Hoffman Equipment Had a Deal. Then Trump Happened.
(Bloomberg Opinion) -- Hoffman Equipment Inc. is the kind of company politicians love to extol. Started as a trucking company in 1920 by two brothers, Bill and Harry Hoffman, it is now a dealership that sells heavy equipment like crushers and excavators. Its chief executive, 57-year-old Tim Watters, is Harry Hoffman’s grandson. The company has $75 million in annual revenue, 80 employees and a modest one-story headquarters in an industrial area of Piscataway Township, N.J. As family-owned small businesses go, it is a classic of the genre.
“Our domestic business has always been up and down,” Watters said the other day, as he and several Hoffman executives sat around a small table in his office. “Right now, it’s down. For us at least, this economy is tough.”
In the past, he’d picked up the slack by seeking out export deals, particularly in sub-Saharan Africa, which Watters describes as his company’s “sweet spot.” In 2013, Hoffman Equipment completed a $45 million deal with Cameroon’s equivalent of the Army Corps of Engineers for all kinds of heavy equipment: dozers, concrete mix trucks, wheel-loaders, you name it. Hoffman booked $20 million in revenue, while the other $25 million was distributed to the dozen or so equipment manufacturers that Hoffman brought into the deal. Most of them were also small, family-run businesses.
The Cameroon government was so pleased with Hoffman’s performance that it soon negotiated a second deal, which was signed in March 2015. It ordered 271 pieces of heavy equipment that it planned to store in depots around the country, allowing towns to lease the equipment when they wanted to do infrastructure improvements. This deal, which would include 15 suppliers, was worth $80 million.
It is simply not possible for a company like Hoffman Equipment — or any company, really — to get bank financing for a deal like the one it signed with Cameroon. Banks fear that if there’s a default, they won’t be able to take possession of collateral or recoup their money, as they could in the U.S. Thus, to complete a deal with a developing nation, U.S. exporters need backing from the U.S. Export-Import Bank. “We need them to step in to give our own banks confidence,” Watters said.
But by 2015, the Ex-Im Bank was no longer in a position to help Hoffman Equipment. Although it had been around since 1934, routinely reauthorized by lopsided votes, it had become the target of right-wing think tanks and their congressional allies. They argued that an Ex-Im Bank loan guarantee was an example of “crony capitalism.” It smacked of the government “picking winners and losers.” As the Texas Republican Jeb Hensarling put it, “The face of the corporate welfare state is the Export-Import Bank.”
Indeed, the Republican leadership was so cowed by the Ex-Im Bank’s extremist foes (backed, needless to say, by the Koch brothers), they refused to allow a vote on the bank’s reauthorization. When its authorization lapsed in June 2015, the Ex-Im Bank could no longer back new loans. Watters feared the worst: Congress would put the Ex-Im Bank out of business, and his export business would die along with it.
In the fall, however, the bank’s congressional supporters found ways to bypass the leadership and force reauthorization votes in the House and Senate. They passed overwhelmingly, 313-118 in the House, and 64-29 in the Senate. Watters remembers thinking that everything was finally going to be OK — his deal would get financed and he and other small-business owners could stop worrying about whether Washington was going to harm America’s ability to export.
And then Donald Trump was elected president.
The Hoffman executive who puts together big export deals is Musya Tumanyan, a Russian national who became an American citizen in 1984. She was a rabid Trump supporter even though during his campaign, Trump seemed to side with the anti-Ex-Im forces. Watters pleaded with her to vote for Hillary Clinton, arguing that if Trump became president, he would most likely kill the bank — and that would hurt not just Hoffman Equipment but also Tumanyan personally, because she had a big commission contingent on the completion of the Cameroon deal. (Tumanyan won’t say who she voted for.)
Once in office, however, Trump appeared to do an about-face, making encouraging statements about the importance of the Ex-Im Bank. It made sense: Trump was stressing the need to create good American jobs, and that is exactly what the Ex-Im Bank does, in giving small companies the ability to grow via exports. Once again, Watters breathed a sigh of relief. Once again, he was wrong.
In April 2017, Trump nominated one of the Ex-Im Bank’s sworn enemies, Scott Garrett, to be its new chairman. He also nominated four uncontroversial people to fill out the bank’s then-empty five-member board. (The chairman is the fifth member.) Even though the bank had been reauthorized, the lack of a working board was a big problem. Under the law, the bank cannot lend over $10 million without a quorum of the board approving the loan.
It was hard to understand why Trump would nominate Garrett, a former New Jersey congressman, if the president truly believed in the mission of the Ex-Im Bank. Garrett had proudly voted against its reauthorization and viewed it as a government agency the country was better off without. During his confirmation hearing, he insisted he wanted to reform the bank, not eliminate it, but his past statements caused even some Republicans to doubt his sincerity. In December 2017, the Senate Banking Committee turned him down by a vote of 13-10.
By then, almost three years had passed since Hoffman Equipment signed its deal with Cameroon. Its $80 million deal was among the $40 billion backlog waiting to be approved once the board had a quorum. Of course Trump’s four board nominees — who were approved by the committee at the same time Garrett was rejected — could comprise a quorum even without a chairman. But Senator Richard Shelby of Alabama, the chairman of the Senate Banking Committee and another fierce opponent of the Ex-Im Bank, put a hold on the nominees, preventing the full Senate from voting them in.
Since then, Shelby has been replaced as Banking Committee chairman by Senator Mike Crapo of Idaho, and he’s no longer the Senate’s point man in undermining the Ex-Im Bank. That role has been assumed by Pennsylvania Senator Pat Toomey, who has his own hold on the nominees. He has refused to lift it despite pleading from his fellow senators — the majority of whom want to see the Ex-Im Bank back in business — not to mention the hundreds, if not thousands, of men and women whose small businesses are being hurt because they can’t get backing from the bank.
Last month, in desperation, Tumanyan sent an email to Toomey’s office. She noted that four of the suppliers for the Cameroon deal were Pennsylvania companies, more than any other state. She talked about the president’s stated desire to reduce the trade deficit. She explained that both the Chinese and the Belgians had made attempts to steal the contract away from Hoffman Equipment.
“Unfortunately,” she wrote, “Hoffman International, the USA manufacturers and many vendors on the transaction are at a disadvantage due to the current policy towards US ExIm Bank.”
Steve Meredith, Toomey’s “constituent advocate,” responded with a two-sentence kiss-off. “Senator Toomey has been very public with regard to his position on the current status of the ExIm bank, and to my knowledge, that position has not changed,” read one of the sentences.
“One of the arguments that really drives me crazy is that the Ex-Im Bank is picking winners and losers,” Watters said. “Yeah, they are picking American winners over Chinese winners.” He pointed to one of the suppliers for the Cameroon deal, Schramm Inc., based in West Chester, Pennsylvania. The century-old company, which makes drilling rigs, has been running at 25 percent capacity for the last two years. If the Cameroon transaction came through, it would mean an order for Schramm of 10 rigs, enough to employ 24 people.
“We’re hand to mouth,” said Craig Mayman, Schramm’s vice president of sales. A 10-rig order would generate $9 million, doubling the number of rig units the company would manufacture his year. When I expressed surprise, he sighed. “Yeah,” he said, “it’s an oh-my-God number.”
The conservative opposition to the Ex-Im Bank is based on right-wing ideology, a set of pet phrases —“corporate welfare,” “crony capitalism,” “winners and losers” — that have no connection to what is happening in the real world. A great deal of damage is being done in the name of this ideological purity. When I asked Watters what would happen to his export business if the Ex-Im Bank were to go away, he gave a pained smile. “We wouldn’t have an export business,” he said. “It would be gone.”
Tumanyan still supports Trump. She blames the Ex-Im Bank’s problems — and Hoffman’s inability to close its Cameroon deal — on “the hard-liners” like the Freedom Caucus and Toomey. Watters, however, puts the blame squarely on the president.
“Trump controls the Republican Party,” he said, looking at Tumanyan. “You don’t think he can call in Toomey and tell him to lift the hold? If he chose to make the Ex-Im Bank operational, it would be so tomorrow. But he chooses not to prioritize it.”
I tend to side with Watters, but it doesn’t really matter which Republican is at fault. An agency that works as well as any in Washington has been sidelined, causing harm to small businesses, American exports, and businessmen like Tim Watters and Craig Mayman. Until that changes, the Republicans — and the president — will be more job destroyers than job creators.
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