The GOP's Tunnel Vision on the Export-Import Bank

Ask which of the two congressional parties is more in favor of free trade, and the answer is easy: the Republicans. If President Obama succeeds in concluding the Trans-Pacific Partnership negotiations this year, he will rely on GOP votes, including Tea Party Republicans, to get the deal through Congress. His own Democratic Party is strongly opposed.

But those same, pro-free trade congressional Republicans are increasingly determined to kill the U.S. Export-Import Bank, whose sole purpose is to help U.S.-based companies take advantage of the export opportunities opened up by free trade agreements. House Financial Services chairman Jeb Hensarling (R-TX) is holding a hearing today designed to drum up opposition to the bank. The new House Republican leader Kevin McCarthy (R-CA) has announced his opposition to renewing the bank’s charter, which expires September 30. Tea Party Republicans have targeted the bank as an example of “corporate welfare” and “crony capitalism” because its biggest users are--and this is truly shocking--the largest U.S. exporters like Boeing, Caterpillar and General Electric.

The bank’s biggest defenders on the Hill? House Democratic leader Nancy Pelosi (D-CA) and Senate Democratic leader Harry Reid (D-NV), who never met a free trade deal they liked. The AFL-CIO is also strongly in favor of reauthorizing the bank.

This odd split is only the latest example of the tunnel vision that afflicts both parties when it comes to the United States competing in a global economy. The Democrats have increasingly soured on trade liberalization, partly due to the implacable opposition of their union allies but partly because increased trade, while beneficial to Americans in many ways, has not delivered on the outsized promises made by its ardent supporters. But the Democrats’ preferred response--to block further deals or insist on conditions that most trading partners would never accept--is unrealistic. As we have seen over the past decade, Europe, Asia, Canada, Mexico and others have continued to tear down trade barriers while the United States mostly stood on the sidelines. The result is that investment is more likely to flow into those countries, resulting in fewer jobs and less production in the United States.

The Republicans, in contrast, are largely in favor of further trade negotiations, with the party’s pro-business and libertarian wings uniting on the issue. But they seem to think their job is over once the deal is signed and ratified, and that government has no role at all to play in helping the United States gain its share of the benefits created by these deals.

This is simply a fantasy. Other countries, especially China, are ramping up support for their exporters. The Export-Import Bank’s role is a small one, helping less than two percent of all U.S. exports. For a certain class of exports to developing countries--mostly aircraft and large infrastructure projects such as mining, telecommunications and oil and gas development--the bank offers various kinds of loans, insurance and loan guarantees to ensure that U.S. companies get paid. These are transactions that private sector banks are reluctant to finance completely because of the risks involved. Yet the Export-Import Bank, because it is backed by the full credit of the U.S. government, is able to do so. And its track record is impeccable--in the past five years it has actually earned $2 billion for the U.S. Treasury.

If the bank is shuttered, it’s not like those projects will disappear. Instead the contracts will go to European or Canadian or Chinese companies that are getting the same sort of export credit support from their governments (indeed, often more generous) that the Export-Import Bank currently offers. If American companies want to compete they will likely move production to other countries to become eligible for that financial support. Jobs will move with them.

In an ideal world, to be sure, there would be no need for such government financing. Indeed, working through the OECD, the United States and Europe have negotiated rules that quite sensibly restrain these subsidies. But no major country is willing to end government export credits, and the Chinese and other emerging markets have refused to accept the OECD rules.

We don’t live in an ideal world. We live in a world where countries are scraping for competitive advantage, trying to ensure that their citizens enjoy a reasonable share of the benefits from a growing global economy. In trade, that means opening new opportunities for U.S. exports wherever possible, and then using all the available tools, including government support where appropriate, to maximize the gains from those new opportunities. It should be simple--if only both of the parties would crawl out of their tunnels.