Free Trade: Will the US Fail to Act?

Free Trade: Will the US Fail to Act?

May 25, 2015

The US Congress is currently debating two economic issues that are somewhat interrelated and critical to America’s remaining a world economic power, albeit if even at a somewhat lower level of influence than before 2008. The first is the debate over extending the mandate of the US Export-Import Bank (EXIM) past its June 30th expiration date, and the second is President Obama’s plan to conclude the Trans Pacific Partnership (TPP) Agreement, a free trade agreement (FTA) with 12 countries not presently included in any of the existing FTA’s.

For more than 80 years, the Export-Import Bank of the United States has played a central role in facilitating market access for US firms and for providing a fixed price on the uncertainty and credit risk of international trade. EXIM was forged in 1945 from the wreckage of a damaged global economy, in which the US was the world’s principal economic and trade guarantor. Many people and organizations involved with trade, including the US Speaker of the House and US Chamber of Commerce, believe that letting EXIM disappear would have serious consequences for US trade. No one would feel the harmful effects more than America’s small businesses, which make up 90% of EXIM’s customers and comprise 64% of net new private sector jobs according to the Small Business Administration (SBA). Although critics argue that EXIM only helps 2% of all US exporters, the bank’s financing options are useful to small business even though their large loans tend to go to the Boeings and Caterpillars of American business. While these large firms clearly benefit from EXIM’s support, that support trickles down to the small businesses that comprise their supply chains.

Dante Disparte, founder and CEO of Risk Cooperative, recently opined that “In the last few years of straitened times, putting an organization that paid back $675 million to taxpayers in 2014 in the crosshairs is a dangerous game of brinkmanship that is already harming U.S. exports.”

Simultaneously, negotiations on the Trans-Pacific Partnership agreement, which has its own critics in Congress, are winding down as well. By all accounts, if passed, TPP would provide US firms with easier access to 40% of the world’s GDP and would potentially generate $295 billion in new net economic output according to the IMF. Nevertheless, in the absence of full details as to what is contained in the agreement, significant room has been left for speculation and concern among lawmakers and corporate leaders (Access to the text has been denied even to those 600 “cleared advisors” who are supposed to be privy to the details on a confidential basis…a strange phenomenon for an open democratic society to be sure).

Massachusetts Senator Elizabeth Warren is probably the TPP’s most vocal critic, but even the more cautious Hillary Clinton has raised the right questions on what a good TPP would look like. Her spokesman, Nick Merrill, said: “She will be watching closely to see what is being done to crack down on currency manipulation, improve labor rights, protect the environment and health, promote transparency and open new opportunities for our small businesses to export overseas. As she warned in her book Hard Choices, we shouldn’t be giving special rights to corporations at the expense of workers and consumers.”

The question then becomes, as Congress approaches the summer recess, what will happen with these two issues? Both are trade related matters and Congress has been known to link such issues to the long term detriment of both. The House Freedom Caucus, a conservative group which is against giving big industry government benefits, claims it has almost enough votes to kill EXIM. As such, would a Congress disgruntled with the President let EXIM die because of its frustration over a lack of transparency on TPP?

It would be a shame for the US to become the only economic power in the world without an institution like EXIM in place and for American small business to be penalized by those who aim to limit or avoid government support for big business. At the same time, abandoning the TPP prevents both the expansion of the US business community’s access to foreign markets and deals and the strengthening of ties with those countries. Let’s hope that Congress carefully considers the options so as not to miss out on these crucial opportunities.


Sherwin Pomerantz


Sherwin Pomerantz is president of Atid-EDI Ltd., an economic development consulting firm with 26 years’ experience in assisting overseas companies and public entities in their export promotion and foreign direct investment attraction efforts.