Moving Forward: An Ex-Im Bank for the Twenty-First Century
March 2, 2021
In 2019, the Export-Import Bank of the United States (Ex-Im Bank) was revitalized and repositioned to compete within the rapidly developing arena of export finance. The 2020 Appropriations Act provided Ex-Im with an unprecedented seven-year reauthorization, transforming the institution into a key strategic and economic asset. As the Biden administration looks to establish a new platform for improving U.S. global competitiveness, it should consider the prospects of optimizing the Ex-Im Bank as an important vehicle for U.S. domestic industry and a highly effective tool for economic statecraft.
To compete within the world of export credit agencies (ECAs), the Ex-Im Bank must adjust to a changing global landscape and become a more dynamic organization by adjusting content requirements, engaging in interagency trade cooperation, shifting toward service-based exports, and expanding programming and outreach to small- and medium-sized enterprise (SMEs). The debate over the importance of the Ex-Im Bank is over. It is now time to focus on strengthening the organization’s capacity to engage in global competition and successfully promote U.S. interests abroad.
The Global Landscape for ECAs Has Changed
The world of export financing has shifted dramatically over the last decade. Between 2015 and 2019, there was a 35 percent increase in established ECAs, with 115 now located across 89 countries. The proliferation of ECAs is due in part to a defensive global response to the predatory efforts of the Chinese export credit system, which invested $33.5 billion in 2019 alone, more than three times that of its closest competitor. While other countries engaged in this area of competition, U.S. policymakers remained locked in debate over the value and relevance of the Ex-Im Bank. It was not until late 2019, under the auspices of Ex-Im president Kimberly A. Reed, and with the support of a bipartisan coalition, that the organization finally received reauthorization after five years of dormancy, during which it operated only on projects of less than $10 million. During this period of the Ex-Im Bank’s disengagement, however, the ECA landscape became hypercompetitive, with medium- to long-term export financing reaching a total of $223 billion in 2019, up from $114 billion in 2012.
Looking to the present ECA landscape, the Ex-Im Bank has only just begun to resurface in comparison to its competitors. According to the Bank’s 2019 Global Competitiveness Report, the current level of medium- and long-term export credit financing ($5.3 billion as of 2019) places the United States eighth globally, behind that of other industrialized nations such as South Korea ($5.8 billion), France ($6.2 billion), Germany ($10.5 billion), Italy ($11.1 billion), and China ($33.5 billion). Many foreign ECAs also maintain a competitive advantage over EXIM with respect to domestic content requirements—the current proxy for support of national industry and employment—as well as to more lenient financing eligibility requirements.
Furthermore, the world of ECA competition is divided by membership and participation in the Organization of Economic for Cooperation and Development’s (OECD) Arrangement on Guidelines for Officially Supported Export Credits. As of 2020, only 20 of the 115 ECAs currently in operation, including the Ex-Im Bank, remain compliant with the limitations and standards intended to foster fair and orderly competition within the global export marketplace. Among the 10-largest ECA providers of medium- to long-term export credits, which includes notable U.S. allies such as Germany, Sweden, Japan, and the United Kingdom, only the export credit systems of India and China remain non-participatory in the OECD arrangement.
Although there have been many improvements to the Ex-Im Bank’s global competitiveness—starting with its 2019 reauthorization and including the notable designation of $27 billion of its financing authority toward a Program on China and Transformational Exports—there remain further reforms to best position the bank for success within the export credit ecosystem. While the ability to go “dollar-for-dollar” with ECA competitors such as China remains unlikely, easily operationalized changes such as increasing the flexibility of eligibility and domestic content requirements, a more inclusive approach toward SMEs, a renewed focus on service exports, and improved cooperation between Ex-Im and other U.S. trade and development agencies will help to nurture a stronger, more competitive organization.
In the immediate term, changes to the Ex-Im Bank’s domestic content policy and financing eligibility requirements would reduce the organization’s rigidity and provide it with the necessary space to support strategic transactions and improve its overall market orientation within regions and sectors of both national and geopolitical importance. Currently, to qualify for full Ex-Im financing, the eligibility criteria require that exported products must maintain more than 50 percent domestic content and be shipped directly from the United States to a foreign buyer. Although a marked improvement over the Ex-Im Bank’s previous 85 percent domestic content requirement, when compared to the domestic content requirements of competing ECAs such as those headquartered in the United Kingdom (20 percent) and Korea (30 percent), the present deficiency in Ex-Im’s global competitiveness becomes apparent. To enhance Ex-Im’s ability to source deals and compete within transformational sectors, the lowering of domestic content policy—in conjunction with the introduction of a more dynamic set of indicators and criteria for a given transaction’s support of U.S. industry—would place it in a more dynamic position to protect domestic manufacturing and facilitate the export of U.S. capital goods and services.
Other opportunities for modernizing the Ex-Im Bank include the expansion of programming and outreach toward SMEs. While recent efforts by Ex-Im leadership have indicated positive momentum, there is still progress to be made through a shift to a “deal team” model of operation. Foreign ECAs, in addition to prioritizing the general inclusion of SMEs, have expanded their programming for small businesses to include SME capacity building and market development activities. According to Ex-Im Bank’s 2019 competitiveness report, these organizational activities include the linking of foreign SME suppliers with larger companies to integrate their products into company supply chains, the matching of domestic exporters with foreign buyers, and the provision of advisory services to domestic SME manufacturers so they can engage in the export market. In potential cooperation with the U.S. Small Business Administration, advisory and capacity-building activities present a substantial opportunity for Ex-Im to promote the role of domestic SME products in foreign supply chains and increase the organization’s current SME appeal. In addition to expanding programming, future leadership should also revisit its current outreach initiatives to ensure that the Ex-Im Bank maintains a high level of visibility across the broad diversity of the U.S. export market.
Further to internal adjustments, the new administration has the opportunity to encourage stronger cooperation and communication among trade and development agencies, particularly between the U.S. Trade and Development Agency and Ex-Im. The promotion of a collaborative atmosphere between the two agencies would allow the United States to pursue broader strategic objectives and take full advantage of its capacity to source and engage with financing opportunities abroad. Facing a rising China, it is crucial that Washington tap into its numerous resources to optimize cross-agency synergy throughout the “deal-making” process and to ensure progress toward both regional and strategic aims. The current administration might also consider expanding future cooperation to further include key external actors, such as multilateral development banks, international financial institutions, and other hemispheric and bilateral partners.
In the longer term, the Biden administration’s approach toward Ex-Im Bank reform would benefit from a focus on current changes in U.S. export trends and the rapidly growing demand for U.S. service exports. In 2019, while U.S. exports accounted for 14.4 percent of the global service export market, Ex-Im authorized only $665 million in service sector investment—12.5 percent of its total financing activities. While this reflects a substantial improvement from the $79 million authorized in 2018, there remains a strong opportunity for continued expansion and the pursuit of additional long-term, high-value transactions within the ever-growing U.S. service sector. To compete with the likes of China and other high-volume ECAs, the Ex-Im Bank must play to the strengths and nuances of the U.S. export economy. A refocus toward the service sector would be an advantageous place to start.
The Future in Question
While there are viable opportunities available to the Biden administration to improve the Ex-Im Bank’s global competitiveness, the organization’s trajectory remains reliant on grander trade priorities that new leadership should consider. These debates include whether the United States should utilize export credit financing to diversify supply chains and reduce its dependence on geopolitical competitors, whether the United States should place further pressure on India and China to join the OECD Arrangement on Guidelines for Export Credits, and whether the United States should pursue options of bilateral cooperation through nearshoring and co-financing efforts with its strategic and hemispheric partners. These are all critical questions to consider and, when answered, can easily be integrated into Ex-Im’s future strategy and activities.
While the reauthorization and recent changes of Ex-Im are laudable, the new administration has much it should aim to achieve. The future of the Ex-Im Bank is bright: through effective modernization and steadfast leadership, it can overcome the many challenges of its past and emerge as an indispensable tool for economic statecraft and the strengthening of U.S. manufacturing capacity.
Daniel F. Runde is senior vice president, director of the Project on Prosperity and Development, and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies in Washington, D.C. Alexander Mayer is an intern with the CSIS Project on Prosperity and Development.
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