No Economic Choice is Without Cost
On the front page of today’s Washington Post, we see an article “Obama’s support for export industry leads to clash of U.S. interests.” The article details a dispute between Boeing, America’s largest single exporter, and Delta Airlines, one of Boeing’s biggest domestic customers. Delta alleges that Boeing’s exports to its foreign competition – the article mentions Air India – places Delta at a disadvantage, and has forced it to close routes between the US and India.
The story buries the Lede somewhat by not getting to the central issue until the 5th paragraph: the re-authorization of the Export-Import Bank. The Ex-Im Bank provides financing, generally in the form of loan guarantees, to American businesses seeking to export to foreign markets. Its authorization is due to expire in the coming months.
The Bank was created to close a market failure: financing for exports can be very difficult for companies to get because of the uncertainties about exporting to markets with different banking systems or government regulations. Because of these uncertainties, banks have traditionally not provided the loans needed to finance the exports.
I do worry that large companies like GE and Boeing are perfectly capable of getting the financing they need through free-market means, and that more funding should go to the smaller exporters than these large ones. However, that brings us to a second point on the need for the Bank – foreign competition. Almost every other country that we are competing with in exports has an entity similar to the Ex-Im Bank. In the case of Boeing and Air India cited in the article, if the bank hadn’t been able to provide the financing for that deal, I’m quite sure that the EU’s export financing mechanism would have jumped right in to support a sale of Airbus jets. So – Delta would still have been hurt, and an American company, supported by American workers, would have lost out on a deal.
Its unfortunate that this issue has been lumped into the Obama push for manufacturing and exports, because the Ex-Im Bank has been around for decades, and has been providing this financing for just as long. The Bank has enjoyed bipartisan support. It supports many small companies, and it should be re-authorized. This article shows that in the complicated inter-relationship of economics and policy. There are always going to be winners and losers when decisions are made: nothing is without cost.
