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Perspective
15 December 2016

What does the Trump Administration mean for US Ex-Im?

Region:
Americas
Managing Editor
Last week Congress rejected an amendment that would allow US Ex-Im to function without a full board. However, the news that senator Richard Shelby – who has blocked new nominations to the board – has termed out as senate banking committee chairman bodes well for the ECA, as a new pro-Exim replacement is set to start on 3 January.

Last week Congress rejected an amendment that would allow US Ex-Im to function without a full board. However, the news that senator Richard Shelby – who has blocked new nominations to the board – has termed out as senate banking committee chairman bodes well for the ECA, as a new pro-Exim replacement is set to start on 3 January.

The Export-Import Bank of the United States (US Ex-Im) was branded "corporate welfare" by its conservative critics last week as Congress rejected an amendment to a short-term spending bill that would allow the bank to function without a full board.

The news means the export credit agency (ECA) remains unable to approve guarantees and direct loans greater than $10 million, and will continue to operate with just two board members as it has done for nearly 18 months.

The Obama administration proposed Republican Mark McWatters, a well-qualified candidate as the third board member, but the process largely failed because of the House opposition of congressman Jeb Hensarling and senate banking committee chairman Richard Shelby. Claudia Slacik (Democrat), formerly vice president, export finance at US Ex-Im, was also suggested as a nominee but again, this failed to move forward.  

However, when Congress closed last Friday Shelby’s two-year term ended and his replacement is, TXF understands, to be an advocate of US Ex-Im.

While supporters of US Ex-Im coined Shelby 'ignorant' for effectively blocking new nominations to the board, it is President-elect Donald Trump's negative stance over the ECA that has sent shockwaves of uncertainty through the exporting community.

Trump’s campaign rhetoric has labelled the bank “excess baggage” and “not really free enterprise”, but the President-elect’s pledge to protect US jobs should bode well for US Ex-Im’s longevity, according to US export finance experts.

Fred Hochberg, chairman and president of US Ex-Im, is confident that the bank's core focus on boosting the competitiveness of US exports abroad and preserving jobs at home dovetails with the President-elect's stated economic agenda.

"No one knows about Trump, or anything really," a US-based export finance expert close to the situation, tells TXF. “There is some progress as someone in Trump’s transitional team seems to have been nominated to look at US Ex-Im, but there is no clarity in particular. People are optimistic about the eventuality but not the timing. Trump’s team are going to have to name a new chairman as well as a couple of board seats for US Ex-Im.”

Despite the source’s optimism, there is no telling Trump's real standpoint on the ECA. One thing for certain is that the bank far from seeing the end of its troubles.

Should the government decide the winners and losers?

US Ex-Im has an 80-year record of supporting US jobs by financing the export of American goods and services. Its role has come under scrutiny since the bank’s de-authorisation back in June 2015 and now further uncertainty looms with the current Republican congressional opposition, and the unknown stance of Trump on the ECA.

William Laraque, managing director at trade consultancy US-International Trade Services, tells TXF: "The refusal to increase US Ex-Im's $10 million limit is mixed in with the entire discussion of President-elect Trump and the whole idea that it is not the government's role to determine who the winners and losers are."

“The incoming Trump administration is a plethora of military officers and investment bankers who have a very superficial knowledge of global trade. As you have seen, the US stock market and the US dollar have reached record heights with the mere advent of a Trump administration. The US has never needed this knowledge more."

Iran's recent order of 80 Boeing aircrafts will certainly provide Trump with food for thought, as US Ex-Im's current limit exempts Boeing – the largest exporter in the US – from tapping the use of state guarantees for banks financing its aircraft deliveries.

Historically US Ex-Im was an invaluable tool for Boeing to ensure financing for its commercial aircraft was competitive with other aircraft manufacturers around the world. Since the stalling of the ECA, both Boeing and General Electric have been moving production abroad.

"Trump is going to have a dilemma on his hands and he is going to have to reconcile this. No one is going to sit by and watch orders for 80 aircraft go by," says Laraque.

The shutdown is already hurting manufacturing jobs in Boeing's supply chain. In 2015, Boeing passed on $48 billion in business to 15,600 different suppliers across the US. As the US export finance expert says: "Trump's platform was all about jobs. If you want to have all those jobs, you have to have a US Ex-Im."

But all in all, there is widespread ambiguity surrounding the future of the US export credit agency, not least because second guessing Donald Trump is always going to be a tricky business.

Exemplifying this ambiguity, Laraque concludes: “I am not optimistic about any re-authorisation of the above $10 million US Ex-Im capability.  It would be considered an anti-populist political move at a time when the inmates will be running the asylum. The similarity of this political and trade policy climate and that of the Hoover administration in 1929 is uncanny.”

“[But] I don't think Trump spells doom for US Ex-Im because the bank has never been as potentially useful as it is now.”

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