The annual U.S. Export-Import Bank (EXIM) conference in Washington, D.C. where White House advisors Larry Kudlow (a free trader) and Peter Navarro (a trade hawk) spoke was a sad reminder of how inadequate the U.S. government is in its efforts to correct decades of bad trade policy and neglect.
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Before EXIM was shuttered a few years ago and then mortally wounded by special interests, the annual conference drew more than 2,000 bankers and exporters from across the globe. This year, it would be generous to say 500 attended.
As the bank soldiers on for its fifth year without the confirmation of a board and remains limited in supporting U.S. exporters, the rest of the world, with China leading the charge, has become embolden and is providing more subsidized export credit support for their industries than ever before.
With an arguably smaller economy, China spent almost $600 billion on export support last year, more than EXIM has provided in its 85 year history.
Whereas Germany, Japan, France, South Korea, Italy, etc., support anywhere from 3-9 percent of their GDPs with export credits, the roughly $3 billion EXIM supported last year is almost a rounding error in a $20 trillion economy.
On full display at the conference was the continuing evolution of American policymakers. Dr. C. Fred Bergsten, an old school internationalist and director emeritus of the Peterson Institute of International Economics, stated that the Chinese and the U.S. have broken with the orthodoxy of free trade and need to reverse their course.
His suggested remedy is to substantially increase resources to EXIM while pushing the rest of the world to agree to limit the subsidies they provide. Since he was one of the fathers of this original approach, with some modest success in curbing government export funding support, he suggested this could be done again.
Unfortunately, like most of the unwavering faithful to free-trade dogma, he has failed to realize the world trade architecture he had a hand in creating no longer works.
As for railing against U.S. tariffs and calling for open markets, he should know the comparative advantage offered by free trade is mirage. Since the U.S. doesn’t have the budget or appetite to match the Chinese export subsidies, or the budgets of our allies, does anybody really believe the U.S. can “discipline” the market as it may have done 30 years ago?
The firebrand Peter Navarro rightly pointed out China’s lack of reciprocity to free and open markets, which everybody understands, and Japanese and European allies barriers, which nobody wants to admit.
The Trump administration has finally raised public awareness to the “benign unfairness” of the U.S. throwing its borders wide open to international trade far more than its allies, all of which has been memorialized in the World Trade Organization (WTO).
Perhaps when we accounted for a third of the world economy and other countries needed access to our markets this approach to trade made sense. But with China about to eclipse the U.S. in output, what is the current rationale for this institutionalized asymmetrical arrangement?
President Trump has made it clear, free trade may be the goal, but reciprocal trade should be the way we get there, reducing the unsustainable billions of dollars of wealth transfer annually from the U.S. to our trading “partners.”
Larry Kudlow showed the tortured resignation pragmatic free traders have arrived at when faced with the cold hard realities of the global economy. While he doesn’t like tariffs, he understands why the president has had to use them to break down barriers and establish a more fair trading architecture.
Kudlow hates the idea of corporate subsidies to companies — particularly large ones — but given the rest of the world’s heavy use of export subsidies, he realizes the urgency to return EXIM to its rightful place alongside programs of most other industrial countries.
Reluctantly, Kudlow acknowledged that U.S. companies often compete overseas against governments, and if we are to level the playing field, we have to give them the tools.
For politicians to continue preventing EXIM from matching competition from South Korea, Japan and Europe ensures more and more supply chains will go offshore at the expense of U.S. workers.
To be sure, the Trump administration’s record on trade is mixed and too short a duration to determine its real success. But doing the same things in trade policy done previously all in the hallowed name of free trade while expecting different results is the very definition of insanity.
Few want to socialize American industry or control it with the government’s heavy hand, but when the rest of the world is using modern weapons, do we want to be standing on the battlefield with an antique rifle?
Not requiring other countries to lower their trade barriers reciprocally nor creating a meaningful deterrent against export subsidies by getting EXIM working again will continue the destruction of the American middle class and ensure the 21st century belongs to China.
Alan Beard is managing director of Interlink Capital Strategies, a Washington, D.C.-based financial advisory firm and fund manager focused on exporting and foreign direct investment in emerging markets. He sits on the Secretary of Commerce Trade Finance Advisory Council, which has an interest in helping the U.S. improve its ability to finance exports.