I would submit that it's not, and President Obama claimed to feel the same way at his State of the Union earlier this year:
… It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized.
Unfortunately, that's exactly what is happening. Let me introduce you to something call the Export-Import Bank.
The Export-Import Bank of the United States (Ex-Im) exists for the purpose of backing U.S. goods sold to foreign customers that are unwilling to take a credit risk. Basically the agency, which was created in 1934 by those executive orders we all love so much, makes sure people in other countries buy our stuff and prevents things like "credit" from getting in the way.
One of the things that the Ex-Im currently does is provide foreign airlines loans at rates as low as 4% (vs. domestic carriers which pay much higher market rates). But remember, as great as these loan guarantees are, they are only available to foreign airlines, not U.S. airlines. This is because of something called the "Home Market Rule."
The Home Market Rule "prohibits airlines based in the domestic market of Boeing of the US or Europe’s Airbus (France, Germany, the UK and Spain) from getting ECA support. Instead these airlines must rely on commercial financing, which some complain is more expensive." The result of observing this rule is that U.S. airlines do not have access to the below-market rate financing opportunities that their own government agency is handing out to foreign manufacturers.
So what does all this mean? It means that whoever is selling an in-demand product to overseas customers might be doing pretty well for themselves.
Of the $9.3 billion in loan guarantees Ex-Im issued in fiscal 2009, $8.4 billion subsidized Boeing sales. In Ex-Im loan guarantees, private banks or foreign governments finance the purchase (by a foreign company or government) of U.S. goods, and Ex-Im underwrites the loan, putting the U.S. taxpayer on the hook if the foreign customer defaults. This allows Boeing to offer lower prices, and it guarantees that Boeing and the lender get paid. This is called public risk for private profit.
You may recognize this format. It's basically the international version of Freddie/Fannie home guarantees except these houses fly. The Examiner piece goes on to point out precisely what might go wrong:
For instance, Boeing landed a $2 billion-plus deal with the state-owned parent company of Air India. Bailed-out investment bank JP Morgan is lending Air India the cash to buy 68 Boeing jets.
That's when the taxpayer enters the picture. Ex-Im agreed at its June 11 board meeting last year to guarantee $2 billion of the deal. So, if Air India runs out of cash in the future, Ex-Im pays JP Morgan and Boeing -- with taxpayer money.
But would that ever really happen? Having the government guarantee sub-prime loans to enrich a select few American companies and sell product to customers that could not otherwise afford it has never come back to bite us, right?
Pew confirmed the data a year earlier and revealed that this same level of corporate welfare was being kicked out in 2007 & 2008 as well.
The Export-Import Bank (Ex-Im)—the official government agency subsidizing U.S. exports of goods and services—provided nearly two-thirds of its long-term loan guarantees over the last two years to a single corporate entity, according to analysis released today by Pew’s Subsidyscope project. In FY2007 and FY2008 combined, Ex-Im issued $15.3 billion in long-term loan guarantees. Of that total, almost $10 billion, or an average of 65 percent, went toward the purchase of commercial aircraft made by the Boeing Company, the world’s largest manufacturer of commercial jetliners and military aircraft combined. (emphasis mine)
With so many guarantees going to one American company, and with the other companies unable to access any of the low interest financing afforded to foreign customers, U.S. airlines have had to cut jobs in the thousands at a loss of hundreds of millions of dollars in employee income.
For instance, in 2006, Delta began nonstop flights from New York to Mumbai. But by 2009, the Ex-Im gave foreign competitor Air India over $3 billion in loan guarantees, which in turn were used to finance 68 Boeing 777-LR aircrafts at below market prices. The result was that "after confirming in June that it would move to its nonstop flight from Atlanta to Mumbai, India, back to New York, Delta Air Lines Inc. has now suspended the service altogether, leaving the airline with no nonstop flights between the United States and India."
Additionally, just last month American Airlines cancelled its nonstop flights to India and announced that it will lay off 150 airport employees.
Now comes word that the Congress is considering the reauthorization of the Ex-Im and may increase the cap on its loans and guarantees by as much as $160 billion. Something I'm sure we all agree is more spending for which we simply can't afford to be on the hook.
Senator Tom Coburn, in a letter written to Senators Reid and McConnell, had this to say:
We understand you are considering taking up the Export-Import Bank Reauthorization Act of 2011(S. 1547) during this Senate work period. While we are aware of the Export-Import (Ex-Im) Bank’s role in facilitating the export of U.S.-produced goods and services, Ex-Im is congressionally mandated to balance the benefits it provides to U.S. manufacturers against the harm it does other U.S. employers – a mandate the bank fails to follow.
We realize that Ex-Im’s authorization expires at the end of May and that the bank has publicly stated its concern that it will reach its authorized financing ceiling of $100 billion in the next few months. However, these impending hurdles cannot and should not prevent Congress from addressing larger, more systemic failures of the bank.
This is a complicated issue and one that I only know about because of the hard work of people like Senator Coburn. But the fact of the matter is that the Ex-Im is defying its mandate and providing a courtesy to foreign competitors that is detrimental to American interests, all to the benefit of only one American company.
We cannot continue to risk American tax dollars to finance our own competition. The Ex-Im authorization must be reviewed, and the mandates that are not being followed must be enforced.
Cross-Posted at Ben Howe Blog