Americans agree that our federal government shouldn’t extend cheap, taxpayer-backed loans to wealthy corporations at the expense of U.S. jobs and competitiveness.
Yet that’s exactly what the Export-Import Bank of the United States does.
Consider this: In November of 2013, the Ex-Im Bank “facilitated” the sale of Caterpillar equipment to an Australian mining group, Hancock Prospecting, for an iron-ore project called Roy Hill. Ex-Im Bank advocates claim the sale will create jobs while promoting U.S. exports.
But this is only a win for the tiny percent of businesses that benefit from Ex-Im Bank subsidies. While the sale may be good for giant manufacturer Caterpillar, it will end up harming other iron ore mining companies in the United States.
This impacts Michigan in particular. The Great Lakes State’s many iron ore companies, like Cliffs Natural Resources, are placed at a competitive disadvantage when its own government subsidizes the competition.
This is how it works: When Hancock Prospecting — which happens to be owned by Australia’s wealthiest person, heiress Gina Reinhart — receives $694 million in federal government-backed export financing for its mine, it receives an incredible competitive edge over Michigan mining companies like Cliffs.
Hancock has a strong incentive to accept such financing despite the fact that it has ample private alternatives. Few companies would turn down a loan that offers interest rates half of the market norm.
Hancock’s down payment will be only a fraction of what unsubsidized companies must pay.
In addition, if things go south, U.S. taxpayers will reimburse the lenders for the unpaid loan, not the Australian heiress.
Hancock enjoys privatized profits while American taxpayers shoulder the socialized burden of risk.
This frees up money for Hancock to expand production, lower prices, or increase hiring.
Unsubsidized U.S. companies like Cliffs, however, suffer. They must cut back production, lower wages, or even go out of business.
This comes at the expense of American jobs. Estimates of the aircraft industry, which constitutes the largest portion of Ex-Im Bank’s portfolio, show that the bank’s subsidies foreign airlines destroyed roughly 7,500 airline jobs in America.
When Ex-Im Bank subsidizes the competition, it threatens Michigan jobs. Workers in unsubsidized firms may see their hours cut, their wages stagnate, or their jobs disappear because their employers simply cannot compete against heavily subsidized foreign mines.
Cliffs Natural Resources appealed to Ex-Im Bank to deny the loan, stating that it would harm Michigan jobs and firms. The bank ignored those concerns.
Caterpillar undoubtedly enjoys Ex-Im Bank subsidies. However, the Michigan mining employees whose livelihoods are threatened by this deal should not matter less than Caterpillar employees just because they don’t have as many friends in Washington. This story is unfortunately one that is often repeated in Ex-Im Bank deals.
Well-paid lobbyists want to hide the disadvantage that Ex-Im Bank imposes on Michigan firms like Cliffs because the companies that they represent benefit handsomely from the status quo. They claim that without the Ex-Im Bank, “billions of dollars in U.S. exports and tens of thousands of American jobs will be put at risk.”
This is just fear-mongering. The bank subsidizes 1.6 percent of U.S. exports each year. The same is true in Michigan: From 2007 to 2014, less than 2.55 percent of all state exports and 0.33 percent of small business exports were backed by Ex-Im Bank.
The other 98.4 percent of unsubsidized U.S. exports are just fine without the bank. Many unsubsidized firms may export more without Ex-Im Bank if they are placed back on a level playing field. The other 1.6 percent of subsidized exports will find financing at normal market rates. The richest woman in Australia does not need the Ex-Im Bank to access capital.
The Export-Import Bank is not so much “pro-jobs” as it is “pro-jobs for companies that have friends in Washington.” Tragically, Ex-Im Bank is too often a jobs killer for unsubsidized firms. Americans know that unsubsidized workers and firms do not matter less because they lack political connections. It is time to end the corporatism.