61ae8-exim-bank1The political brawl over the future of the Export-Import Bank, set to come to a head next month, represents two battles over economic policy—one global and the other domestic.

The Obama administration says the 80-year-old agency helps U.S. companies compete in a cutthroat trade race against other major economies as they step up export financing.

Republican opponents of the bank see it as a prime example of federal government overreach and are pushing to let its charter expire in a bid to draw private-sector capital to the arena.

It is hard to predict which side will prevail, but the battle is clouded by immense uncertainty over what the business world would look like without some form of government-backed trade finance.

“Logically, with more-open trade, and with more reliance on private finance, there should be a diminishing role for export-credit agencies,” said Eswar Prasad, a trade-policy professor at Cornell University. But with some countries’ reliance on exports to drive growth, he said, “the importance of such agencies has if anything increased.”

Veronique de Rugy, a senior research fellow and Ex-Im critic at the Mercatus Center at George Mason University, said getting rid of the bank might affect the price of credit in some deals, but that would be a small price for a fairer marketplace. The fact that companies “enjoy being able to borrow money at a much cheaper prices doesn’t mean that they cannot do it otherwise,” she said.

The agency’s mission is simple—to support U.S. exports—but how it advances that is increasingly complicated and combative. The agency helps large and small businesses sell products overseas through a combination of guarantees, credit insurance and loans, occasionally with direct White House involvement. But it also wades into thorny domestic issues, such as controversial new limits on greenhouse-gas emissions for fossil-fuel projects it funds overseas.

One result: The agency is positioned squarely in the middle of some of the world’s largest trade fights between nations eager to gain an advantage for their exporters. This includes battles with Europe over aircraft sales and fights over who wins huge Asian infrastructure jobs.

Ex-Im’s trade support is packaged in numerous ways, in part to compete with export subsidies offered in 60 other countries. In the past two years, Ex-Im’s biggest beneficiary, Boeing Co. BA -0.24% , has won contracts over European competitor Airbus in part because of the agency’s agreement to guarantee financing in 30 countries, from Morocco to Mexico. In 2013, close to 25% of Ex-Im’s guarantees went to Boeing. Similar figures for Airbus weren’t available, but the company disclosed in 2011 that 26% of its deliveries that year were backed by the export-credit agencies in the U.K., France and Germany.

Export-credit agencies helped Boeing and Airbus navigate the financial crisis, and government support for airline makers became so pronounced in recent years that countries agreed to ratchet back assistance in 2011. Last year, under new rules brokered by the Organization for Economic Cooperation and Development, export-credit agencies began to charge higher financing fees to airlines in wealthier countries that had better credit and less need for government support. Still, Ex-Im backed Boeing sales to 24 countries in 2013, down only slightly from 2012.

If the Ex-Im Bank stopped guaranteeing the financing for purchases of Boeing’s planes, what would happen?

“The big risk is that Airbus sweeps the checkerboard,” said Howard Pack, professor emeritus of business economics and public policy at the University of Pennsylvania.

It isn’t all about airplanes. In 2011, with the OECD’s permission, Ex-Im offered a cheap financing package to help American manufacturers sell 150 locomotives to Pakistan by agreeing to an uncustomary 12-year loan at a 3% interest rate. Pakistan accepted the U.S. bid over a competing China offer, delivering a big win for U.S. manufacturing. But now General Electric Co. GE -0.12% and Caterpillar Inc. CAT +0.39% are battling over which company ultimately wins the contract and gets the government support.

The agency also offered loans and insurance to back more than 3,000 other transactions last year, including things like popcorn and breathalyzers. Legacy Paddlesports, a small North Carolina company that sells kayaks, uses Ex-Im to guarantee payments from places like South Korea and Australia.

“It allows us to increase our sales overseas, and then in turn hire more people,” said Joe Mallory, controller at Legacy Paddlesports, whose company receives assurances from Ex-Im that it will backstop certain sales to foreign competitors. “It is a job creator as far as I am concerned. What they do with Boeing, I don’t really care.”

The agency’s longer-term political outlook will probably remain in doubt for some time.

With Congress split on how to proceed, Senate lawmakers are expected to try to attach a temporary extension of Ex-Im’s charter to a government funding bill, which must be passed by the end of September to avoid a partial government shutdown.

That would pose a test for House Republicans, many of whom have openly questioned whether Ex-Im should be reauthorized but aren’t eager for the second partial shutdown in as many years right before the midterm elections.

The likely scenario is that they agree to a short-term extension of Ex-Im’s mandate, possibly with some new restrictions on its involvement in trade deals. That would delay the bigger fight over the bank’s long-term future until the end of the year.