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Opinion

How Dow Chemical's league-leading lobbying against free trade illuminates the folly of export subsidies

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Beltway Confidential,Opinion,Timothy P. Carney,ExxonMobil,Lobbying,Free Trade,Subsidies,Export Import Bank

Usually General Electric, Exxon Mobil, Comcast or Northrop Grumman lead the U.S. in federal lobbying. So far this year, though, Dow Chemical is the King of K Street.

The reason: advocates of free trade are threatening one of Dow's profitable privileges. The investor site Motley Fool explains:

The company's position is clear: LNG exports beyond a certain level are bad for business, and the economy at large, though this is a debate that may not be resolved anytime soon.

So Dow is probably lobbying to limit LNG exports.

The economics are fairly simple. Natural gas is an input for the stuff Dow makes here in the U.S. When natural gas extractors are limited from selling overseas, this artificially reduces demand in the U.S. for natural gas, thus reducing the price. Dow, effectively, gets subsidy (lower prices) at the expense of the companies that extract natural gas. Dow, of course, is permitted to sell its products all around the world, depriving American consumers of the same subsidy.

There are some important lessons here, none of which are new, but all of which deserve lots of repetition:

1) Free-marketeers shouldn't assume business is always on their side.

2) The media shouldn't believe liberals who attack free enterprise as the agenda of Corporate America.

3) Exports of Product X drive up costs for domestic users of Product X.

This last point is important, because it points us to an issue where the policy equation is the opposite: where the exporters are seeking to preserve their special favor from government, and this harms domestic users of exported goods — meaning the domestic users would benefit from free enterprise.

I'm talking about the Export-Import Bank.

Ex-Im extends taxpayer-backed financing to foreign buyers. This probably has the effect of boosting U.S. exports. As Dow's intense focus on curbing exports shows us, more exports of Product X drives up the domestic price of Product X. This is bad for the domestic users of Product X.

In a case of free enterprise, this has a way of working itself out. If Dow and Mexican Methane Users Inc. both want to buy natural gas in a free-trade situation, they'll bid for it, basically. This drives up Dow's costs. Maybe this just cuts into Dow's profit margins. Maybe it boosts the prices Dow's customers pay for their goods. And maybe it prices some Dow products out of existence.

But Dow's sails are trimmed only if Mexican Methane could find more productive use for some of the gas than Dow could.

With Ex-Im, it's different. Even if U.S. companies have the most productive use possible of some input (gas, tractors, steel, et cetera), Ex-Im tilts the playing field to the foreign companies, who get cheaper financing than they would in a free-enterprise case. So some consumption of U.S. goods is done by users who will make less productive use of it.

Our current policies are: subsidize exports of lots of things, and bar the exports of others. Both policies create inefficiencies. Here's a nice compromise: allow the export of nearly everything, but make the foreign buyers pay for the exports themselves, without putting the U.S. taxpayer on the hook.

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