Much like how an import tariff on sugar benefits some domestic beet and cane processors while harming confectioneries, beverage manufacturers, and other sugar-using producers, an Ex-Im-financed transaction benefits the exporter in question, while harming U.S. firms that consuming the export in question — even more so if the foreign customer is a direct competitor.
Using Export-Import Bank transaction data and input-output tables from the Bureau of Economic Analysis, the Cato Institute worked to estimate the downstream costs for each of 236 U.S. manufacturing sub-industries. The “net benefits” of Ex-Im were then calculated as the aggregated export finance subsidies received by each industry minus the downstream costs imposed on each industry.
The results indicate that, out of $50 billion in Ex-Im subsidies granted to non-aircraft U.S. manufacturers between 2007 and 2013, $40 billion shows up downstream, as costs imposed on other businesses.
The average company, in four out of every five manufacturing industries, incurs negative net benefits, meaning it is a “victim” of the Export-Import Bank. 189 out of 236 manufacturing sub-industries — as defined by the 6‑digit specification of the North American Industry Classification System (NAICS), which encompasses 21 broad manufacturing industries — incurred costs in excess of benefits, to the tune of an aggregate $2.8 billion per year.
The five broad industries incurring the greatest net ExIm-related costs are producers of electrical equipment, appliances and components; furniture; food; non-metallic mineral products; and chemicals.
Manufacturing firms in every U.S. state can also be counted among Ex-Im’s victims. The most important or second most important manufacturing industries in 47 states — in terms of added value to the economy — are among Ex-Im’s ten largest victims. Of those 47 states, Ex-Im has the most significant negative impact on North Carolina, Delaware, New Jersey, Virginia, Nebraska, West Virginia, and Maryland.
However, not all industries are Ex-Im victims. 47 out of 236 sub-industries, across 13 of 21 industry categories can be counted as Ex-Im’s “winners,” realizing $4.2 billion in annual net benefits. Viewed holistically, Ex-Im policies represent a net annual tax liability of $2.8 billion per year levied against 189 sub-industries, or $15 million per industry, and a net wealth transfer of $4.2 billion per year to 47 specific sub-industries. One would be hard-pressed to find a better example of a policy that “picks winners and losers.”
Policymakers should be wary of claims of Ex-Im’s costless benefits. They should know that the Bank’s policies reward a few companies while hurting many more. Appreciating the hidden costs is essential to any informed judgments about the future of the Export-Import Bank.