The Unseen Costs of the Export-Import Bank


In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only later; they are not seen; we are fortunate if we foresee them.
—Frédéric Bastiat, What Is Seen and What Is Not Seen

South Carolina politicians at every level have exhibited a willingness to go to almost any length to please one aerospace company in North Charleston. The taxpayer-financed tax favors and subsidies given to the company in order to lure them to South Carolina are well known. The “incentives” have continued since that time, however. In the most recent legislative session, for instance, state lawmakers tried to establish the College of Charleston as a “research university” in order to provide the aerospace company with a PhD program, thus making its recruitment process easier and cheaper at taxpayer expense.

As the expiration of the Export-Import Bank’s charter draws closer (if not renewed, the charter expires on September 30), South Carolina politicians are expressing their ardent support for the Bank.


The Export-Import Bank – colloquially known as the “Ex-Im Bank” or, less charitably, “Boeing’s Bank” – is a government agency that subsidizes the exports of companies in the United States by loaning money to their foreign business partners. The justification for giving government support to some foreign and domestic companies but not others has come under increasing criticism in recent years, and indeed the new House Majority Leader has come out against the Bank and promises to urge his fellow Representatives to allow its charter to expire.

That’s troubling news for North Charleston’s most famous aerospace company. It receives two-thirds of the total money guaranteed in loans by the Ex-Im Bank, money that pays for about a quarter of the company’s deliveries. Despite the chairman’s claims that the Bank exists primarily to help small businesses, 76 percent of all its financial assistance, 97 percent of its loan guarantees, and 97 percent of its direct loans go to the top ten largest companies that the bank serves. The Export-Import Bank is, it appears, just another form of cronyism from DC: helping favored businesses at the expense of many others.

When an aerospace company can sell planes to airlines overseas at a marked-down rate, the aerospace company profits and the airlines get cheap planes. Everybody wins, right? Not quite. First, the government can only create this situation by putting millions (or, as in this company’s case, billions) of taxpayer dollars on the line. Second, if the foreign airline can get planes cheaper than domestic airlines can, they can also charge lower rates; the foreign market is helped at the expense of the domestic market, something that Delta Airlines has pointed out in the past.

Consider a couple of examples:

When Caterpillar, taking advantage of Ex-Im subsidies, can get its equipment to mines in Australia at a lower rate than other American companies can sell for, the Australians can in turn sell ore and minerals at lower prices – a practice that hurts mines in the United States.

Or when Mount Vernon Mills, a textile company based in Mauldin, South Carolina, takes advantage of Ex-Im subsidies by selling to international buyers at lower rates, those foreign buyers can in turn compete against their American counterparts more effectively.

The point here is not that the federal government should protect domestic companies from competition – far from it. The point, rather, is that the Export-Import Bank perversely protects foreign companies against their American competitors.

If you’re worried about companies like Boeing going out of business without the bank, don’t be. A recent audit shows that Boeing will be just fine without its federal benefactor.

Another argument made by the Bank’s supporters is that it offers loans in cases where the private sector won’t, particularly in undeveloped countries. Passing over the fact that the vast preponderance of the bank’s loans subsidize exports to developed and emerging economies, the argument misses a crucial question: Why wouldn’t the private sector make those loans? Could it be that they don’t offer a good rate of return? And if the private sector won’t make the loans on the grounds that they’re too risky, why should taxpayers? Making loans that the private sector considers too risky is a sure recipe for failure or bankruptcy.

Moreover, a Bank-backed company has a leg-up on other businesses within its own field. Anyone that isn’t named “Boeing” that wants to sell aeronautics to foreign buyers has two options:  compete against Boeing and the U.S. federal government, or take taxpayer money. It’s not a great choice to have to make.

Frédéric Bastiat’s point about the unseen effects of economic policies, then, is every bit as relevant as it was in 1850. We can see Boeing, Caterpillar, and Mount Vernon Mills exporting billions of dollars’ worth of products. What we don’t see is the U.S. industries maimed by unfair foreign competition, or the billions of taxpayer dollars going to risky loans. What you can’t see can hurt you – badly.

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