BY: ARI HAWKINS | 01/23/2023 05:00 AM EST
The U.S. Export-Import Bank could be a powerful weapon in the Biden administration’s geo-economic arsenal against China. Instead, the bank continues to face declining financing volumes even after emerging from a long period of political obstruction.
It’s a problem the bank’s current leadership acknowledges.
“One of the biggest areas that I know we have to do, and we have begun to do, is rebuild our relationships and redefine our commitments,” Reta Jo Lewis, the bank’s president and chair, said in an interview.
The bank authorized $5.2 billion worth of loan guarantees and support in fiscal year 2022. Authorization rates have not been that low since 2018, when lawmakers were blocking the bank’s board from having a quorum required for approving transactions above $10 million, according to the bank’s annual reports.
The bank returned to full function in 2019, when Congress reauthorized it to do business, ending a four-year period of it being unable to provide credit for significant transactions. Then came the coronavirus pandemic, which further prevented the bank from returning to its former glory. Under the Obama administration, annual authorizations reached above $35 billion.
Recent financing levels have been so low, that EXIM narrowly missed its Congressional mandate to allocate at least 30 percent of yearly funds to small businesses in 2021 and 2022.
The bank’s decline has occurred amid rising global competition and influence. The institution is seen by many as a vital tool in the race against China to tap into rapidly growing markets in Africa and elsewhere. Beijing is making robust use of its own government export credit agencies to develop infrastructure and secure natural resources important for the coming clean energy boom.
Prior to the pandemic, Beijing deployed more than $34 billion in official government-backed export credit in 2019, dwarfing the U.S. which authorized only $5 billion the same year. China’s total export credit may have been closer to $90 billion that year, when accounting for support from Chinese state-owned banks and other sources, the U.S. bank said in its 2019 competitiveness report.
Since the start of the pandemic, which slowed commerce globally, the gap between the U.S. and China has narrowed only slightly. In 2021, Beijing still deployed five times more government-backed export credit than the U.S.
Meanwhile, U.S. businesses have moved on from the bank to find other ways to finance foreign transactions.
“After four years of not being fully functional, by the time EXIM opened back up again, industry found other sources of finance, and generally stopped relying on the United States,” Fred Hochberg, who was chair and president of EXIM from 2009 to 2017, told POLITICO.
“Some corporations went to other countries for financing, a number of banks with large departments that provided export credit financing contracted or were shut down and corporations just generally found other ways to do business,” Hochberg added.
In the past, companies often turned to the bank to receive loan guarantees and export credit insurance to sell products like industrial equipment to foreign customers. Companies can use the bank when the private financial sector is unable or unwilling to provide financing.
A target for obstruction
Proponents say the bank, which does not use taxpayer funds and is actually profit generating, boosts domestic jobs and manufacturing while raising American export volumes. The bank has historically been most utilized in times of economic uncertainty, like in the aftermath of the 2008 financial crisis when authorizations were at their highest level since at least before 1997, when the agency started publishing annual data.
The bank became a target of free-market conservatives who saw the agency as a form of “corporate welfare.” Republican interest groups like the Club for Growth as well as former Republican lawmakers like Jeb Hensarling, Paul Ryan and Ron Paul derided the institution as the “Bank of Boeing” and other large companies like General Electric and Caterpillar.
House Speaker Kevin McCarthy (D-Calif.) argued in 2014 as then House majority leader that the government should not be in the business of financing exports.
The obstruction campaign came to a head in 2015, when the bank’s charter lapsed for six months. Congress managed to reauthorize the bank for four years, but three empty seats remained on the five-member board. That meant the agency lacked a quorum and could only approve small export deals, not orders for aircraft or other major transactions the bank is known for.
The bank’s decline continued into the administration of Donald Trump, until economic advisers nudged the former president to respond to the growing threat of Beijing. The U.S Senate confirmed three nominees in 2019, which restored the agency’s ability to authorize financing for larger projects.
Businesses move on
The political turmoil over the bank was not lost on companies seeking a reliable source of financing.
“It seems like really nothing is safe these days. And it’s a real concern that for political reasons, the bank could shut down again,” said Roger Gussiaas, the owner of a small oil seed processing company based in North Dakota.
Gussiaas said the disruption of the bank in 2015 forced his company to halt work in the South Korean market after services he relied on were abruptly suspended, leading to a revenue loss of about $175,000.
Gussiaas added that he competes with Canadian companies whose foreign transactions benefit from better financing terms from their own government export credit agency.
While the American export credit agency is accepting new projects, it has not yet worked through a $39 billion backlog of projects in its financing pipeline awaiting approvals, many of which came while the bank lacked the board quorum. That backlog risks spreading the entity thin according to experts.
Richard Powell, who served on the bank’s advisory committee from 2019 to 2021, said the pandemic exacerbated the backlog of projects.
“It’s pretty tragic that the obstruction happened at that time. … Over the past four years or so, we’ve arrived at a robust, bipartisan consensus that the bank is absolutely vital for the U.S. to compete with nations like China,” said Powell, who is the CEO of ClearPath, a conservative clean energy nonprofit.
Peter Darley, who serves as vice president of Darley & Company, which manufactures pumps and other equipment for firefighting, said he hasn’t used the bank since 2015.
“EXIM is a great system, but when it goes out of commission, it doesn’t just take away our company’s ability to compete, it also hinders places like sub-Saharan Africa from getting the emergency equipment they needed in as timely a way as they could,” he added.
EXIM declined to comment on the exit of specific corporations citing privacy laws, but acknowledged the overall number of large companies receiving financing has declined. That’s no secret. When the bank was kneecapped in 2015, General Electric announced it would close its Wisconsin-based gas-powered engine factory and move it to Canada. Export Development Canada, Ottawa’s export credit agency, said it would provide export financing for products made in the new plant.
Making up for lost ground
Lewis, the first Black woman to lead the bank as president, has vowed to restore the bank. That includes pushing forward with the China and Transformational Exports Program. The initiative came as a mandate from Congress as part of the bank’s 2019 reauthorization to offer financing terms and rates that could compete with China’s export credit offerings, especially in the areas of biomedical technology, quantum computing and renewable energy. Under Lewis, the bank’s board also approved the Make More in America Initiative to strengthen the domestic supply chains.
“When we did not have a board quorum, and we were not able to put together large deals, we lost some ground. Now we’ve got to make that up. And that’s why we’ve been very aggressive working with directors, managers and supervisors to tell the EXIM story and let exporters know what our commitments and records are,” said Lewis, who was confirmed last February to lead the agency.
“That goes especially for women, minorities, people with disabilities, veterans, the LGBTQ community and the entire ecosystem of those who can potentially grow and expand their business,” she added.
Lewis also vowed to continue a marketing push that includes an expansion of the “EXIM 101” education program created to re-integrate the bank with industry, exporters and foreign governments.
She added that the administration puts special effort into courting minority-owned small businesses to close the gap between what the U.S. exports and imports.
Countering China’s export credit dominance
Countering China’s influence, particularly in developing nations, has driven bipartisan agreement to revive the bank as a key player. The Biden administration has highlighted the bank’s China and Transformational Exports Program as a tool to help unlock a $1.5 billion initiative to bolster Africa’s digital growth, the White House said in a statement last month.
Still, Beijing’s export-import bank financed $23 billion in infrastructure projects in sub-Saharan Africa between 2007 and 2020. The U.S. during that time period lent just $1.9 billion and Beijing’s investment in the region reflects more than double that of the U.S., France, Germany and Japan combined, according to a report last year from the Center for Global Development.
“China is a massive purchaser of natural resource products of all kinds, energy and metal ores and wood, fish and they’re buying a lot of those things from African countries. Their relationship is intertwined,” said Ed Gresser, who served in the Office of the U.S. Trade Representative from 2015 to 2021.
“Africa has a rapidly growing consumer market. Its governments are going to be investing a lot in infrastructure and the U.S. should be using tools like the export import bank to be a part of that,” Gresser said.
Some industry officials say the bank needs to expand the types of exports it applies its financing to. The U.S. bank restricted funding for defense purposes, according to a 1988 law, unlike other countries including China, which industry argues contributes to the bank’s declining relevance.
“As long as defense projects remain prohibited, American companies that seek business internationally are at a competitive disadvantage. National export credit agencies and other parts of the world do not operate with this restriction,” said Bill Phelps, vice president at the military defense company Lockheed Martin. The company has not used the bank’s services for more than a decade, when Lockheed Martin developed aerospace equipment sold in Australia and Vietnam.
Proponents for the bank say the agency is more important than ever as the world continues to battle a period of economic malaise.
“There is much economic uncertainty that could come back to hit the U.S.,” said Hochberg, the former president. “Europe is in a recession already and China is still coming out of their zero Covid policy, both of which take a toll on global economic growth. Frankly, the bank is more important during uncertain times and we haven’t really navigated coming out of a global pandemic like this in almost a century.”