We hear much from our politicians in this election year about foreign trade being a possible spur to our moribund economy. But it is a complex subject not given to easy solutions.
To illustrate, I read an article yesterday in the business section of a local newspaper that would only appeal to, or be understood by, the foreign trade “cognoscenti.” The subject was increasing the limit on lending of the Export-Import Bank or Eximbank, the Feds main tool to keep American manufacturers of major export items, e.g. aircraft, power generation machinery, and earth moving machines, competitive in world markets.
The Eximbank provides financing at lower than market rates for major exports. All countries have their own version of the bank and in the competition for sale of say a fleet of commercial planes financing plays the most critical role.
I know the Eximbank since I had to salvage Exim’s largest ever exposure of financing in one country and for one item, nuclear power plants in Spain that involved some $8 billion in Exim financing. I also negotiated the sale of two large commercial aircraft that totally depended on financing. In a less expensive, but nevertheless very symbolic exercise, I negotiated the first Exim loan to a black owned business in the then still apartheid South Africa.
The issue now is Exim financing for major sales of US commercial planes to European airlines. Boeing is doing a full court press to get expansion of Exim lending authority to sell the next generation of planes. But American air carriers are equally fighting to stop this. Why? Well the airlines argue that the lower than market financing given by Exim to European airlines is in effect a subsidy to their European competitors for passengers that they cannot have.
Of course an even more subtle consequence is that in order to keep their costs down American carriers resort to subsidized financing offered by Europe’s Airbus to buy their planes. In effect the whole subsidized export financing yields a strange market in which European airlines buy American made planes while US carriers buy European made plans.
I repeat, foreign trade is far too complex to leave to the glib suggestions I see being offered in the context of an election year. Best to leave this subject to experts who are the only ones who can understand such arcane subjects as subsidized financing for exports.