The Ex-Im Bank Helping to Level the Playing Field

By Michael F. Carmichael
April 19, 2012

Over the past few months Corp! has been examining the benefits of exporting goods and services as a way of growing our nation’s economy and adding all-important jobs for the workforce.

In a recent presentation to a business group, Fred Hochberg, chairman of the Export-Import Bank of the United States, explained his organization’s role in helping provide financing for foreign buyers who want to purchase American products and services.

Fred Hochberg, chairman of the Export-Import Bank of the United States.

Hochberg says that, from his perspective, “The rules of the [global trade] game have changed -“ and for Americans to continue to lead we must change the way we approach the global marketplace.”

From an historical perspective, Hochberg says, “For many years, our major competitors in export markets were Germany and Japan. Though we have a larger economy, we exported the same amount of goods. We were the number one exporter until 2002. Today, China is the second largest economy and the largest exporter of goods. And this trend will continue.” Citing some specific examples, he continued, “In 2000, the U.S. exported twice the amount to India as China; today China exports twice the amount to India as the U.S. In 2000, the U.S. exported three times the amount to South Africa as China; today China exports twice the amount as the U.S. to South Africa. In 2000, we did three times the amount of exports to Germany as China; today they lead by $20 billion worth of exports.”

Unlike most other governmental or private sector organizations, the Ex-Im Bank, according to their mission statement, “provides export financing products that fill gaps in trade financing. We assume credit and country risks that the private sector is unable or unwilling to accept. We also help to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters.” The SBA, for example -“ and Hochberg worked there earlier in his career, “helps provide financial support to companies, but it does not support their customers overseas.”

“With exporting only 14 percent of our economy,” Hochberg says, “that’s where we find there’s just not a good enough understanding [on the part of private lending institutions, like banks]. You go to banks and they often don’t understand export finance. Exporting needs to be no more risky than selling to someone in Michigan or Indiana.”

Leveling the Playing Field
The “level playing field” concept is one that Hochberg has embraced totally, and is a leitmotif throughout his comments. A significant obstacle to increasing American trade with other countries, he says, is that financing support provided to exporters by their governments. “China, India and Brazil today provide more export financing to support their exporters than the G7 [France, Germany, the United Kingdom, Japan, Italy, the U.S. and Canada] combined.”

Continuing his history lesson, Hochberg says, “Since our nation’s founding, our economic model has produced boundless opportunities, created unprecedented wealth, and raised the standard of living for generations of Americans from coast to coast. Today, that economic model, the jobs it produces and the middle class it has built is being challenged as never before. Not only from traditional competitive forces, but from the rise of state-owned enterprises and export credit agencies that are playing a growing, more influential role in the global marketplace.”

Ex-Im Bank chairman Fred Hochberg and the president of GE Transporation on a tour.

As the global economy grows -“ despite occasional financial setbacks, its growth trend continues -“ more countries need increased infrastructure, “roads, bridges, water systems, electrical power, you name it, health care, financial services, education. We’re good at that,” Hochberg says, “we excel at building those things.”

There’s a cautionary note, though. Not only are other countries supplying financing to their exporting companies, but to an alarming degree they own the companies themselves. Hochberg deals with a lot of CEOs of major U.S. corporations and cites Dow’s Andrew Liveris “who is no longer competing against other companies but is now competing against other countries for business.” Other CEOs share the same feeling, Hochberg explains, “the rise of state-directed capital-”combined with below market financing-”is threatening their export sales and their very existence in key markets. It’s hurting their bottom line, hampering their growth, and hindering our ability as a nation to compete.”

Hochberg then cites an additional statistic to show why Liveris and others are so concerned: “state-owned enterprises make up 45 percent of China’s economy.”

“American manufacturers have no problem going head to head with their foreign competitors based on the quality of their products-”and the service and expertise their companies provide. We can compete on the price-value relationship. But what you can’t see when you look at the competition’s products, particularly from Chinese companies, is the billions of dollars of government backing they receive. I see it from construction, to airlines and aircraft, to renewable energy and many, many other sectors.”

All this while, Hochberg says, “some in Congress are wringing their hands about our reauthorization [the Ex-Im Bank’s funding is only authorized through May 31st and they are rapidly approaching the limits on their lending cap]. Our competitors are licking their chops. There is a small, vocal minority in Congress that is trying to unilaterally disarm American companies -“ taking away an effective and necessary tool for doing business overseas. It makes no sense.”

To answer those reluctant congressmen, Hochberg continues, “I always like to stress that we are a self-sustaining agency, so we do all this work at no cost to the American taxpayer. In fact, during the last five years, the Bank has earned nearly $2 billion for U.S. taxpayers after paying for all of its costs.”

Jobs Through Exports
Assuming Hochberg and the Bank are able to continue their work after June 1, what is it exactly that they do? “My job, as Chairman of Ex-Im Bank, is to create and sustain American jobs through exports,” he explains. The Bank does it by providing “long-term loans for buyers of American made goods, receivable insurance for our exporters, and through working capital -“ similar to what we provide the Ford Motor Co.”

The Bank must be doing something right because, as Hochberg points out, “U.S. exports hit a record of almost 14 percent of GDP in the fourth quarter. That compares with a decade low of 9.2 percent in the second quarter of 2003. When you compare these increases with Germany, where exports are 46 percent of GDP or places like China, Canada or even in the U.K., where they are about 30 percent, you see how much room we have to grow.”

One area for growth, Hochberg says, is small and medium-sized businesses that aren’t exporting. “Getting more of these businesses exporting is one of my top priorities at the Bank. We are doing this by improving access to capital, expanding local and state export partnerships and better educating business leaders. Last year we launched Global Access for Small Business, a program designed specifically to help small businesses export their products and services around the world.”

“We did about $6 billion worth of export loans for small businesses last year,” he continues. “Eighty-five percent of our customers are small, and between us and the SBA we did about $8 billion. But, most of our focus is on the buyer side, so a foreign buyer has the resources to buy U.S. goods. We helped finance a deal between DMK, a U.S. company, and the Istanbul Fire Department. DMK sold them fire-fighting equipment that can work in an earthquake zone -“ it was about a $35 million to $40 million order and we financed the Istanbul Fire Department so they could buy those goods. It was sort of a turnkey situation -“ DMK could provide the equipment and the financing package. We also help a lot of foreign-owned companies who manufacture things here export their goods elsewhere. It helps make jobs for Americans.”

Hochberg cautions, however, “We can’t afford to design and engineer things here and then manufacture them overseas because ultimately the design and engineering will go as well.”

Hochberg says “We want to make sure that part of the sales proposition is also a financing package. It’s like going to college. No one’s going to college and then after they’re accepted they go ‘humm, how am I going to pay for this?’ No one is buying a large capital good without thinking about how to finance it. Financing and the sales proposition are much more closely linked than ever before.”

“It is not insignificant that when Chinese Vice President Xi was here there was an agreement to come to a more level playing field by 2014,” Hochberg reminds us. “That’s fast! We already have teams of people in China working on this. It’s not like a theory, we’ve actually begun work on it.”