McCarthy Rolls Over for Tea Party on Ex-Im Bank

Kevin McCarthy wasted no time getting right with the Tea Party after his election as House Majority Leader last week. The California Republican, whose ascension to the second-highest position in House Republican leadership came after his predecessor lost a primary to a Tea Party opponent, seems eager to make his bones with the hard right by killing the Export-Import Bank of the United States.

The Ex-Im Bank, which sells loan guarantees to foreign purchasers of goods manufactured in the U.S., has been around since the 1930s with the mission of making it easier for U.S. companies to sell their products overseas. In recent years, it has been a target of the rightmost wing of the Republican Party, which believes the private market, not the government, ought to be funding trade finance deals.

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Appearing on Fox News Sunday over the weekend, McCarthy told host Chris Wallace that the bank's authorization, scheduled to end in September, should be allowed to expire. "One of the biggest problems with government is they go and take hard-earned money so others do things that the private sector can do. That's what the Ex-Im Bank does," McCarthy said.

The problem, according to supporters of the banks, is that the private market simply won't do what the Ex-Im Bank does, at least not at prices that the small- and medium-sized businesses it serves can afford.

House Majority Whip Kevin McCarthy, R-Calif.
Bill Clark | CQ Roll Call | Getty Images
House Majority Whip Kevin McCarthy, R-Calif.

"The idea that the private sector will step in to do this kind of trade finance is not realistic at all," said Tony Fratto, former Deputy White House Press Secretary under George W. Bush, now a partner with Hamilton Place Strategies in Washington.

Most of the companies that benefit from Ex-Im Bank financing, said Fratto, whose firm represents the National Association of Manufacturers, are small companies doing businesses in markets where even large banks don't have the ability or inclination to offer loan guarantees.

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By way of example, he said, most U.S. banks "don't have the ability to price country risk or political risk in Tanzania."

The Ex-Im Bank has often been ridiculed as the "Bank of Boeing" because in certain years, transactions benefiting customers of the U.S.-based airplane firm have made up the vast majority – in dollar terms – of the bank's loan guarantees.

Supporters, however, point out that Boeing has only one real competitor, Europe's Airbus, which receives substantial subsidies from multiple European countries where it operates. And beyond Boeing, a large percentage of major industrialized countries have trade finance programs that benefit domestic producers.

The interesting thing about McCarthy's statement on Fox over the weekend is that only two years ago he was part of the Republican leadership team that helped shove a two-year Ex-Im Bank reauthorization through the House of Representatives. McCarthy voted for it in spite of substantial Republican opposition that required Democrats to make up the majority of votes in support of the bill.

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McCarthy made an effort to explain his change of heart in his conversation with Wallace, saying, "The last authorization with the Ex-Im Bank directed the president and the Treasury secretary to wind down the Ex-Im Bank, negotiate with other countries to wind them down, so we have a level playing field."

The legislation did, indeed, call on the Treasury to begin negotiations with an aim to getting major exporting countries to agree to cease all efforts to financially support their domestic industries. But justifying the withdrawal of support from the Ex-Im bank on the basis of the administration's inability to convince most developed countries to abandon a decades-old policy that greatly benefits their own economies seems, in the most flattering reading, naïve.

Multiple calls and emails to McCarthy's office requesting comment were not acknowledged on Monday.

The Californian, whose rose rapidly to House Leadership following his arrival in Washington in 2007, may now be facing one of his first major political challenges that will play out somewhere other than the inside-baseball world of internal House politics.

On Monday, the U.S. Chamber of Commerce and the National Association of Manufacturers announced that they would be conducting an "all hands on deck" effort to get the Ex-Im Bank's charter extended.

"Without Ex-Im, we're basically ceding exports, growth, and jobs to other countries," said John Murphy, the Chamber's senior vice president of International Affairs. "If Ex-Im isn't reauthorized, we'll see offshoring of jobs and a hollowing out of American industry. That's just unilateral disarmament. There are ready answers to all of the critics' concerns, and the business community will be vigorous in providing them."

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In a conference call on Monday, the U.S. Chamber's Tom Donohue and NAM president Jay Timmons were anxious to note that the Ex-Im reauthorization likely has majority support in the House if it were to come to a vote.

The problem is that McCarthy not only controls what comes to the floor (in consultation with House Speaker John Boehner) but can also direct the bill to various House committees, including the Financial Services Committee which is headed by Texan Jeb Hensarling, an avowed foe of the Ex-Im Bank.

The bottom line is that if McCarthy decides he wants Ex-Im dead, he can be the executioner, and there's not much outside groups can do about it.

By Rob Garver, The Fiscal Times