Pros and cons of Export-Import Bank noted during Clinton School address

by The City Wire staff ([email protected]) 1,028 views 

A growing global middle class will provide opportunities for American exporters, but domestic companies will need support to compete with foreign firms who receive help from their own governments, the chairman and president of the Export-Import Bank said in a speech at the Clinton School of Public Service Tuesday.

Fred Hochberg described the Export-Import Bank as “the official export credit agency of the United States.” It provides American companies with export credit insurance, meaning it will provide reimbursements if a foreign partner does not pay. It also provides working capital to American businesses and guarantees loans to foreign companies who want to buy American-manufactured goods. The bank is a government entity funded by income derived by the services it provides.

Last year, he said, the bank supported 164,000 U.S. jobs and returned $675 million to the U.S. Treasury.

Hochberg said that while the United States is the world’s second largest exporter – down from number one in 2002 – it’s only 144th in terms of exports as a percentage of its economy. At 14% – an all-time high – the United States is tied with Haiti and Rwanda.

Hochberg said the global middle class will grow by 200 million people each of the next five years, providing a market for American manufacturers. Only a small increase in export sales would have a major effect on the American economy.

“Those goods and services are going to be bought and sold and delivered, and I think we all prefer that those jobs be jobs here in our country,” he said.

But to get there, American firms will need support because they are competing not only against foreign companies but foreign governments – “China, Inc.,” being one, as Hochberg described it. There are 59 entities like the Export-Import Bank worldwide, some of which, such as in Russia and China, are very aggressive in offering financing unmatched by the commercial markets. Since 1934, the Export-Import Bank has provided $600 billion in loans, guarantees and insurance. China has done more than that in two years.

“When China comes to the table to sell their goods, financing is always part of the package, and it’s a very attractive financing package that becomes integral to making their sale,” he said.

Hochberg said Arkansas exports financed by the bank have doubled since 2007, to about $707 million, including agricultural goods such as lumber and renewable energy. One example of an Arkansas-based company helped by the bank is lumber manufacturer BCH Trading in Hot Springs, which with help from a working capital guarantee has become an exporter and grown its business. The bank also has helped wind turbine blade manufacturer LM Wind Power’s Little Rock location finance exports.

“This state is very much looking outward and looking at global markets. … My sense is it’s pretty well positioned,” he said.

Earlier in the day, Hochberg visited Alexander-based laser company Power Technology and the North Little Rock Caterpillar plant. He was introduced at the Clinton School by Larry Walther, director of the Arkansas Department of Finance and Administration and a former Export-Import Bank board member alongside Hochberg.

Hochberg said 90% of the bank’s customers are small businesses – an assertion challenged during and after his presentation by David Ray, state director of the small government group Americans for Prosperity Arkansas. Ray said most of the money goes to large corporations such as Boeing and GE.

Ray said in an interview after the presentation, “The average American doesn’t really benefit from the Ex-Im Bank. The large beneficiaries of Ex-Im are a handful of very large corporations, many of them politically connected.”

He said the bank “puts taxpayers in a precarious position” with loans provided “at sweetheart interest rates,” some of which end up in countries “that aren’t exactly friendly to American interests.”

“Most of these companies that receive tens of billions of dollars from Ex-Im are successful American companies that will continue to be successful without the generosity of the taxpayer providing them, in essence, corporate welfare,” he said.

The bank is to be reauthorized by Congress later this year. Some in Congress oppose the reauthorization.

Asked by Ray about the percentage of dollars going to large corporations, Hochberg said during his presentation that capital goods like locomotives and airplanes are sold in a global market where companies are financed by foreign governments.

“I don’t want to send a U.S. company into a competitive situation where they are outmatched, outflanked, and having to compete, as I mentioned, with a foreign government,” he said.

In an interview after the presentation, Hochberg said almost 40% of the bank’s funding – about $10 billion out of $27 billion financed – is going to small businesses. Moreover, large corporations have many small business vendors.

“We’re about American jobs, purely about American jobs,” he said. “We’re not about playing favorites. We’re not about picking winners and losers. … I want to make sure that American workers and American companies are equipped to compete. And if we don’t give them the tools to compete, we’re going to lose those jobs overseas.”