July 14, 2014

Prisoners of the Export-Import Bank

Matthew D. Mitchell

Affiliated Senior Scholar

Christopher Koopman

Senior Affiliated Scholar
Summary

The case is quite clear that the world would be better off if no country had export subsidies. As in the match between Germany and the U.S., we would all be better off by agreeing to do nothing. We have the keys to get out of this prison, if we’d only use them.

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Before winning this year’s World Cup championship, Germany faced a dilemma during its qualifying match against the United States. Both teams could ensure their advancement in the tournament by colluding to do nothing. If they tied, both would advance. If one of them won, the other might not advance. However, neither could ensure that the other would cooperate. And as a result, they were both forced to compete.

This situation, known a “prisoner’s dilemma,” is one that manifests itself in all sorts of situations, from business to politics to World Cup qualifying games.

It also helps explain where we find ourselves with the Export-Import Bank, or “Ex-Im,” a federal agency tasked with subsidizing U.S. exports. The bank’s charter is set to expire in a few months, and some are making the case that it should be reauthorized to help U.S. manufacturers “compete internationally” by “leveling the playing field.” This is simply another prisoner's dilemma playing out in the real world.

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