Last Tuesday was primary day for Virginia’s Congressional District 7. By now, we have all heard that Rep. Eric Cantor (the Speaker of the House) was handily defeated by an economics professor, David Brat. Could a primary election in Virginia have any impact on international business? Believe it or not it does and the impact could be huge. You are probably wondering, how can this be?
As an example, on the following day The Boeing Company (“Boeing’) lost approximately $3.7 billion in market capitalization (the share price went from $137.25 to $132.19). This loss in value was attributed solely to Rep. Cantor’s defeat. How can the defeat of a single representative, in a primary contest, be a catalyst for this drop in Boeings stock price? It is believed that Boeing will lose $10 billion in sales. How can that be?Have you heard of the Export-Import Bank? I had not before I read this article.
Rep. Cantor was in favor of reauthorizing the charter for the Export-Import Bank. What they do, amongst various activities, is help the sales of American goods by guaranteeing loans to overseas customers and providing working capital to manufacturing companies here in the USA. The Export-Import Bank works with multinational corporations such as Boeing and General Electric, as well as, smaller companies selling American goods overseas. The loss of Rep. Cantor dims the outlook that Congress will agree to the reauthorization of the charter.
If this government agency falls victim to Congressional inaction it very well may hurt domestic companies large and small. These companies will have a more difficult time selling products to foreign customers. This will directly affect the bottom lines of companies relying on the assistance of the Export-Import Bank and these companies may end up reducing their domestic labor force due to this inaction.
David
Excellent post David and enlightening commentary. an excellent illustration of how much policy matters for business, which is a major pillar of our course. I believe it very vividly illustrates why managers need to understand politics and acquire ‘repertoire’ of sensible responses to them, so they can be better prepared for their consequences.
and in a global world, whereby managers confront many governments, with different and often conflicting policies, the picture is much more complicated, and the need to study it more apparent.