How Will the Ex-Im Bank Battle Affect Business?

Some in Congress and industry want the Export-Import Bank shut down.

Jul 1, 2014 at 11:31AM

Reauthorization of the U.S. Export-Import Bank is usually a rubber-stamped affair in Congress. Not this year.

Lawmakers, interested parties, and competing business interests are gearing up for a battle over funding of the obscure government agency, which provides loans to foreign companies and countries so they can buy the goods of American businesses like The Boeing Company (NYSE:BA) and General Electric Company (NYSE:GE).

The Ex-Im Bank was envisioned to "create a level playing field" in "critical" industries. Supporters claim that it is needed to counterbalance subsidies offered by foreign governments such as that provided by European Union-member countries to the Airbus division of the European Aeronautic Defence and Space Co. NV (NASDAQOTH:EADSY). Airbus and Boeing have been battling it out for supremacy for many years, flip-flopping back and forth at the No. 1 and No. 2 positions.

Ex-Im detractors say that what the bank does amounts to corporate welfare that bets on certain industries and companies, all while fleecing taxpayers. On top of that, some corporations, like Delta Airlines(NYSE:DAL), suffer as the result of the practice.

Further complicating things are politics. Consumer advocate Ralph Nader and U.S. Rep. Jeb Hensarling (R-Texas) are on opposite sides of most issues, but they are united in wanting funding for the bank stopped. This group of opponents recently received a big shot in the arm when Rep. Eric Cantor (R-Virginia), a prominent Ex-Im supporter, was ousted in the GOP primary in his district. 

How will the fight affect business?

The case for renewed funding
Lobbyists for Boeing claim that it will be unfair to the company if the Ex-Im Bank doesn't provide loans to foreign airlines and leasing companies. The argument is that if the money was cut off, the carriers would simply go to Airbus to buy new passenger jets. Airbus can discount prices because of the subsidies received. 

Boeing and GE suppliers and employees would suffer, too, according to the crowd that wants to stay the course. The two companies together employ nearly a half-million people.

The case against renewed funding
Domestic airlines such as Delta don't get the same treatment as foreign carriers. There is really no "import" component of the bank, and U.S.-based companies have to go on the open market and borrow huge amounts to finance new aircraft deals, which are typically for billions of dollars.

There has been a lot of consolidation and turmoil in the airline industry, and until just recently, profits have suffered. Maybe domestic airlines need some help.  

U.S. taxpayers are the ones providing the Ex-Im Bank program funding. As the result, tax rates might be affected. Many tax-reform groups like the Tea Party would like to see the practice stopped. 

If funding is eliminated
If Congress removes funding, there could be a big shakeup in how some businesses operate. However, the bottom line would not necessarily be affected.

Boeing and GE -- and other large companies -- would probably need to shift their efforts to the other side of the pond and convince customers to buy their products by discounting prices or offering special financing deals. The auto industry does this on a regular basis. The industrial companies could also partner with big banks to do some deals. Again, not completely unheard of in the business world.

GE is a big supporter and benefactor of the Ex-Im Bank's services. GE sells products such as jet engines, turbines used for power generation, and medical equipment to companies and governments overseas. Any disruption in funding would cause havoc, at least temporarily. 

While in the short term, things could be affected, the net effect to business in the long run would likely be a wash once the dust settles. Investors who take a view that's longer than just a few quarters shouldn't have to worry. 

If funding is renewed
If the Ex-Im is allowed to keep functioning as is, the U.S. airline industry might have to keep consolidating in order to more effectively compete with foreign carriers that receive U.S. taxpayer money. Delta could be left out in the cold again. Boeing and others would continue to be beneficiaries. 

The bottom line is that the status quo, however measured, would benefit some and hurt others.

Foolish conclusion
The U.S. Congress will have to make a decision regarding funding for the Export-Import Bank. Its actions could have consequences for many American businesses and investors. Some could be affected negatively. If the Ex-Im Bank is cut off, the impact will be minimal in the long term. 

Let's see if the lawmakers do the right thing. 

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Mark Morelli has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information