Trump apparently sees the benefit to small businesses of the Ex-Im Bank after all
President Donald Trump appears to have had a change of heart about his support for the Export-Import Bank.
On Friday, Trump announced nominees for leadership of the bank after deriding the export credit agency during the election as a form of crony capitalism for multinational corporations at the expense of small businesses.
Trump named former Representative Scott Garrett, who left the House in 2015 after a dozen years, to be president of the bank, which provides financing in the form of loan guarantees, credit insurance and direct loans to buyers of U.S. exports, as well as working capital guarantees and credit insurance to mostly small and midsized U.S. exporters. In both cases, those bank products are attached to negotiated sales.
Garrett voted not to reauthorize the agency in 2012 and 2015. Trump also named former Alabama congressman Spencer T. Bachus III, a law partner at Bachus and Broom LLC, to serve as a board member. Bachus was chairman of the House Financial Services Committee from 2011 to 2013 and voted in 2012 to reauthorize the Bank.
In an interview last week with the Wall Street Journal, Trump said he supports the government’s export financing arm and that it helps small companies. He also acknowledged that other countries are offering export financing at much higher levels, putting U.S. companies at a disadvantage. A study by the National Foreign Trade Council and Coalition for Employment through Exports found the United States lagged far beyond other major economies in export financing support.
Where guarantees are concerned, the Ex-Im Bank works with a customer’s lender to backstop the terms of the loan. Ex-Im Bank acts solely as a guarantor, and no money is exchanged between the financial institution and the bank unless there’s a default. In other words, Ex-Im Bank’s guarantees allow a financial institution to extend competitive terms to a customer who might otherwise be unable to obtain them.
Trump’s rethink on the Ex-Im Bank is the latest of many apparent reversals from populist campaign rhetoric towards more establishment positions on Syria, NATO, Chinese currency manipulation, and the North American Free Trade Agreement.
Trade supporters have lamented constraints on the Ex-Im Bank that have severely limited its ability to support overseas sales by American businesses. Currently, the bank cannot approve transactions of more than $10 million because it does not have the required quorum on the board of directors. The bank is only operating with three directors after Congress refused to confirm two Obama nominees. Trump’s picks would solve that logjam if they are confirmed, although that is not guaranteed.
A powerful group of conservatives on the Hill have tried to eliminate the agency on the grounds that government should not get involved in areas suited for the private sector and put taxpayer money at risk, especially when many recipients are big corporations that don’t need assistance. They perceive the bank as a vehicle for handing out favors to well-connected corporations. The dispute led to the bank’s temporary closure in the summer of 2015 before Congress reauthorized its charter through September 2019. Garrett and Bachus both were part of the campaign to rein in the Export-Import Bank, according to the Wall Street Journal.
The government’s export financing arm essentially protects exporters if its customer doesn’t pay its bills. The bank is self-sustaining, contributing nearly $3.8 billion to the U.S. Treasury since 2009 through fees and interest. Its default rate last year was 0.3 percent, well below the 2 percent target set by Congress.
Small businesses, in particular, often find it difficult to provide credit for overseas customers, and 90 percent of the agency’s transactions involve small firms, business and pro-trade groups argue.
In 2016, the bank authorized $5 billion in financing, the lowest level in 40 years. By comparison, in 2014, the last fully operational year, the bank authorized more than $20 billion in financing, supporting nearly 165,000 jobs, and generating $675 million for taxpayers.
Currently, there are $30 billion in export transactions greater than $10 million in the Ex-Im Bank awaiting action. Trade advocates will watch to see how many of those deals Garrett and Bachus will actually vote to approve.
Change of heart
