Import Bank. Today, the bank helps finance export sales by thousands of U.S. manufacturers.
While it is little-known outside our nation’s capital, the Export-Import Bank is a linchpin of our economy. It provides direct loans, loan guarantees and insurance to help finance sales of U.S. goods and services overseas.
In 2011, the Export-Import Bank provided $32 billion in financing, supporting more than $41 billion in export sales from more than 3,600 U.S. companies. More than 85 percent of those transactions directly supported small business. Those exports, in turn, support approximately 290,000 export-related American jobs.
For example, financing from the Export-Import Bank is critical to the success of The Boeing Company. Beleaguered airlines around the world need to replace aging fleets with more fuel-efficient jetliners. Boeing is competing with manufacturers in Europe, Canada, Brazil and China to win those contracts, and in that highly competitive environment, financing options are important.
For our manufacturers, the Export-Import Bank is a vital link in U.S. export sales, and it is one government-backed program that is returning money to the U.S. Treasury — some $195 million last year and more than $3.4 billion in the last five years. It operates at no cost to the taxpayer.
But there’s a glitch. The Export-Import Bank is currently operating under an extension that expires on May 31. Congress must pass legislation to reauthorize the bank for the long term and substantially increase its lending authority. Absent congressional action, it will run out of funding ability, derailing pending sales of U.S. manufactured products and harming manufacturing companies of all sizes.
So what’s the problem?
While the bank is an important financing option for Boeing’s sales of commercial aircraft overseas, not all Boeing customers agree. According to Bloomberg news reports, Delta Airlines, for example, is party to a lawsuit filed by the Air Transport Association charging that the bank’s assistance reduces capital costs for foreign competitors and contributes to a glut of aircraft that will hurt an already ailing industry.
Delta officials say the $3.4 billion in loan guarantees to Air India for 30 Boeing aircraft allowed Air India to cut its ticket prices by one-third, forcing Delta to abandon its New York to Mumbai route.
But banks like our Export-Import Bank are not unique to the United States. Historically, developed and developing countries use so-called “trade finance” to boost exports by assisting foreign buyers and domestic companies that want to sell into a global market. For example, Brazil and China are offering much more generous terms to give their own exporters an advantage.
China has begun offering lower interest rates or longer repayment terms than international guidelines allow. Bloomberg reports that in 2010, China supplied $45 billion in long-term export loans and loan guarantees, while the U.S. provided just $13 billion. Last year, for the first time ever, the U.S. agreed to match China’s cheaper financing terms to get the Pakistani government to buy General Electric locomotives.
President Barack Obama has called for doubling U.S. exports by 2014 and recently asked Congress to reauthorize the bank and raise its lending cap 40 percent to $140 billion. With U.S. exports a rare economic bright spot in an otherwise sluggish economy, it makes sense for Congress to reauthorize the bank and increase its lending limit.
As for Washington, the nation’s top per capita trade-dependent state, it is a no-brainer.
Don Brunell is president of the Association of Washington Business, Washington state’s chamber of commerce. Visit http://www.awb.org.