US Export Import Bank and Climate Financing under the Trump Administration

1st March 2017

On 17th February, 2017, a New York Times article titled “Popular Domestic Programs Face Ax under First Trump Budget” reported that the White House budget office has drafted a hit list of programs that President Trump could eliminate, an effort of the Trump’s administration to reorder the government and increase spending on defence and infrastructure. Although the list could change and the finalization of the list has a deadline of 13th March 2017, the list includes the US Export-Import (EXIM) Bank.

Ironically, the list including the EXIM bank didn’t come as a not-so-much of a surprise and yet it did. It didn’t come as a surprise because presidential candidate Donald Trump, during his campaign, had been vocal on his dislike for the Bank quoting him “I don’t like it because I don’t think it is necessary. It’s a one-way street also. It’s a sort of feather bedding for politicians and others, and a few companies. And these are companies that can do very well without it. So I don’t like it. I think it’s a lot of excess baggage. I think it’s unnecessary…”. However, it came as a not-so-much of a surprise because in the overall scheme of things, both the presidential candidate and the president, Donald Trump, have the same mandate, i.e. support American exports and American jobs.

Given new developments under a known background, I was reminded of a 11th January 2017 interview I had with Fatima Arkin, a Philippines-based journalist writing for Devex in Washington, about how funding for the EXIM Bank, particularly the Bank’s support for climate change projects, is expected to change under the Trump administration. Transcript of the interview can be found below:

FATIMA: The U.S. Export-Import bank has had a difficult time lately. It was shut down in 2015 then reopened in December. Why is it experiencing so many problems and why is it important to provide strong support for the bank?

NATASHA: there appears to be a debate where it is unclear whether the US EXIM financing is actually supporting the creation of jobs through the generation of additional exports. Proponents have argued that without EXIM bank, exports which have been created would not have been possible if the US EXIM Bank did not provide for support. For instance, many argue that EXIM support is a bidding requirement without which American companies would not even qualify for bidding. See some links here =http://thehill.com/blogs/congress-blog/economy-budget/246347-the-arguments-for-ex-im-no-one-can-rebuthttp://www.washingtonexaminer.com/the-pros-and-cons-of-reauthorizing-the-export-import-bank/article/2551068. Proponents have increasingly argued that without EXIM, American companies will find it difficult to compete in the international market because of rising competition from ECAs of other countries particularly the ones that are not bound by the OECD Arrangement. To put this in perspective, the US EXIM Bank Competitive Report (2015) states that China, a non-OCED-Arrangement-compliant country, provided its exporters with at least US$670billion in ECA financing over a period of two years, while the US EXIM has equipped American exporters with only about US$590billion in financing over its entire 81-year-history. In other words, proponents argue that US EXIM financing levels the international playing field for American companies such that American companies can now compete in the international market based not only on the availability of cheap financing but also on the quality of American manufactured products.

However, opponents argue that EXIM supports a minuscule share of US exports and subsequent job creation in the US such that its absence would not mark a dent. They have repeatedly contended that the US EXIM have continued to provide support for companies that in principle can do away with. For instance, Boeing. Besides, they also argue that the trade financing market outside of EXIM is well established such that American companies wouldn’t find it difficult to provide support for their export activities in the private trade financing market to absorb the “shock” if EXIM doesn’t exist. This is now evident in the fact that American exporters are now turning to private export credit market = https://t.co/s1lGN0vxPD http://www.washingtonexaminer.com/financiers-export-import-bank-displaces-private-finance/article/2563895 http://www.miamitodaynews.com/2016/12/06/export-import-bank-sputters-exporters-carry/. Besides, they argue that the US EXIM financing misprices risks and replaces private financiers.

These are some of the few arguments posed by the two parties to the EXIM debate.

However, since the objective of EXIM is to generate job by supporting US exports, we found that there was this missing puzzle in the debate where it hadn’t been established whether EXIM financing supported US exports, and how does EXIMs claim of levelling international playing field for American exporters fair. In a 2016 research paper published by the University of Nottingham, we find that the export-enhancing effect is evident only in a sub-sample of US Ex-Im authorization portfolio from 2007 through 2013. We find that export-enhancing benefits is detectable only for Ex-Im authorizations to sectors that are not directed to the aerospace parts and products (NAICS 3364), and that are not being directed to small and medium enterprises. Also we find no evidence that would explain the role of Ex-Im in encouraging US exports by offsetting foreign export credit agencies’ competition.

FATIMA: How could the incoming Trump administration affect the U.S. Ex-Im and its support for climate change projects?

NATASHA: If it is about creating jobs in the US, then both the Trump administration and the US EXIM, have a common objective in the overall scheme of things.

Now to achieve this objective, the US EXIM is mandated by the EXIM charter to perform certain authorization activities (whether it adheres to the mandate is a question for another time and debate). Besides, it also has a strategic plan. Both the congressional mandate and the strategic plan feature the renewable energy sector. The EXIM Bank charter (as amended by the re-authorization act of 2015, states “the Bank shall promote the export of goods and services related to the renewable energy sources” See section Section 2(b)(1)(K) for renewable energy in http://www.exim.gov/sites/default/files/newsreleases/EXIM%20Bank%20Charter%20-%20as%20amended%20by%20the%20Reauthorization%20Act%20of%202015.pdf. Likewise, the US EXIM also strategically provides competitive financing to certain industries perceived with high potential for US export growth which comprise of agribusiness, aircraft and avionics, satellites, mining, oil and gas development, and power generation involving renewable energy (See EXIM Annual Report 2014).

The actual impact of the incoming Trump administration on US EXIM and its support for climate change projects can only be seen when they come to office. However, given the above facts, I suspect that the incoming Trump administration may actually prove a blessing to the US EXIM and for any sector that can/or at least perceive to generate jobs even if it is through high potential in the US exports.

FATIMA: Could the Trump administration really change things that much considering that Senator Richard Shelby from Alabama continues to prevent the Export-Import bank from approving deals exceeding $10 million? Please explain.

NATASHA: We will have to wait and see how the Trump administration plays the card of bringing full quorum to the Board so that deals exceeding US$10million can be approved. It is a question which the US government will have to answer and deal with. My take is = One would have to do a cost-benefit analysis of the deals that are not being authorized because of the new legislation not allowing the bank to lend more than US$10mn. If the new money available is helping approve of projects that generate exports and create jobs, then maybe it is not a bad deal? However, if it is proven that there are job losses due to large projects being unapproved and that such projects aren’t being able to find alternative funding, then the US government will have to take a call on whether fulfilling the quorum is the answer.

FATIMA: If Trump cuts funding for Ex-Im, which, correct me if I’m wrong, he threatened to do during the campaign, what effect could this have on U.S. businesses that deal with climate change issues for instance by promoting renewable energy? Could we see jobs and operations shifting more jobs abroad as other nations’ export-credit agencies welcome U.S. businesses? Please elaborate and provide examples if possible.

NATASHA: I am unsure if the legislation empowers the President to cut funding for EXIM before it is due for re-authorization again. Assuming that the legislation does empower the President, I do not see any cut in the funding to the bank, if not increased. Assuming that the President does cut the funding to the Bank, the private export credit sector market will be able to absorb the business caused by the absence of the bank. Remember, as I had mentioned in answer to your previous question – American businesses are already shifting their base from the Bank to private export credit sector market, and for many it was business as usual even in the absence of the Bank (see https://t.co/s1lGN0vxPD http://www.washingtonexaminer.com/financiers-export-import-bank-displaces-private-finance/article/2563895 http://www.miamitodaynews.com/2016/12/06/export-import-bank-sputters-exporters-carry/). The point is that the reliance on US EXIM Bank of American businesses is not up to the point of death for American businesses. American businesses are able to find alternatives to EXIM. In fact, the very fact that exporters are shifting to private financiers makes you question the EXIM claims on EXIM being an absolute essential for American businesses. Surely, if EXIM would have been essential then private financiers could be no substitute? Besides, our study shows that the export generation of EXIM-financing is also limited.

Will renewable energy sector in particular be affected? If the renewable energy sector is able to generate jobs and profitable business in the US, why would a businessman want to shut shops of those American businesses in the renewable energy sector irrespective of his/her stand on climate change issues?

FATIMA: How could changes in funding/support for the U.S. Ex-Im affect other countries’ support for their own export-import bank or the U.S’s work on climate change issues, particularly in the developing world? Please elaborate.

NATASHA: I am unsure if there exists or can exist causality for changes in funding at the US EXIM funding to have an impact on the changes in other countries support for their own exim. Several reasons. One, despite an increase in the Bank’s exposure limit over the years (see figure 5 in https://fas.org/sgp/crs/misc/R43581.pdf), US EXIM Bank Competitive Report (2015) states that China, a non-OCED-Arrangement-compliant country, provided its exporters with at least US$670billion in ECA financing over a period of two years, while the US EXIM has equipped American exporters with only about US$590billion in financing over its entire 81-year-history. Second, countries have their own legislation within which their EXIM’s function. Third, some countries are bound by the OECD Arrangement. Fourth, countries are also bound by the WTO such that countries can challenge EXIM-financing if found in violation to the WTO Agreement. So in reality, there are several national and international legislations which govern countries support to their EXIM which is reflected in their consequent lending activities. It should also be noted that the world of EXIM-financing is opaque such that there still doesn’t exist a database that provides for each countries authorization portfolio. This limitation restricts further investigation on the line of the causality question that you have raised. The only space where I can see a causality existing is when international bidding requires EXIM support and American businesses find themselves off the US EXIM Bank support due to changes in the funding to EXIM.

End of interview.

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