The US Export-Import Bank (US Exim) has been reauthorised for seven years after legislation was signed by US President Donald Trump at the end of 2019. According to US Exim board member Judith Pryor, speaking exclusively to GTR, the new legislation is a “big achievement” and will enable the bank to better support its exporters and compete with trade rival China.
The bipartisan law reauthorising US Exim for seven years was approved by congress in December and has two primary goals: provide certainty to US businesses and workers that they can achieve sales overseas competitively and focus on the economic and national security challenges posed by China.
“We talked about reauthorisation before and I didn’t want to jinx it, but I couldn’t help but be very confident that it was going to happen, and it did. A seven-year reauthorisation is the longest in the agency’s 85-year history, so it’s a big achievement,” Pryor tells GTR. “I don’t want to say that there’s a specific plan for the next seven years but, as a government agency, we have a mission and a mandate and so our focus will be on that: to support US jobs through exports.”
The reauthorisation date was pushed back twice as it was lumped in with year-end government funding, prolonging the bank’s fate. Pryor says the bank can now assure businesses large and small that US Exim is back in business. “The number one complaint that we’ve heard from industry is: ‘we’re just not sure if you’re going to be around.’ This puts that to rest.”
It is no secret that US Exim has had a rough time of late; it was hamstrung for four years up until May 2019 as it lacked a voting quorum. In May, Kimberly Reed joined the bank as president and chair, along with Pryor and Spencer Bachus as board members, thus allowing the agency to resume financing and loan guarantees for projects over US$10mn for the first time since July 2015.
However, since May, US Exim has faced numerous stumbling blocks. Conservatives rallied to shut the bank down as they argued export credit agencies (ECAs) provide “corporate welfare” and only benefit large companies – aircraft manufacturing giant Boeing has been a target of this in the past, having been backed by the ECA for multiple billion-dollar deals. Meanwhile, there were whispers of a 10-year renewal for when the bank’s charter was due to expire in September. At the time, supporters said long-term reauthorisation would help “level” the playing field for US exporters who are having to compete with the more aggressive tactic taken by China to support its exporters.
A bone to pick with China
Pryor says that there are some “interesting elements” in the new legislation and while US Exim is working through the details to understand everything it will entail, a few things stand out. “The rising influence of Chinese financing in the world has given, not only the US export credit agency, but I would guess, all of the OECD ECAs, pause. How do we counter this? How do we ensure that what’s being done is being done fairly? That’s been our number one issue. Our congress is aware of that, having heard not only from Exim, but also from industry that it is losing deals to unfair competition, primarily from China.” She adds that if the US can compete fairly on the international stage, it will win against its ultimate trade rival.
A competitiveness report by US Exim published in June 2019 reveals that ECAs are taking a more aggressive approach to backing their exporters than they did historically. One of the key reasons for this is due to pressure from China, among other BRIC nations. China has never accepted the traditional ECA model, which fits within the Organisation for Economic Co-operation and Development (OECD) rules. The Chinese model includes state-owned banks – Sinosure and the China Export-Import Bank – and other financial institutions and schemes such as the Belt and Road Initiative, that have sprung up to offer a range of trade finance-related aid to meet the country’s ambitious economic goals.
To give an example of the depths of China’s capacity, in 2017, it backed more than US$140bn-worth of projects and transactions in Africa alone – a region within Pryor’s remit at US Exim. During the same period the EU supported approximately US$81bn and the US around US$14bn-worth of exports to the continent, she says. Although Pryor notes that US Exim was without a board and not fully operational at the time, the numbers are indicative of China’s power. “US$143bn in one year of financing from China in Africa is greater than Exim’s debt ceiling, which is US$135bn,” she says.
Green energy and supporting small firms
Other important parts of the legislation include renewable energy financing targets and US Exim’s small business mandate. “One of the other things that is in my portfolio is renewable resources and I am very keen to get Exim to lean in more significantly on renewable energy and anything else that minimises the carbon output in the power sector. Congress is keen on us doing that and one of the things that they have offered up in the legislation is for us to have: ‘no less than 5% of our lending authority is to be made available for the purpose of renewable energy, energy efficiency and energy storage.’”
About 90% of US Exim’s transactions in any given year involve small businesses, something Pryor says will continue under the new legislation. “Congress is challenging us to try to increase that threshold, the financial balance, from 25% to a 30% threshold,” she adds. Despite 90% of US Exim’s transactions involving small businesses, the vast majority of its revenues come from large transactions, which Pryor says are “frankly more stable and provide the bank the opportunity to support smaller business transactions”.