Many Americans are likely to have to work until they are dead, not as a result of Social Security shortfalls but because of their inadequate 401(k) savings or the fact that they have no retirement plan at all. This disaster has not dawned on the mutual fund companies that manage retirement assets, much less debated on Capitol Hill. Given that the first wave of Boomers is scheduled to turn 65 in 2011, Attention Must be Paid.
Here’s the raw deal in a nutshell: Unless you’ve got Chief and Executive in your job title — including “Ousted Disgraced CEO” — you are probably pension-poor, even if you earn a six-figure salary. That’s because only 11% of the private sector population is covered by a regular pension. Unlike during the postwar Fabulous Fifties and the Soaring Sixties when America was a “fortress economy” and almost half of the private sector was covered, currently even most employees of big companies can’t count on one. Only 17 of the Fortune 100 companies offer a traditional pension to new hires.
The 401(k) plan that has replaced pensions was meant to be the icing on a pension cake when it was created 30 years ago, not a substitute for a pension. While 401(k) plans have been criticized as a risky, the more important failing is the typical stingy employer “matching contribution” equaling 3% of pay, the second lowest in the world. (There are some exceptions, universities typically contribute the equivalent of between 7 to 10% of pay.)
The rarely discussed rule of thumb for nest egg adequacy is that you need the equivalent of 10 times your “final pay,” or your salary near retirement, in your 401(k) AND rollover accounts. Unfortunately, most people will be lucky if they have a little more than “one time their final pay.” According to the Employee Benefit Research Institute, the median amount workers in that age group have saved is a mere $77,000 and the median salary for that age group is $61,000. What’s even worse is that 50% of the private sector population isn’t covered by any plan at all — pension OR 401(k).
While I have a feeling that President Obama would support genuine 401(k) reform if he knew what a pension pickle we’re in, his so-called 401(k) experts simply support “automatic enrollment,” in which employees with a 401(k) plan contribute 3% of their pay–one third of what is needed–without requiring a minimum employer contribution. In addition, these adherents of Rubinomics also endorse “automatically annuitization” of 401(k) account balances at retirement, ensuring lifetime employment for annuity salesmen but insufficient income for annuity owners. As for the 50% of the Americans with no plan at all? They get an “automatic IRA,” in which employees can contribute but employers don’t have to. Automatic Inadequacy! Thanks, guys!
At least the UK’s leadership is planning a fix to its country’s private pension system — because they don’t equate employer mandates with Godless Communism — even though a greater percentage of their population is covered by a plan and their 401(k)-style plans feature employer contributions that are twice as generous as that in the U.S.
Starting in 2012 virtually every UK employer that doesn’t currently offer a pension must enroll employees in a 401(k) style plan that features a minimum employer contribution of 3% of pay and 3% from the employee (smaller employers are phased in). Oh — and the government’s plan is for the account assets to be pooled, professionally managed and feature fees that are no more than .3% of account assets — about a third of what 401(k) participants pay on funds in their accounts.
It’s a disgrace that the most advanced country in the civilized world not only has the worst retirement system in the civilized world but leadership that can’t be bothered to fix it. But don’t just get mad, tell your elected officials to take action. I’ve proposed legislation that would require most employers to contribute the equivalent of 9% of pay — the same rate that Australian employers are required to shell out. Here is the link to the page on my company’s website that describes it. It contains a description of the bill, along with the names if the members of Congress who have oversights over pensions that your Congressperson needs to be in touch with.
Speaking with CNBC Europe from Lake Como, Italy, Nouriel Roubini, the widely followed chairman of Roubini Global Economics, predicted that the U.S. economy will continue to grow modestly, but that it will continue to feel very much like a recession. “The second half of the year is going to be worst than the first,” Roubini. “All the tailwinds will become headwinds”
By the end of the year more than 400 of the 800-plus institutions identified as “problem” banks will fail, Roubini said.
The U.S. economy may be technically growing, he added, but has hit “stall speed.” GDP growth below 1 percent, without hiring and an increase in demand, Roubini said, is essentially a “growth recession.”
The world economy will not be able to “decouple” from the U.S. consumer, he said. “In Europe, Germany is strong but the rest of the continent is pretty dismal. The rest of the world cannot cope without the prop of the U.S. consumer.”
As for solutions, Roubini advocated further spending. “What we need is credible spending plans over the medium term on health care, welfare and retirement age,” Roubini said. “This will create a fiscal constraint lasting well into next year.”
As a small-business owner, I don’t need to wait for the government reports of leading indicators and indices to know that there’s been a tightening in people’s willingness to spend over the long hot summer of 2010. The day-to-day experience of talking to clients and other business owners confirms that something is choking off spending for many as they hunker down for worse times ahead.
I’m going to lay some of this at the feet of President Obama but it’s more than just a matter of policy. Barack Obama is hurting the economy in a way that would have been hard to predict back in 2008 when even his harshest critics agreed that he showed qualities of charisma and leadership that caused so many to feel confident again in America’s future.
That feeling about whether things are going to be better or worse tomorrow drives people’s economic decisions at a gut level. It’s beyond ideology and party loyalty. What the economy is with dealing with right now is the death of hope.
The first wave of disappointment in Obama came from early decisions that showed that the outsider candidate we’d elected showed that he wasn’t going to be as big a change from establishment politics as we’d been led to believe. He replaced some Republican insiders with Democratic insiders, and left others in place. The cozy relationship between Wall Street and Washington remained. The military-industrial complex was safely in place.
All of these policy decisions caused no end of bickering among those who follow politics but most people just want to live their lives, pursue their careers and raise their family. Regular folks shrugged off the noise as rifts opened up in the Democratic Party between Obama loyalists and critics and in the Republican Party between Tea Party activists and old-school conservatives.
Then came the summer of 2010 and the BP oil disaster in the Gulf of Mexico was no longer about ideology simply about core competence. As the environmental and public relations dragged on, the realization occurred somewhere deep in the pit of America’s stomach — Obama doesn’t have what it takes to lead during a crisis.
We didn’t need Obama to act like the hero from a Jerry Bruckheimer movie and don scuba gear to plug the well himself. What we needed was simply someone in charge to hold BP’s feet to the fire and to tell us the truth but the drip drip drip of the summer’s oil torture made it clear that a straight story is too much to expect from the White House.
This sense that we’re back to the stumbling mess of politics as usual seems to have kicked in during the heat of July and August — call it a double-dip disappointment in the Obama administration.
Obama’s defenders love saying things like “this isn’t a dictatorship and change takes time” but what is required here isn’t iron fisted rule.
Just to name one example of stumblebum leadership, the Obama administration could have put the economy in a much better place simply by reading the Huffington Post columns of economists like Dean Baker and Robert Reich, who have a demonstrably better track record of prognostication then Larry Summers or Timothy Geightner. No one is calling for kangaroo courts and firing squads in the Rose Garden. It’s not dictatorial to fire people for incompetence.
There’s no area where the Obama administration is showing clear eyed, determined leadership — not in foreign policy, job creation, financial reform, civil rights, or immigration. Nowhere. Look wherever you like –, where is there any sense that Barack Obama is really in charge?
So how is running things? It’s the same people who’ve been running things into the ground for the past couple of decades. And meanwhile — everybody knows the boat is leaking.
If there’s a bright spot in all this, it’s that people and the economy adapt. There are amazing business opportunities right now and there are markets that are thriving. We’ll weather this bad patch but it’s still tragic that President Obama has squandered his potential to transform
In one of his most definitive statements on the subject to date, the nation’s central banker said Thursday that he expects some of the nation’s megabanks to start getting smaller.
“The most important lesson of this crisis is we have to end Too Big To Fail,” Federal Reserve Chairman Ben Bernanke testified before the Financial Crisis Inquiry Commission. “My projection is that, even without direct intervention by the government, that over time we’re going to see some breakups and some reduction in size and complexity of some of these firms as they respond to the incentives created by market pressures, and regulatory pressures as well.”
Throughout the legislative slog toward financial reform, Bernanke — like the Obama administration — resisted congressional efforts to break up the handful of too-big-to-fail firms that dominate the financial system. In May, however, a third of the Senate voted to effectively bust up the biggest of those giant financial institutions.
That effort didn’t succeed, but Bernanke attempted to put some lingering concerns to rest during his critical questioning by the panel created to investigate the roots of the financial crisis.
The nation’s four biggest lenders collectively hold about $7.5 trillion in assets, according to their most recent quarterly filings with the Fed. That’s equal to more than half the estimated total U.S. output last year, International Monetary Fund figures show.
Those four banks — Bank of America, JPMorgan Chase, Citigroup and Wells Fargo — each hold more than $1 trillion in assets. BofA and JPMorgan each have more than $2 trillion. The four giants control about 48 percent of the total assets in the nation’s banking system, according to Fed data collected through March 31.
In 2001, it took 16 banks to control half of the market, Fed data show.
During the height of the financial crisis, the same four firms received or benefited from hundreds of billions of dollars in taxpayer funds in direct equity investments and guarantees on debt and assets. Effectively deemed too big to fail, meaning that any one of their failures could have destabilized the financial system, the lenders were rescued from failure — and have since prospered, thanks to widening spreads between how much banks pay for funds and how much they charge borrowers.
“Too-big-to-fail financial institutions were both a source (though by no means the only source) of the crisis and among the primary impediments to policymakers’ efforts to contain it,” Bernanke wrote in his prepared remarks.
Yet when presented with the opportunity, the Obama administration declined to break up the banks. Instead, administration officials argued that a combination of stricter regulation, higher capital requirements and a new hybrid regime that combines bankruptcy with the Federal Deposit Insurance Corporation’s bank-failure process would send the message that these firms would indeed be allowed to fail, and that it would be too expensive for them to remain so large.
Noted economists, former bank regulators and some presidents of regional Fed banks have panned that reasoning.
The crisis commission seemed likewise skeptical Thursday, peppering Bernanke — as well as FDIC Chair Sheila Bair, who was next to testify — with questions regarding the new financial-regulatory law’s ability to end Too Big To Fail.
Bernanke told them that the breakup of the big banks, which Democratic Sens. Ted Kaufman (Del.) and Sherrod Brown (Ohio) could not get the Obama administration to rally behind, will happen naturally. In effect, it will be too expensive to be Too Big To Fail, and so the firms will get smaller.
But that process won’t be painless.
“Let me just be clear: this is not going to be easy to implement,” Bernanke warned. “I think the one area that’s going to take a lot of effort is the international element.” As an example, he said, likely referencing Citigroup, “one of the banks that we supervise has offices in 109 countries, each one with its own bankruptcy code and its own rules and so on.”
Prominent critics of the bill’s perceived shortcomings in ending Too Big To Fail — like Simon Johnson, a former chief economist of the International Monetary Fund and a contributing editor for the Huffington Post — have pointed to the byzantine structures of massive international lenders like Citigroup and JPMorgan Chase. It’s nearly impossible to shut down a U.S-based megabank with extensive overseas operations, they warn. Regulators will thus feel pressure to simply keep them alive.
One top FDIC official said the new bill, guided through Congress by Senate Banking Chairman Christopher Dodd (D-Conn.) and House Financial Services Chairman Barney Frank (D-Mass.), may not have made a difference when it came to resolving the fate of Wachovia, a firm that wasn’t allowed to fail and instead was taken over by Wells Fargo. Wachovia’s creditors were saved from losses.
“Taking the new rules, you all seem to have gained a lot of comfort with some of the new legislation that’s passed about the ability that you will have in the future to be able to govern situations where firms may fail,” Heather H. Murren, an FCIC commissioner who until 2002 was a managing director of global securities research and economics at Merrill Lynch, told Wednesday’s panel of FDIC, Federal Reserve and former Treasury officials. “And I’m curious about what would have been different if you were to apply the rules that we now have today at the time when you were looking at situations like Wachovia.
“So then how would your body of knowledge have been different, and how might the outcome have differed had we had those rules instead of what we had at the time?” asked the former highly-ranked equity research analyst.
After a polite back-and-forth in which John Corston, the acting deputy director of the unit overseeing complex banks at the FDIC, explained the situation during those tense moments of the crisis when regulators were debating whether to allow firms to fail or bail them out, Murren finally asked: “So then the outcome might not have differed, it just would have been a little bit easier as you went along?”
“It might not have differed, but it certainly would have been — I think we would have then made much more informed decisions,” Corston replied.
Bair, his boss, was adamant that too-big-to-fail firms on the cusp of failure will be shut down in the future. Firms of systemic importance also will be required to present blueprints on how they’d be shut down should they approach failure. Bernanke and Bair both argued that this would have been invaluable during the height of the last crisis.
Bair said that companies that don’t comply with the new rules — or if regulators feel that some part of the firm poses too much of a threat — will be forced to divest parts of the firm so that it “no longer creates undue risk to the financial system.” Bernanke echoed that point during his testimony when he said regulators could make firms unwind to make dealing with their potential failures “feasible.”
Given policymakers’ proclivity for bailing out and propping up too-big-to-fail banks, though, questions remain as to whether they’ll follow through on these threats.
“When it’s crunch time, that’s when the test will come,” said FCIC commissioner Byron S. Georgiou. “A healthy skepticism about it is appropriate.”
The commission’s 43-page preliminary report on Too Big To Fail, released in conjunction with the two-day hearing, details the nation’s recent history of bailing out massive banks and their Wall Street cousins, like hedge funds and securities firms.
During the Great Depression, the government rescued a number of large banks. But it didn’t happen again until 1974, the report notes.
Then in 1980. And again in 1984 — though this time, policymakers admitted outright that some firms simply were too big to fail.
“During a hearing on Continental Illinois’s rescue conducted by the House Committee on Banking, Housing, and Urban Affairs in September 1984, Comptroller of the Currency C. Todd Conover stated that federal regulators would not allow any of the eleven largest ‘money center’ banks to fail,” according to the FCIC report. “Representative Stewart McKinney of Connecticut, a member of the committee, declared that ‘[w]e have a new kind of bank. It is called too big to fail. TBTF, and it is a wonderful bank.’”
The next day the Wall Street Journal headlined its piece on the hearing, “U.S. Won’t Let 11 Biggest Banks in Nation Fail — Testimony by Comptroller at House Hearing Is First Policy Acknowledgment.” At the time of its failure Continental Illinois was the nation’s 7th-largest bank, the FCIC notes.
Policymakers went on to rescue several large firms throughout the 1980s and the early 1990s.
Then Congress passed a law in 1991 attempting to end bailouts — just like this year. It was useless during the most recent crisis, which saw two notable failures — Washington Mutual, a lender, and Lehman Brothers, a securities dealer — but several rescues of firms like Bear Stearns, another dealer; AIG, an insurer; the nation’s biggest and smallest banks; and money market funds.
Because of the crisis, large firms swept up their almost-as-large competitors. JPMorgan Chase, for example, took over Washington Mutual, a $300-billion lender. At the time Wells Fargo took over Wachovia, the latter was the nation’s fourth-largest bank.
“There’s been a concentration of size and strength, obviously a disturbing trend,” Georgiou said. “It doesn’t give one a great deal of confidence” that regulators will be able to allow these firms to fail should they be near failure, he added, “but we hope for the best.”
The last crisis, regulators and some academics stress, was a liquidity crisis — there was a run on the banks. Money was no longer flowing, and so policymakers had to do whatever they could to ensure the markets didn’t completely freeze, taking down the whole economy with them.
Others have argued that if one of the nation’s largest firms runs into trouble — a Bank of America, for example — it’s likely that because of the interconnectedness of the megabanks, BofA’s failure would likely simultaneously cause the failures of other large institutions. Another crisis would ensue.
Asked if he thought regulators would be able to shut down one of the nation’s largest banks if its failure could cause other big banks to fall, Douglas Holtz-Eakin, another crisis commissioner, responded with a question of his own: “Are you going to pull the trigger and wind down the six largest financial institutions simultaneously?”
The answer was clearly no.
READ the FCIC’s report:
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Shahien Nasiripour is the business reporter for the Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.
It’s a classic move by an industry player feeling the squeeze of pending regulation: Hire a lobbying firm to create the appearance of widespread opposition via a carefully stage-managed astroturf campaign. One of the latest outfits to give this strategy a try: Education Management Corporation (EDMC), a multibillion-dollar heavyweight in the for-profit higher education industry that’s the subject of multiple lawsuits and ample criticism from investors, lawmakers, and government officials who accuse the company of a range of deceptive business practices. The company, whose majority stockholder is Goldman Sachs, recently hired a GOP-linked lobbying shop known for its astroturfing prowess to fight a proposed federal rule that has the entire industry fretting about its future.
It is notoriously difficult to get a handle on China’s property market — the bears talk about imploding ponzi schemes, while the bulls cite the pace of urbanization and the comparatively low amount of leverage most Chinese have on their properties.
More worrying, say the analysts, is the amount of potentially duff loans that have been dished out to China’s local governments which threaten to weaken China’s banking system, which is scrambling to recapitalize at the moment.
Could you read another report that shows how little Americans have saved for retirement in these troubled times? I know it’s difficult, so I came up with a simple formula for figuring out how much you need.
Pencil in how much money it would take for you to live comfortably for 25 years. Include items that are not covered by insurance – deductibles, travel, home maintenance, taxes. Then project how much Social Security and retirement income you will have by the age in which you cast that not-so-longing last glance at your office door.
The difference between your comfort zone amount and your retirement kitty is the worry gap. That’s the amount you need to make up by working longer, saving aggressively or downsizing your lifestyle.
For millions, the worry gap is a pretty deep crevasse. It’s hard to fill it up with money when your 401(k) is underfunded and the bills keep arriving. In a job-losing, no-raise economy, it looks like a bottomless pit.
A recent survey – one that I always take note of – showed that some two-thirds of those polled in the two lowest pre-retirement income levels will be running short only 10 years into retirement. These folks, as monitored by the annual Employee Benefit Research Institute’s (www.ebri.org) “Retirement Readiness” study, are saving the least for retirement.
Yet even those in the highest-income groups are still going to be facing problems paying for basic expenses and uninsured medical bills. Remember that Medicare has co-pays for hospital and medical services and is in severe fiscal trouble.
The EBRI study also broke down who was most at risk. “Early” boomers (those aged 56-62) had a 47 percent chance of running out of retirement funds. Their younger peers (ages 46-55) and “Generation Xers” (ages 36-45) are about 44 percent at risk.
Where do you stand? If you are going to come up short, there are myriad ways of conquering the worry gap. Here are some options:
⢠Downsize. Do you expect to live in the same space when you’re older? Can you live in half the square footage? A smaller home or apartment lowers your living costs. A move from a single-family home to a condo, co-op or townhouse can mean lower property taxes, maintenance and financing costs. This makes most sense for empty nesters. The key theme is that the American Dream shouldn’t be tied into the size of your shelter — it should revolve around what you can afford and how much you save.
⢠Rethink Retirement. For many, completely retreating from the workforce completely is a bad idea. It may lead to poorer health, early death and annoying one’s spouse/partner full time. Being in the workforce longer means continued benefits and the ability to save. You may also get a free match in an employer savings plan. If you suffer from a disabling condition or chronic illness, this is not an option, so look at how you will cover medical expenses.
⢠Automate Savings. If you’re in a 401(k), sign up for automatic enrollment and increases. If you don’t have to think about contributions, you’ll save more. Even if you don’t have an employer plan, you can set up auto-debits into Individual Retirement Accounts.
⢠Fund Your Roth. Roth IRAs and 401(k)s are looking good right now. While your contributions are taxed, your withdrawals are not (subject to a few rules). Most retirement plan withdrawals are taxed at full marginal rates. I think income taxes are going up to cover Medicare’s shortfalls, so Roths rule.
The best thing you can do is survey yourself, your family/spouse/partner and take a hard look at your comfort zone. You may have to throw out some preconceptions about retirement, but don’t ignore the possibility that some adjustments may be needed.
John F. Wasik is the author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream (www.culdesacsyndrome.com. From my column on reuters.com)
Allergan, the maker of Botox, agreed on Wednesday to pay $600 million to settle charges that it illegally promoted and sold the drug through 2005 for unapproved uses like treating headaches.
Bill To Gut Environmental Review Dies in Last Moments of Legislative Session
Sacramento, CA. Despite spending more than $246,750 on a Sacramento, California lobbying firm, Wal-Mart lost a major environmental ‘rollback’ bill in the California legislature this week.
The giant retailer was pushing legislation that came to be known as “the Wal-Mart bill,” a measure which would have exempted big box stores up to 120,000 square feet in recycled buildings from the California Environmental Quality Act (CEQA)—one of the few state laws that local citizens depend upon when fighting unwanted retail projects.
According to an analysis by the California Senate Rules Committee, Assembly Bill 1581 would have exempted the alteration of a vacant retail structure from CEQA if the structure existed prior to January 1, 2008, and was not more than 120,000 square feet in area, and met certain other requirements.
Reporter Karen de Sa of the San Jose Mercury News described A.B. 1581 as “the latest example of how outside sponsors have managed to hijack the legislative process.”
But this time the hijacking failed.
The Mercury News quoted one California lawmaker as saying the Wal-Mart bill was “absurd,” sending a message that “CEQA is now for sale, that anyone who can afford to hire a team of lobbyists and grease the wheels in the legislative can have their own special exception to our most important environmental law.”
The Wal-Mart bill was cosponsored by the California Retailers Association, which often shills for big box retailers—to the detriment of smaller merchants. Its sponsor was Assemblywoman Norma Torres, D-Ontario. A.B. 1581, would permit retailers moving into empty space up to 120,000 square feet to completely by-pass the CEQA public review process which big chain stores loath—because it costs them time and money to comply with the impact studies required under the state law.
Under A.B. 1581, projects would only have to meet local zoning laws, which are often weak on environmental concerns. The Wal-Mart bill would have silenced citizens’ groups by closing down any legal appeal rights. In effect, Wal-Mart projects as big as two football fields would have been given special handling. The bill would have lasted for three years—giving companies like Wal-Mart, Home Depot, Target, Lowe’s and Costco plenty of opportunities to saturate markets already choking on retail.
One legislative staffer told the Mercury News the bill would leave local taxpayers stuck with the bill for any environmental damage caused by these projects, because the developers would face no threat of legal action or mitigation requirements.
What Wal-Mart and the Retailers Association did was hover in the background over this bill, until about 10 days before the end of the legislative session. On the final day to amend legislation, the Retailers sprung out of the lobbyist’s woodwork as the new sponsor of the measure, which was totally amended by adding the new exemption language unrelated to the original legislation. This move effectively gave lawmakers no chance to debate the amendment on its merits. Wal-Mart told the Mercury News it supported the bill because it would “help boost the local economy and create jobs.”
Wal-Mart knows a thing or two about empty buildings. Since 1995, the company has abandoned well over 1,000 of its discount stores, leaving behind what the media refers to as “ghost boxes.” Wal-Mart Realty currently is selling 680,846 square feet of ghost boxes at 5 California locations. If lawmakers in Sacramento want to see the wastefulness of this corporation, there are two dark stores right in Sacramento: a 133,613 square foot dead store on Florin Road, and a 134,700 square foot dead store on North Freeway Boulevard. The latter store is 3 years old, the one of Florin Road is 9 years old.
If Wal-Mart has such a penchant for used buildings, lawmakers should tell them to stop abandoning their stores that are already in the ground, rather than trying to cut environmental corners elsewhere.
These dead stores become blighted very quickly, and it is in the public interest to see them reoccupied. But Wal-Mart—the all-time retail leader in Dead Stores—is hardly the special interest to be pushing a bill that deals with empty buildings.
It’s not surprising that Wal-Mart would be behind a last minute cabal to slip a bill onto the Governor’s desk through a lobbying intrigue. What is surprising is that they failed, and that Wal-Mart’s environmental rollback was rolled back.
No doubt the bill will be refiled next session, and Wal-Mart will continue its policy of shutting down stores that still have many years of useful life in them. Wal-Mart Realty apparently has not heard about the company’s sustainability marketing campaign.
For anyone who wants to own a dead Wal-Mart, one of the empty buildings in Sacramento is selling for $7.5 million—but you’ll have to pass through the California Environmental Quality Act first.
Al Norman is the founder of Sprawl-Busters, and has been described by The Wall Street Journal as a ‘one man anti-Wal-Mart cottage industry.” He is the author of The Case Against Wal-Mart.
Nearly one year ago, President Obama invoked a trade law known as “421″ for the first and only time in the decade the law has been in effect and imposed tariffs on some automobile tire imports from China, which have been surging into the United States from 2004 to 2008.
The decision was very controversial. Most editorials weighed in against it, the Chinese government threatened retaliation, and some of the more hysterical pundits predicted a death-spiral trade war. The Chinese government, the outsourcing lobby, and the large school of free trade economists all predicted that the relief would not accomplish its goal of reviving production, jobs, and market share for American-made tires in the domestic market.
I’m pleased to report to you that these skeptics were all dreadfully wrong. The sky hasn’t fallen. A trade war never materialized. And, America’s tire workers and domestic facilities are recording gains in jobs, production, and market share.
First, let’s review where the domestic tire industry stood at the end of 2008:
⢠production declined from 218.4 million tires to 160.3 million tires during 2004-2008;
⢠capacity utilization declined from 96.3% to 86.0% during 2004-2008;
⢠U.S. producer commercial U.S. shipments declined from 194.7 million tires to 136.8 million tires during 2004-2008;
⢠employment data on number of production workers, hours worked, and wages all declined substantially between 2004 and 2008; and,
⢠consumer tire imports from China increased 215 percent by volume (from 14.57 million tires to 45.98 million tires) and nearly 300 percent by value (from $453 million to $1.788 billion) between 2004 and 2008.
Now, what has happened since the relief took effect? Publicly available data compiled in a report released by the Alliance for American Manufacturing on September 1st concludes that production by U.S. facilities has increased over 15 percent, or by more than 10 million tires, based on Rubber Manufacturing Association data. Domestic producers such as Goodyear and Cooper Tires have experienced productions gains of between 9 and 35 percent.
Employment and overtime at plants producing the tires that compete with Chinese imports is also up. For instance, workers at Michelin plants making the brands BF Goodrich and Uniroyal are working 7 days a week at around 15 percent overtime; these facilities — which directly compete with the Chinese tires subject to the tariffs — have brought on 115 new production workers since the beginning of 2010. The story is the same at Cooper Tire & Rubber in Findlay, Ohio, where 100 new hourly employees have been hired, as well as additional salaried workers. At another Cooper Tire plant in Texarkana, Arkansas, there have been 250 new hourly hires since the relief went into effect. The plant’s operations are running 7 days a week and production is up approximately 20 percent. Goodyear is recording similar employment gains at some of its facilities that compete with the Chinese imports.
At the same time, imports from China, which had been surging in the 2004-2008 period declined 34.2 percent in the first six months after relief was provided and are ranging from 6.4 — 7.6 million tires for the three quarters since relief. Total imports (including China) increased slightly during the first six months of import relief on Chinese products. The International Trade Commission (ITC) had predicted this: both domestic producers and non-Chinese imports were projected to gain volume lost by the Chinese. However, during the first six months after relief was granted, the domestic industry has regained market share of total apparent consumption.
We can draw several lessons from this tire case. First, trade enforcement works. We should do lots more of it. Second, punishing China for its mercantilism is the only approach that achieves results. We will never sweet talk China into playing by the rules. Third, all the editorial writers, pundits, and think tank “experts” who predicted the worst should critically examine each trade case on its merits, rather than merely parroting the “free trade always works” nonsense while engaging in irresponsible hysteria about trade wars and such.
Thank you, Mr. President, for honoring your word on trade enforcement and putting America’s tire workers back on the job.
