Executive Summary
The U.S. Export-Import Bank (EXIM), the United States’ official export credit agency (ECA), is an independent, executive branch institution that supports U.S. businesses by financing the exports of goods and services. EXIM creates jobs at home and has been an important national security instrument. From 2015 to 2019 the bank was dormant due to the absence of a board quorum and the lack of a reauthorization of its charter from the U.S. Congress. During the last 15 years, EXIM, once the global ECA gold standard, has been underutilized as it has struggled politically. Over this same period the global export credit landscape has evolved significantly, with governments around the globe using their ECAs more as instruments of industrial policy and to strategically boost their manufacturing competitiveness and strategic influence in critical emerging and frontier markets. Most notable in its ascendance as a global export credit player, the People’s Republic of China (PRC) has become a much bigger player in the space. At the same time, U.S. allies (and sometimes economic competitors) have also elevated their ECAs’ competitiveness and influence by offering more flexible terms and becoming more client-oriented compared to EXIM. As a result, EXIM not only has lost its global leadership position, but now is at a significant competitive disadvantage compared to its competitors, including the PRC, in the ECA space. The U.S. EXIM bank will need a new slate of board members in January 2025, as three of the four current board members’ terms end January 20, 2025, and EXIM faces a reauthorization in 2026, offering an opportunity to rethink what tools and capabilities EXIM should have.
Background
EXIM is a 90-year-old government agency that was established in 1934 during the Great Depression. The bank is fully owned by the U.S. government and operates under a renewable statutory charter. Furthermore, along with many of its ECA counterparts around the globe, EXIM adheres to the international rules on financing put forth by the Organisation for Economic Co-operation and Development (OECD). A goal of adhering to these rules is creating a level playing field for financing so that exporters in adherent countries compete with global competitors based on product and not based on which home country ECA can provide the most generous (and/or cheapest) financing terms. Interestingly, although the bank’s title includes the word “import,” it does not support U.S. imports, rather focusing fully on supporting U.S. exports to promote U.S. manufacturing jobs in communities across the United States. In FY 2023, the bank supported an estimated $10.6 billion in U.S. export sales and approximately 40,000 jobs across the nation. According to the bank’s charter, EXIM must “supplement and encourage, and not compete with, private capital.”
Why Is EXIM Important?
The bank’s two main functions are (1) to finance the export of U.S. goods and services when private financial institutions are unable or unwilling to provide capital and (2) to counter competition from the 115 foreign ECAs around the world. EXIM supports U.S. businesses by financing loans to foreign buyers of U.S. products, providing insurance for foreign buyers of U.S. products, and providing guarantees for these loans. During the past two decades, EXIM’s most active year was 2012, when the bank authorized a peak of $35.8 billion in support of U.S. exports. For a variety of reasons, from global macroeconomic and financial sector dynamics to domestic politics, EXIM has not reached this level of activity since then.
Leadership Structure
The bank’s board of directors consists of five members, all of whom are appointed by the president and confirmed by the Senate. To be considered fully functional in conducting business, the board must have a quorum of at least three board members. Currently, there are four serving board members, three of whom have terms that expire in January 2025; the fourth board member’s term expires in 2027. These members include President and Chair Reta Jo Lewis (term expires in January 2025), First Vice President and Vice Chair Judith D. Pryor (term expires in January 2025), Director Spencer Bachus III (term expires in January 2027), and Board Member Owen Herrnstadt (term expires in January 2025). Spencer Bacus III is the only Republican currently serving on the EXIM board, and the other Republican seat remains vacant.
EXIM Recent History
Despite EXIM historically enjoying widespread bipartisan support that led to relatively noncontroversial reauthorizations, in 2015 Congress decided not to renew EXIM’s charter, leaving the agency without a quorum and therefore without the ability to conduct major business. The bank was completely inoperative between July and December 2015, and for the following 3.5 years it was significantly hampered by not being able to perform any medium- and long-term export credit financing (the bank’s historical bread and butter). Instead, during these critical years of lingering global economic insecurity after the destabilizing effects of the 2008–09 global financial crisis, EXIM could only conduct insurance activities and short-term transactions worth up to $10 million.
Despite EXIM historically enjoying widespread bipartisan support that led to relatively noncontroversial reauthorizations, in 2015 Congress decided not to renew EXIM’s charter, leaving the agency without a quorum and therefore without the ability to conduct major business.
In May 2019, the U.S. Senate confirmed the positions of three nominees for EXIM’s board, restoring its quorum and its full authority to approve the financing of transactions above $10 million. In December 2019, the bank was reauthorized until December 2026.
A Changed Landscape
While EXIM’s work was significantly limited from 2015 to 2019, the global landscape of ECAs changed dramatically. During this four-year period, the number of official export credit providers across the globe grew from 85 to 115 entities, a 35 percent increase. Currently, members of the Berne Union, a mix of public and private ECAs, account for about $2.5 trillion in payment risk capital annually, supporting about 13 percent of global trade.
In the last 15 years, the PRC has become the top ECA financier by volume. The PRC is not only aggressively vying for global ECA industry domination, but it is also asserting influence beyond the trade/export financing sector in critical markets globally. The United States’ OECD competitors have updated and improved their approaches to be far more business friendly than EXIM’s policies, thus increasing their attractiveness to potential trade finance borrowers and manufacturing goods purchasers around the globe.
The PRC has two official state ECAs—the China Export & Credit Insurance Corporation (Sinosure) and the Export-Import Bank of China (China Exim Bank)—as well as the China Development Bank, which offers similar export-oriented support. Each of these three organizations has been rapidly expanding its work for more than a decade, though the past years have shown some decline in activity. According to the OECD, there is limited concrete data regarding these agencies, including their volumes and types of export credit support, as well as their terms and conditions. Sinosure is by far the largest ECA in the PRC. According to EXIM’s last annual report, support provided by all PRC export credit agencies reached $39 billion, or 14 times more than what was officially supported by the United States in 2022 for export credit volumes. In 2022, it is estimated that the PRC’s official medium- and long-term export credit support was $11 billion. In comparison, the United States’ official medium- and long-term export credit support stood at $2.7 billion.
As these data indicate, the scale at which the PRC is investing in export credit support globally is overwhelming in relation to EXIM’s comparatively meager volumes. This has been particularly true in recent years following EXIM’s peak activity during and after the 2008–09 global financial crisis. As such, it is unrealistic to assume that EXIM will be able to successfully compete with the current level of support from PRC export credit agencies in terms of volume. Notwithstanding, there is an opportunity for the United States to leverage EXIM’s capabilities and expertise more surgically and intentionally, thereby utilizing the bank as an impactful tool to counter PRC financing. This, in turn, would allow EXIM to have influence in strategic sectors and markets around the globe. During EXIM’s 2019 reauthorization, Congress took steps in this direction by adding a mandate for EXIM to establish the China and Transformational Exports Program (CTEP) to support U.S. exporters that are competing with the PRC. CTEP prioritizes the following 10 strategically significant industries: artificial intelligence; biotech; biomedical; wireless communications; quantum computing; renewable energy, storage, and efficiency; semiconductors; fintech; water treatment and sanitation; and high-performance computing.
The OECD Approach
In 1978, as the global trade environment became increasingly competitive, OECD members set guidelines for ECAs. The intent of these guidelines was to create a level playing field where prices of exported goods would be set by their quality rather than by subsidies and trade distortions caused by ECAs. The participants of this “Arrangement on Officially Supported Export Credits” (OECD Arrangement) are Australia, Canada, the European Union, Japan, New Zealand, Norway, South Korea, Switzerland, Turkey, the United Kingdom, and the United States.
In 2019, the European Union launched an initiative to modernize the OECD Arrangement to update its financial terms and conditions, which participants agreed to in principle in April 2023. Modernization would make the arrangement stronger and more flexible in facing the competitive environment set by non-OECD participants, including PRC export credit providers, as well as expand “green” transactions. The hallmarks of this reform effort included increasing the maximum repayment term from 18 to 22 years for climate-friendly projects and from 8.5 and 10 years to 15 years for most other projects, as well as accordingly increasing the minimum premium rates, or risk fees, for loans with longer repayment terms. “This effort ensures that the Arrangement continues to support a disciplined, level playing field for export credit agencies, while ensuring U.S. exporters are positioned to fully compete against the PRC,” according to the latest EXIM 2023 report.
Furthermore, the proposed changes were meant to streamline the provisions of the arrangement to provide more transparency among OECD participants in the ECA market.
Berne Union
The Berne Union is an international association for ECAs and the investment insurance industry more broadly, bringing together over 70 members from government ECAs, multilateral and development finance institutions, and private credit insurers. These members come from a range of developed and emerging economies. While the OECD decides what to implement within the ECA world, the Berne Union provides a platform for discussion among its members to assess the practical implications of regulations and industry changes. Importantly, the Berne Union facilitates more expansive and inclusive conversations on emerging markets finance that reach beyond the smaller group of ECAs that are party to the OECD Arrangement.
Recommendations
The following points offer several recommendations on how to respond to these developments in the export credit sector and the current ECA competitive landscape, aiming to recapture EXIM’s leadership position in this increasingly strategic sector.
- Extend EXIM’s reauthorization to 14 years in 2026.
The bank should be viewed as an instrument of U.S. national security. An example of EXIM’s ability to serve this critical national security function occurred in 2022–2023, when, with the support of EXIM, U.S. company SubCom LLC was able to lay a $600 million undersea cable from Singapore to France. In order for EXIM to serve this critical national security role, the market must be able to view EXIM as a viable and reliable long-term financing option for complex transactions such as this one. In an effort to reassure the market that EXIM will be a consistent and reliable financing option over the longer time horizon required to structure more complex transactions such as SubCom LLC, Congress might consider doubling the bank’s reauthorization to 14 years or simply permanently authorizing the bank.
- Seek an increase in EXIM’s default rate cap to 4 percent.
The House Select Committee on Strategic Competition between the United States and the Chinese Communist Party (House China Select Committee) made a recommendation to “legislate a permanent increase of EXIM’s default rate cap from two percent to four percent to expand risk tolerance, proactively invest in key sectors, and accommodate for global portfolio turbulence.” The default rate cap is the “total amount of the required payments that are overdue” divided by the “total amount of the financing involved.” Currently, the cap is at 2 percent, which lowers the bank’s willingness to support riskier ventures and makes it less attractive to clients. If the default rate passes 2 percent, EXIM’s ability to lend is curtailed. Congress should consider other alternatives to such a stringent response if EXIM reaches its default rate cap. Raising the cap would increase risk appetite within the bank and encourage clients to use its services, while still maintaining a conservative default rate compared to export credit providers in the commercial banking sector.
If the default rate passes 2 percent, EXIM’s ability to lend is curtailed. Congress should consider other alternatives to such a stringent response if EXIM reaches its default rate cap.
Another alternative is for Congress to completely remove EXIM’s statutory cap on its default rate. Typically, other countries’ ECAs do not have an institutional cap. For example, UK Export Finance, the Export and Investment Fund of Denmark, Finland’s Finnvera, and Export Development Canada, all some of the top-performing ECAs, are not limited by similarly stringent policies.
- Expand CTEP to other industries and offer even more flexibility for CTEP transactions.
Notwithstanding its recently instated CTEP policy, EXIM is still underleveraged and underutilized as a tool for countering economic adversaries in critical markets of influence across the globe. In addition to establishing EXIM as a long-term reliable financing option by extending or eliminating its reauthorization, which would also elevate EXIM to a more competitive position vis-à-vis its PRC counterparts, expanding the existing CTEP framework is critical to strengthen the United States’ ability to counter its economic adversaries, most notably the PRC.
Industries that fall under CTEP enjoy more flexibility and greater benefits. In an effort to better leverage EXIM to this end, in December 2023 the House China Select Committee suggested expanding the number of sectors covered by the program.
In the 2019 reauthorization, Congress added a mandate for EXIM to establish CTEP to support U.S. exporters that are competing with the PRC. EXIM should prioritize transactions that fall under CTEP. CTEP could also be made to be even more flexible. For example, companies interested in participating in CTEP should be immune from certain EXIM policies, such as industry-specific restrictions on exports, so the United States can be more competitive vis-à-vis the PRC.
- Review or replace domestic content policy.
Domestic content for EXIM financing should be lowered to 51 percent for all transactions. The world has changed dramatically in the last 40 years: now most supply chains are global, and competitive manufacturing is a global enterprise. The current domestic content rules for EXIM are out of date by decades, and they place EXIM at a significant competitive disadvantage not only compared to its OECD Arrangement counterparts but also to ECAs globally. For example, the U.S. Government Accountability Office published a report in 2012 stating that EXIM’s domestic content requirements were too stringent compared to those of other G7 ECAs. It is true that for industries that are part of CTEP the domestic content threshold was lowered to 51 percent in 2021. However, for other industries and for medium- and long-term transactions, domestic content rules reflect an 85 percent threshold.
The world has changed dramatically in the last 40 years: now most supply chains are global, and competitive manufacturing is a global enterprise.
Others have suggested fully replacing the domestic content policy with an approach that is based instead on export value and U.S. job creation. This is consistent with best practices of other state ECAs that have transitioned away from a domestic content policy.
- Allow EXIM to finance military content.
U.S. allies and adversaries use their ECAs to finance military equipment. Since there is even greater interest in U.S. military equipment, with many countries looking for alternatives to Russian or Chinese weapons systems, Congress should consider removing this restriction. “EXIM Bank is prohibited by law from financing defense articles and defense services,” states the EXIM website. The U.S. defense industry has close government oversight. Furthermore, the industry supports almost 2 million U.S. jobs. By using U.S. weapons, the United States’ partners also advance U.S. security, as there is stronger military interoperability. Given that this recommendation will generate some controversy, it is worth noting that EXIM is allowed to finance some “dual-use” technologies. A potential first step might be to expand what counts as “dual use” for the purposes of EXIM financing.
- Empower U.S. manufacturers in strategic sectors that are critical to U.S. national security.
By incorporating EXIM’s “Make More in America Initiative” (MMIA) into the bank’s charter, Congress could strengthen U.S. manufacturing companies that are critical to national security. The MMIA could simplify the process, as it would ease the obtainment of financing for manufacturers seeking to compete for global sales. This policy would encourage companies seeking EXIM support to be evaluated based on U.S. jobs creation—exactly what the bank is meant to do.
- Strengthen the bank’s operations.
It is important to streamline the bank’s operations and ensure that EXIM is fully staffed. Businesses want to make sure that their applications are reviewed promptly and that the bank’s services are delivered efficiently and effectively. This could be partially accomplished by reducing the amount of paperwork and making the process more user friendly and competitive, and the process could be further advanced by increasing staff and providing them with competitive salaries.
Daniel F. Runde is a 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.
This report is made possible by general support to CSIS. No direct sponsorship contributed to this report.
