Ex-Im Bank – A Carrier Plant a Day in Job Creation in Jeopardy
Written by: John Schuster, Founder & President, JLS Capital Strategies
A sad saga continues for a true U.S. success story as the U.S. Export Import Bank (Ex-Im Bank) remains under a dark cloud. In June of last year, Ex-Im Bank’s authorization lapsed. It was reauthorized five months later, but more than another year has passed without the bank being able to authorize deals over $10 million, as the Senate has not confirmed new Board members, denying the bank a quorum it needs.
What’s the next act under the new Administration? During the primary, Candidate Trump joined other Republicans in not supporting the bank. However, he did not oppose it, only saying “everyone wanted him to reject it”, and Ex-Im Bank wasn’t a general election issue. With his support of an infrastructure bank and Ex-Im Bank’s importance to U.S. manufacturing, President-Elect Trump should support the bank.
The President-Elect recently made news on the deal to save the Carrier Plant in Indiana. For the 750 people who still have a job as a result, this deal was an enormous success. Job creation is Ex-Im Bank’s core mission, and between 2008 and 2015 the bank created or sustained jobs at the rate of one Carrier Plant a day – 750 jobs a day, five days a week, 52 weeks a year, for eight years – or 1.6 million jobs.
This job creation is real and likely an underestimate of the bank’s importance to U.S. manufacturing, and is demonstrable on three levels.
First, every Ex-Im Bank transaction has to meet a test that the loan is needed, usually because of the overseas borrower’s access to support from another official export credit agency (ECA) to finance competing goods. Sixty other countries, including every major competitor to the U.S. has an ECA. If Ex-Im Bank won’t support a sale, another ECA will and the sale and jobs will go overseas. Seen in this light, the U.S. curtailment of the bank’s mandate is equivalent to a bad global trade deal or unilateral disarmament in global trade wars.
Second, the jobs that my former Ex-Im Bank colleagues and I helped create or sustain are specific and tangible. I cannot count the number of times the bank saved a “Carrier Plant” worth of jobs by supporting deals that kept plants going that otherwise would have cut back production or shut down, as was the case for plants in California, Ohio, Virginia, Colorado, and elsewhere. In the Carolinas and elsewhere, Ex-Im Bank also was responsible for deals that created the impetus for expanding or opening plants.
Most of us at the bank were from manufacturing regions, or were children of working class parents. A few were both. Many of our family members had started small businesses, including Chairman Hochberg, who would speak with pride of his family’s small business that was created at the kitchen table. We were proud to “give back” and help our country, especially during the time of the biggest economic crisis since the Great Depression.
I personally oversaw a long list of loans that saved jobs. There was the wind turbine production facility in Pennsylvania that stayed in business for years because of Ex-Im Bank. On a large petrochemical deal involving Michigan and Texas workers Ex-Im Bank’s support shifted billions of dollars of procurement to the U.S., including $600 million for small business. Had Ex-Im Bank not been there, other ECAs would have gladly provided finance to attract jobs and exports to their countries.
With the lapse in Bank authorization, tangible jobs impacts have sadly become negative. GE shut down a facility in Waukesha Wisconsin and opened a replacement facility in Canada, where its ECA was willing to support the plant’s sales. In Texas, the Carolinas, and elsewhere, companies responded to the loss of Ex-Im Bank by shifting production and jobs to countries that had ECAs, including France, the UK, and Germany.
In a fiercely competitive global market, asking U.S. companies to compete without ECA support against companies that do have ECA’s is unfair. Just to qualify to participate in many equipment sales solicitations, companies require ECA letters of interest. Even if the ECA is never used, its existence is critical. Without Ex-Im Bank, U.S. exporters don’t have a chance. The exodus of factories and jobs from the U.S. will continue.
Third, there is statistical evidence of Ex-Im Bank’s importance to manufacturing jobs. Ex-Im Bank played an important role in resuscitating manufacturing jobs after 2009, and the bank’s authorization problems have contributed to lower U.S. manufacturing employment.
Most jobs Ex-Im Bank supports are manufacturing jobs, and manufactured goods and associated services constitute most U.S. exports. People joke how lawyers or us financial advisors should be exported, but that’s not practical. Most exports are manufactured, put into containers, and shipped.
As shown in the graph below, when exports change, so do manufacturing jobs. Exports and manufacturing jobs generally grew in tandem during the 1990’s, and both declined after 2000. Following the Global Financial Crisis, exports plummeted, and manufacturing jobs went with them. In 2008 a half million jobs were lost; 1.6 million more were lost in 2009. By mid-2009, manufacturing jobs fell to 11.5 million, an all-time low.
That’s where Ex-Im Bank stepped in. A significant increase in bank activity after 2008 helped pull U.S. manufacturing out of its decline. As shown below, Ex-Im Bank increased its annual rate of job creation from about 100,000 jobs in 2008 to over 230,000 jobs in 2010, and up to 290,000 jobs by mid-2012.
Greater bank activity corresponded with a rebound in manufacturing jobs. In 2010 job losses stopped, and the U.S began adding jobs. By mid-2012, the annual rate of job increase reached 255,000, and remained at that level through 2012, when Ex-Im Bank’s activity also peaked. Other factors may have helped exports, including a 2008 fall in the dollar, but most job increases occurred when the dollar was fairly flat. Ex-Im Bank definitely helped U.S. manufacturing.
The rate of manufacturing job growth fell in 2013 but rebounded in 2014, while Ex-Im Bank job creation fell but remained high.
In 2015, when Ex-Im Bank’s authorization lapsed, leading to plant closures in Wisconsin and elsewhere, the rate of increase in manufacturing employment fell sharply. A stronger dollar contributed to weaker manufacturing employment, but job growth slowed well after the dollar stabilized. Job increases turned into job losses, and were a regular occurrence by February 2016. Ex-Im Bank’s rate of job creation fell from 100,000 jobs in 2015 to about 50,000 in 2016, and since March 2016 U.S. manufacturing employment has fallen at an annual rate of 50,000 jobs. This year’s job loss is remarkable in that it has coincided with increased exports, which is normally associated with manufacturing job increases.
While this is not statistical proof Ex-Im Bank’s authorization lapse and inability to approve large deals caused job losses, there is certainly a connection between Ex-Im Bank’s current status and manufacturing job loss.
What does this mean for the U.S. worker? In a competitive, free market global economy where jobs can move quickly across borders, being the only developed country to choose to close or restrict its ECA is a poor decision that will put the U.S. on the path to continuous decline.
There is a clear action item for the President-Elect to avoid this decline and re-establish job growth. Keep the bank open and give it the Board it needs to help U.S. exporters and U.S. jobs.