Federal subsidies for U.S. exports have been slowed for more than a year thanks to Republican congressional resistance, and reports from the field show something unsurprising: When government subsidies fade away, the private sector often steps in.
The Export-Import Bank of the United States is a federal agency that extends loans and loan guarantees to foreign buyers of U.S. goods. Since late 2015, Ex-Im‘s board has lacked a quorum, because Republicans haven’t held a vote on Obama‘s nominee. Without a functioning board, Ex-Im can’t approve deals of greater than $10 million. Before that, for five months in 2015, Ex-Im‘s charter had expired and the agency couldn’t approve any new financing deals.
How are exporters reacting?
“People that relied on EXIM-backed financing,” Hernan Mayol, chair of the Florida International Bankers Association’s Trade Finance Committee, told Miami Today, “they felt a little pain. They had to go through the private insurance market to find an alternative until it was reauthorized.”
That is, when Uncle Sam wasn’t there to provide taxpayer-backed trade insurance, private insurers stepped up.
“It’s been mostly business as usual for Miami exporters, just as it was before and during the lapse, according to an industry expert,” the Miami publication reports.
There is a robust private market in the sorts of financing and insurance Ex-Im provides.
“Ex-Im Bank is a competitor.” Michael Kraemer, a banker at AIG told me. “There is a vibrant private export credit market,” another financier told me. “Ex-Im provides financing that the private sector also provides.”
A Goldman Sachs research note sounded the same theme in 2014.
“If the US Export-Import charter is not renewed, we believe the overall impact in the near-to-medium term would be fairly limited given the robust financing environment at present…”
Government subsidies generally do one of two things: they subsidize things that don’t have market value, or they displace private sector activity. Much of Ex-Im‘s work seems to be knocking the private sector out of the way.
Source: Washington Examiner