AMID the acrimonious debate over trade, the country’s export-import bank is being shuttered after losing Congressional support, threatening the loss of jobs and overseas contracts to rivals such as China. But what is already an intense fight is about to get a lot harder.

With the expiry last week of the authority of the US Export-Import Bank to make new loans — the result of opposition to its very existence among conservative Republicans in Congress, many other US companies face a new challenge: how to compete without the sort of low- cost export financing, guarantees and insurance that Chinese competitors and other rivals can offer.

The move to block the reauthorisation of ExIm Bank’s charter for the first time in its 81-year history is the culmination of years of campaigning by Republican groups who argue it distorts the US economy by favouring existing giants over new players.

The move to block the re-authorisation of ExIm Bank’s charter for the first time in its 81-year history is the culmination of years of campaigning by Republican groups who argue it distorts the US economy by favouring existing giants over new players

Supporters, including all the major US business groups, remain hopeful that an agency that last year financed more than $27bn in US exports and claimed responsibility for 164,000 US jobs can be saved, especially at a time when the US economic recovery still looks fragile. But they recognise that with Jeb Hensarling — the Texas Republican who chairs the House financial services committee with oversight of the bank — now its biggest enemy, it will take complex legislative manoeuvres to restore it.

The agency will continue to administer existing loans. But Fred Hochberg, its chairman, says: “It is ‘pencils down’ on new business.”

Much of the bank’s financial heft favours big corporate clients — a point that critics regularly seize on. The top 10 recipients of ExIm financing accounted for 75pc of its $27.3bn in business in 2013. Boeing alone accounted for just over a third in value terms while General Electric accounted for another 10pc. Both companies have warned that they stand to lose orders and may be forced to move manufacturing jobs overseas to take advantage of other countries’ export financing mechanisms if ExIm Bank closes its doors.

They complain that rivals in China and the EU pitch for contracts armed with low-interest government financing. The bank’s closure to new business, they argue, is the commercial equivalent of unilateral disarmament.

The ExIm saga feeds into one of the biggest policy debates in Washington: how great is the threat faced by the US to its economic leadership with China marching into new markets and launching new institutions such as the Asian Infrastructure Investment Bank?

With his pursuit of a vast new Pacific Rim trade agreement with Japan and 10 other economies, President Barack Obama has said he is fighting back against a rising China. Cheered on by an American business community that has not always had an easy relationship with him, Mr Obama has been unequivocal in saying that he wants the US to write the 21st-century rules of commerce before China can.

Not everyone shares the president’s vision, however. Securing the congressional authority he needed to complete the Trans-Pacific Partnership trade deal, as he did last week, took months of acrimonious debate and saw the vast majority of his own Democratic party in Congress try to block it.

On the Republican side the target is ExIm Bank. Even as supporters insist it is a vital and profitable tool for US business overseas ($675m of profits was paid into the US Treasury last year), critics accuse it of being a vehicle for cronyism and corruption.

“This [the bank’s closure] is a small step toward renewing a competitive free-market economy and arresting the rise of the progressive welfare state and the cronyism connected to it,” Mr Hensarling said last week.

But the debate is frustrating for US business. Jeff Immelt, GE’s chairman and chief executive, warned this month that the country’s ‘economic influence in the world is slipping’ and that the debate over ExIm Bank was only adding to the problem. At a business summit in Egypt this year, he said, governments from the Gulf offered the north African country billions in loans and Germany offered 10bn euros to promote its exports.

“The US economic presence was sparse,” Mr Immelt complained. “If you believe that American economic engagement is important in a volatile place in the world, then the US has to show up . . . Others are doing more.”

John Engler, the former Michigan governor who now heads the Business Round Table, which represents chief executives in Washington, shakes his head when he discusses the uncertain future for ExIm Bank.

But he argues that it is symptomatic of something larger: a need for a bigger, better push to improve US competitiveness that goes beyond the recent energy revolution to improving the corporate tax system, and doing everything needed to encourage more exports and growth. The US, he argues, has been too laid back for too long in competing with countries such as China.

“Industrial policy is a phrase that can be off-putting,” he says. “But you ought to have a strategy.”

Even before ExIm’s suspension, however, the US was being outgunned by China in the world of export finance.

Mr Hochberg likes to tell the story of how, soon after sealing a $350m deal in Angola, he ran into one of his Chinese counterparts. Proudly, Mr Hochberg mentioned his recent success. That’s nothing, his competitor responded. He had already done $10bn in business in the country.

China’s total medium and long-term export financing in 2014 was worth $58bn, almost five times the $12.1bn in export financing extended by the US, according to a June report prepared by US ExIm researchers. Germany and South Korea each financed exports worth more than $14bn last year. Mr Hochberg is hopeful that the bank’s charter will eventually be reauthorised. But questions remain, and the debate over a future that some see as tenuous given the outsized competition it faces is unlikely to go away.

Mr Hensarling has powerful allies in the Republican party. Moreover, opposition to ExIm Bank is billed as a litmus test for any Republican candidate — in 2016 elections — by powerful conservative groups such as Americans for Prosperity, which, with financial backing from the influential Koch brothers, helped turn the Tea Party into a political force in 2010. For that reason, the cause has secured the backing of high-profile Republicans in Congress as well as the bulk of the Republican presidential candidates, including centrist Jeb Bush. Mr Rubio, the Florida senator, has meanwhile become a fixture on press calls and at events for ExIm detractors. “I don’t believe that taxpayer money should be used for corporate welfare,” he said earlier this year.

Published in Dawn, Economic & Business, July 6th, 2015

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