The Export-Import Bank of the United States (Exim), Washington’s official export credit agency, sits just five minutes to the northeast of the White House. But it spent years in dormancy, and its return to prominence in late 2019 took an administration willing to use government resources to counter heavily subsidised Chinese competition.
After four years of inactivity, and as US concerns over China’s aggressive state-subsidised financing grew, Exim reopened its doors under the directive of former president Donald Trump. As central-government lending bolstered President Xi Jinping’s ambitious Belt and Road Initiative, China steadily gained influence in developing countries, raising Washington’s fears that Beijing was challenging America’s global dominance.
Under its China programme, which began a year ago, Exim provides loans, guarantees and financing insurance “that are fully competitive with rates, terms and other conditions established by the People’s Republic of China,” according to the description on its website. It is authorised to give preferences in 10 areas, including artificial intelligence, robotics, biotech, biomedical sciences and wireless communications equipment.
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The approach, some policy watchers say, resembles that of China, which uses its state-backed economy to gain unfair advantages globally. To some degree, there is pressure on Washington to turn to China’s playbook, resorting to domestic policies that were once deemed less ideologically aligned with American values.
“The risk of China is that its success tempts us to screw up our own system, that because we haven‘t been able to beat them we’re going join them in [adopting] too much state intervention in the marketplace,” Daniel Rosen of the Rhodium Group said at a Centre for Strategic and International Studies event in January.
Exim’s revival is only one of the latest examples of how Washington has pulled out all the stops in countering Beijing. And the momentum isn’t likely to change as the Biden administration begins to review existing policies.
Like Exim, another federal lending agency, the Overseas Private Investment Corporation (Opic), has also made a comeback. Opic was struggling to get reauthorisation in 2017 and was criticised as corporate welfare and damaging to free market principles.
But a year later, US lawmakers passed legislation to create the US International Development Finance Corporation (USIDFC), which merged Opic into the new entity. USIDFC was given an expanded role with the lending budget more than doubling to US$60 billion, and a new authorisation to make equity investments to support US exports.
The USIDFC was established “to provide countries a robust alternative to state-directed investments by authoritarian governments and United States strategic competitors”, said the legislation, without naming China specifically.
When asked whether the agency’s revival could risk the adoption of unfair market practices, an agency spokeswoman said: “As America’s development bank, the US International Development Finance Corporation provides critical financial tools to the private sector to help them manage the risks associated with investment in promising yet challenging emerging markets.
“DFC supports and leverages the strength of the private sector. Its tools are available to companies around the world that are well-positioned to advance US development goals.”
Exim did not respond to a request for comment.
In its multi-agency approach to countering China, the Trump administration employed tariffs, executive actions and sanctions, among other tactics.
Along with starting a costly bilateral trade war, the US restricted American companies from doing business with Chinese tech giants Huawei Technologies and ZTE. Later, the Trump administration moved to block Chinese social media platforms like ByteDance’s TikTok and Tencent’s WeChat in the US, with the cases pending in US courts.
While largely acknowledging the national security implications of these companies, policy watchers questioned whether blocking their US operations risked descending into unfair market practices commonly used by China.
“Interventionist policies stimulate interventionist responses. That’s the nature of the game,” said Gary Clyde Hufbauer of the Peterson Institute for International Economics.
“China is the big country offering lots of support to their firms these days, so the US and others are responding to that with their own programmes,” said Hufbauer, who served on the advisory board of the Export-Import Bank during his time at the Treasury Department during the Carter administration.
There were some quick successes. Within months of renewed Exim support, the Pennsylvania industrial firm Air Products & Chemicals won a deal to export liquefied natural gas to Mozambique, a transaction that would have otherwise gone to China or Russia. The decision came in March, when the African nation switched to select the American bidder after securing a US$4.7 billion loan from Exim.
“This is a great example of how a revitalised Exim can help ensure the use of ‘Made in the USA’ products and services, without ceding ground to countries like China and Russia,” said Kimberly Reed, Exim’s president and chairman since May 2019.
The Mozambique loan was the bank’s biggest in its 87-year history and the deal won applause. Former secretary of commerce Wilbur Ross, in a White House meeting on national security matters in December, stressed the importance of giving Exim more lending power to fight China.
In a letter in August, former secretary of state Mike Pompeo said that “Exim must take every action necessary to neutralise export subsidies by the PRC, support US exports in 5G and other technologies key to our national security and prosperity, and ultimately to level the playing field for trusted vendors” through Exim’s China programme.
Lawmakers, including earlier critics of Exim, in December authorised the most drastic changes in the agency’s history to give it more lending power.
Under the new charter, the threshold for the amount of US content in exported products was dropped to 51 per cent from 85 per cent, which the agency had kept since its inception, to allow the bank to finance more deals. That lower threshold could also be eliminated for exports in 10 of the most strategic areas.
Congress is also considering raising the maximum loan default rate to 5 per cent from 2 per cent for the lender to pursue riskier deals in less developed countries, Reed said in December.
“We are able to finance 5G projects that we work with companies like Ericsson and Nokia,” she said recently about the changes. “We really want to see trusted allies and partners and trusted vendors being the choice for the world over companies like Huawei and ZTE.”
Exim was founded in 1934 under president Franklin D Roosevelt to help fund US exports to countries like Cuba and Burma with loans guarantees and credit insurance, But it was reduced to non-existence in 2015 after some Republican lawmakers refused to renew its charter.
It was cited as an example of big government providing corporate welfare benefiting big businesses – the Boeings and General Electrics of the world – and manipulating markets against smaller businesses. The critics argued that using heavy state-backed financing to gain advantage in global trade was ideologically un-American.
The bank was limping along even after the charter was regranted five months later. Senator Richard Shelby, a Republican of Alabama and then the Senate Banking Committee chair, refused to fill its board of directors so the bank couldn’t approve deals bigger than US$10 million, a move that resulted in more than US$40 billion of US export deals being held up, according to Exim data.
On the campaign trail in 2016, Trump called the bank “unnecessary” and “sort of a featherbedding for politicians and others, and a few companies”.
By 2018, Exim’s financing shrank to US$301 million worth of deals. That year, China’s state-backed lending ballooned to US$39 billion.
“The Chinese have supported more exports in the last two years than Exim has in its entire 85-year existence,” Reed said in 2019.
Reed, a former Treasury Department staff member under president George W. Bush, said not having a functional export-finance agency amounted to “unilateral disarmament”.
Across the globe, Chinese export finance and investment has quadrupled from about one-tenth of G7 activity in 2008 to a level equalling the G7 in 2018, according to the 2019 Competitiveness Report issued by Exim.
During the G7 summit in mid-December, Canada, France, Germany, Italy, Japan and Britain all expressed concern about China’s rise in government lending that gave Chinese companies advantages.
Governments need “to change the way they do business – or risk their exporters losing access to large swaths of key markets,” Reed said.
Today, lawmakers have asked Exim to set aside at least US$27 billion, 20 per cent of the agency’s total financing authority of US$135 billion, to the China programme.
When President Joe Biden took office on January 20, Reed stepped down. But the bank is safe at least through September 2026, when its charter runs out and needs congressional reauthorisation.
Under the Biden administration, it is clear that China will remain the top strategic rival to the US. Biden’s national security adviser, Jake Sullivan, is quietly restructuring the National Security Council to focus on China, according to Politico.
The administration’s China strategy will “include government investment for artificial intelligence, biotechnology, clean energy and other technology sectors China hopes to dominate”, Sullivan said on January 29.
That is consistent with a 2019 op-ed in Foreign Affairs that Sullivan wrote with Kurt Campbell, now Sullivan’s deputy and coordinator for Indo-Pacific affairs, in which they said: “government does have a role to play in advancing American economic and technological leadership.”
“Calling for a tougher line on China while starving public investments is self-defeating; describing these investments as ‘socialist,’ given the competition, is especially ironic,” they wrote.
The nominee to become US commerce secretary, Gina Raimondo, said at her confirmation hearing on January 26 that she “intend(s) to use all those tools to the fullest extent possible”, including the entities list, tariffs or duties, when it comes to China.
But, warned PIIE’s Hufbauer: “The problem is that free markets can operate in all countries that agree to practice policies for free markets to operate. We’re not in that world. That world exists in another universe.”
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