Without the essential financial guarantees that until recently were provided by the U.S. Export Import Bank, many companies across the globe are starting to feel the effects.
The Export Import bank shutdown was caused by political disagreements over spending priorities which caused Congressional Republicans to effectively close the bank by not renewing its mandate at the end of June. Without Congressional approval to manage its day to day business, the bank is effectively out of action as it cannot authorize new loans or provide essential guarantees for foreign companies in order for them to continue purchasing U.S. goods and services.
But the effect does not stop there, as many U.S. companies also rely on the bank for their export credit insurance policies which is hampering their efforts to boost revenue as the global economy slows down.
Exacerbating the Trade Deficit
With the U.S. trade deficit already at a three year high, the additional constraint caused by the lack of the Ex-IM Bank’s participation is likely to make the situation worse. When combined with the high flying dollar, exports are already seeing the effects with a drop of 3.2 percent in August.
The timing could not be worse as with most commodity prices already severely depressed, the revenue from some key U.S. exports such as wheat are already down. The low commodity prices are also reducing demand for farming and other key equipment from its trading partners particularly in South America.
With key customers abroad, who have the money to spend on U.S. products, now struggling to fulfill them without Ex-Im Bank guarantees, the situation starts to look bleak. Republicans have woken up to the situation and the banks supporters in Congress are working on getting its mandate re-authorized with a vote scheduled for later this month. But until then, valuable export contracts are going unfilled, forcing buyers across the globe to look elsewhere creating a customer drain that may not be so easily filled again.