The underlying theme of last week’s IMF/World Bank spring meetings was rising angst over retreating US leadership. The gathering took place shortly after America’s closest allies, led by Britain, spurned a plea from Washington to boycott the China-led Asian Infrastructure Investment Bank. More than 50 countries have signed up. Now the US is in danger of inflicting more damage on itself by shutting down its Export-Import Bank.
The bank’s authorisation expires at the end of June and with it tens of billions of dollars in guarantees for US exporters. Detractors see the bank as a symbol of “crony capitalism” because of its support for companies such as Boeing. They badly misjudge what it does. It gives US companies a modicum of comfort against better subsidised competitors. Closing Exim would be the economic equivalent of unilateral disarmament in a world bristling with nuclear weapons.
Capitol Hill’s latest brinkmanship is ill-timed. In the past two years, Chinese development banks have lent $670bn in subsidised credit to help domestic companies win bids all over the world. This exceeds the combined value of all Exim guarantees since it was set up in the 1930s Depression. Never before has Congress balked at its reauthorisation. Tea Party Republicans say Exim distorts market outcomes at the taxpayer’s expense.
In fact, it provides credit support where none exists. No private sector bank will finance 15-year emerging market projects. Other non-US official credit guarantee agencies will readily step into the breach. Exim also turns a small profit for the US taxpayer by charging user fees and maintaining a low default rate.
Yet its critics seem impervious to the facts. Much like the scaremongering about the impact of vaccines on infants, Exim has become a victim of talk radio mythology.
If anything, now would be a good time to expand its balance sheet. The world needs trillions of dollars in infrastructure finance, only a fraction of which will be provided by unsecured private lenders.
That is why so many countries have rushed to join the AIIB and why the World Bank and the Asian Development Bank have welcomed the new arrival. There is more than enough demand to go around. The concern is that the AIIB will not adhere to best practices. At a time when the US is reluctant to fulfil its obligations to Bretton Woods institutions, let alone join any new ones, US companies will find it tough to win a slice of the pie in Asia and elsewhere. Exim’s standards are among the best in the world. It serves as a check on the crony capitalism practised by China and others. Closing it would sound another US retreat.
The concern is that Congress is too polarised to reverse the trend. Most Republicans disdain global bodies and most Democrats revile trade deals. Congress continues to block the 2010 US-led reforms of the International Monetary Fund. That is one reason China is setting up its own institutions.
There are signs Capitol Hill may be preparing to pass the fast track negotiating authority the Obama administration needs to wrap up trade deals in the Pacific and the Atlantic. That would be welcome. But Barack Obama will first need to take on sceptics in his own party. Hillary Clinton, his likely successor, has questioned the merits of another trade deal. Jeb Bush, her likely opponent, said he would close Exim.
There was a time when US gridlock imposed a price on others. Now others are imposing a price on the US. The world is no longer waiting on Washington’s prevarications.
