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Home Publications Blogs Beat the Press The Inner Protectionist Comes Out for the Export-Import Bank

The Inner Protectionist Comes Out for the Export-Import Bank

Tuesday, 24 June 2014 04:14

Suppose we proposed giving President Obama the option to put modest tariffs, say 2-3 percent, on imports of various categories of goods and services, if he felt it was important for the economy. Every right-thinking person would denounce this as crude protectionism. The argument for the export-import bank is essentially the same as the argument for selective tariffs.

The big difference is that all sorts of people who would be among the protectionist denouncers are making the case for the Ex-Im Bank. Today's effort comes from Joe Nocera.

His story begins, "In the real world, markets aren’t perfect." He then goes on to tell us that the Ex-Im Bank doesn't just help Boeing sell planes, it also helps thousands of small businesses export their goods.

Let's get out President Obama's selective tariffs. Suppose he imposes a 3 percent tariff on planes and aircraft parts. Defenders of the Obama tariffs will point out that this tariff is not only helping Boeing, but hundreds of small businesses that provides parts and services for these planes. See, in the real world, markets aren’t perfect.

We can point out that the government is actually making money off these tariffs, just like it does with the loans provided through the Ex-Im Bank, what's the problem?

At this point our free traders would jumping up and down yelling that we are paying higher prices for planes because of the tariffs. The government may be making money, but consumers are paying the price.

That's a good argument, but if our free traders have taken intro economics they would know that by diverting capital to the winners picked by the Ex-Im Bank, we are raising the price of capital for other firms. (Increased demand leads to higher prices.) This means that all the small businesses that are not privileged with subsidies from the Ex-Im Bank are now penalized by paying higher interest rates than would otherwise be the case.

In fact, we could actually treat interest rate subsidies and tariffs as interchangeable forms of protection. We can tell the plane and aircraft industry that it will have the option of either a 3 percent tariff on imports or a 3 percentage point reduction (this may not be the exact number) on the interest rate it pays on borrowing by getting loans through our protectionist bank. Is everybody happy now?

(In fairness, in the current economic environment of zero short-term interest rates and considerable unemployment, the impact of subsidized loans on borrowing costs for others would be essentially zero. However it is also easy to show that protectionist measures would increase output and employment in the current economy.)

Anyhow, it is possible to make an argument for the Ex-Im Bank, but it is an argument that people who like to boast about being free-traders should be embarrassed to make. See you at the Neanderthal dance.


Comments (6)Add Comment
Child Immigrants are Invading America and Dean Baker Wants to Talk About the Ex-Im Bank
written by Last Mover, June 24, 2014 6:43

Another screed from free market fundamentalist Dean Baker. Have you no shame sir, lecturing what is good for the goose is good for the gander?

Of course markets are not perfect. That's not the point, anymore than competition in sports is not perfect. The point is the standard it sets to pursue. It's a zen thing about getting there, not actually arriving.

That's why lopsided scores in sports don't draw many spectators. Why would anyone watch that when the best games are always the closest ones?

For example in America, business has always been protected as "infant industries" like children, until they grow up to compete on their own. This is readily evident by virtue of the prominence of young bullies who survived under protectionism to grow up and become economic predators.

Why mock the Ex-Im Bank for treating adult companies like children and extending their protections from infancy over the full lifetime of the company?

Why should an American based MNC be forced to compete with another MNC who gets subsidies from another government? Because otherwise it would never be a closely scored game on a playing field framed to appear "level", that's why.

Any economist knows competition drives resources to their highest valued use, just like it does in sports for the best teams and players when they compete with each other.

Do your part America and let the Ex-Im Bank help big business succeed where it needs help the most - exactly where it cannot compete otherwise and end up causing a lopsided score as the big loser it really is.

Focus instead on the real economic enemy, the export-import problem of waves of child immigrants invading America at will, walking across the border under protectionist policies so strong they look like right-to-lifers taking a stroll in park.
written by skeptonomist, June 24, 2014 8:49
The main argument for the Ex-Im Bank, as for other forms of interference in the international "free market", is that other countries are already interfering massively - private enterprise in the US goes up against other countries' national resources and their own protectionism. Nocera does not really make this case well.

The other reason to interfere, with tariffs if necessary, is to protect the standard of living of American workers. Big (and small) US businesses would like to reduce their labor costs by flattening wages worldwide. US workers would like to see those in other countries come up to our standard of living, but obviously they don't want to be dragged down to the much lower current worldwide standard. Some degree of protectionism is necessary for this. Currency valuation is a mechanism for flattening real wages internationally, not for avoiding this flattening.
Devalue the dollar?
written by Larry Signor, June 24, 2014 10:34
My favorite form of protectionism.
Tariffs Are A Fact of Life
written by James, June 25, 2014 12:24
Dean -- it would be helpful to point out tariffs are a fact of life. Most countries implement all sorts of tariffs on imported goods and sometimes on services. The US is not a tariff free zone. Several categories of imported aircraft parts get a dose of custom duties. For the year 2013, which is the latest data available, the US had custom duties at $2,239,750,403. A small number in comparison to the overall budget but it is money that is put into the federal ledger.
Protectionism - both pros and cons
written by Cindy King, June 25, 2014 2:20
Protectionism has its own pros and cons. It helps domestic industries to flourish but may lead to retaliatory action from other countries, diminishing prospects of our industries there.
The Ex-Im bank addresses a market failure
written by Stan Sorscher, July 02, 2014 5:36
Ex-Im does not lend money to Boeing or Caterpillar or GE. It doesn't charge interest or divert capital.

The Ex-Im bank performs a particular function in aa specialized and narrow market niche. Even large transactions can be unusual enough that commercial banks choose not to lend money. With the Ex-Im guarantee, the deal goes through. Ex-Im charges a fee. Deals guaranteed by Ex-Im have very good track records, and Ex-Im returns billions to the US Treasury, since fees charged exceed losses by a large margin. Maybe the commercial bank "was wrong" not to lend on its own. That's a market failure. Ex-Im is very good in its little market niche, and addresses the market failure on the part of large banks.

Even more so with small transactions and small banks. A small exporter may have a banking relationship with a community bank. The small bank and the small business perceive very high risk in unfamiliar transactions. Ex-Im (and state export finance assistance agencies) bring expertise and export finance products into a small market that would otherwise be left under-served by commercial banks.

It's legitimate for government agencies to step in where commercial markets fail.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.