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Memo To Senate Banking Committee: Ex-Im Bank Needs A Leader Who Believes In The Mission

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If the United States was not running a huge trade deficit, its economic growth rate over the last two quarters would have been above 4%. Instead, it was slightly above 3% -- not bad compared with the Obama years, but only about average for the last 70 years of U.S. history.

It doesn't have to be this way. If liberals were realistic about the impact of high corporate taxes and excessive regulation on U.S. exporters, they could do more for American workers than any welfare program ever will. And if conservatives were realistic about trade policy, America could reduce the outward flow of its wealth to countries like China and South Korea that have been eating our lunch for decades.

The Senate Banking Committee has an opportunity next week to impart some common sense to U.S. trade policy by rejecting the Trump Administration's nominee to chair the U.S. Export-Import Bank. That nominee worked hard in Congress to hobble Ex-Im Bank's effectiveness at a time when other major trading nations are hugely outspending Washington on financial assistance to exporters.

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Four other nominees to the Ex-Im board will also be voted on next Tuesday, and they seem to be highly qualified, competent people. But Scott Garrett, the defeated Congressman from New Jersey that the White House proposed as Ex-Im chairman, is the wrong person for the job because he doesn't believe in the bank's mission. If confirmed, he would likely use his powers as chairman to block major trade deals and impair the agency's operations.

In the process, Garrett would undermine the Trump economic agenda and reduce the potential of pending tax reforms to deliver greater economic growth. America would continue to be the only major trading nation in the world without a fully functioning export credit agency -- a world, I might add, where many governments will not even accept bids from foreign companies unless they are backed by guarantees provided by an export credit agency.

The only plausible way to explain why the White House nominated Garrett in the first place is to observe that new administrations often don't have their act together before key cabinet and staff positions are filled. How else can you explain proposing a chairman who disagrees with the President on the need for a fully functioning export credit agency?

As the President has correctly pointed out, Ex-Im Bank doesn't cost taxpayers a cent -- in fact, when it's fully operational it makes a profit by charging users fees for its services. To quote the president, "it actually makes money, it could make a lot of money." No kidding: the more deals Ex-Im supports, the more money it gives to the Treasury for deficit reduction or whatever else Congress wants to spend the money on.

So it's no surprise Ex-Im Bank is considered one of the best run federal agencies. Commercial lenders like working with the bank because the guarantees it provides reduce the risk of loaning to overseas customers of U.S. exporters. Without those guarantees, lenders might have second thoughts about dealing with countries like Ethiopia and Pakistan. But Ex-Im seems to be very good at sorting out who is creditworthy: the default rate on its loans is a fraction of 1% -- well below the default rates for commercial loans.

Somehow, free-market zealots like Scott Garrett have turned this good news story into a dark tale of "crony capitalism." If you want to see how crony capitalism really works, take a look at Ex-Im's counterpart in China. It outspends Ex-Im nearly ten-to-one on export financing, and unlike Ex-Im it doesn't require users to pay back their loans with interest. Maybe that's why the U.S. merchandise trade deficit with China is running around a billion dollars per day.

But China is not alone. Five dozen countries have export credit agencies set up to help home-state exporters, and some of them such as Canada are quite aggressive in wooing U.S. companies abroad by offering generous assistance. For instance, when Ex-Im support for big transactions lapsed thanks to legislators like Scott Garrett, General Electric shut a high-tech engine plant in Wisconsin and moved it to Ontario. Don't blame GE -- it says it can't compete without a friendly government on its side.

It is hard to divine what kind of alternate-universe thought process leads ideologues such as Garrett into thinking U.S. exporters can compete successfully without the level playing field that Ex-Im Bank provides. But they are putting that proposition to a test, because they have blocked the bank from supporting large transactions since 2015. By some estimates, the U.S. has lost $50 million in trade every day as a result. Think about how many U.S. jobs are also lost in the process.

The Senate Banking Committee has a golden opportunity on Tuesday to signal that it understands how global trade works, and reject a nominee who clearly does not. The crusade mounted to kill the Export-Import Bank by people like Scott Garret has destroyed many thousands of U.S. jobs and made it easier for China to eclipse America's economic power. If America is ever going to return to the days when its economy grew at 4-5% annually, it needs a fully functioning export credit agency. Scott Garrett is a threat to that goal.

Several companies that use Ex-Im Bank services contribute to my think tank.