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Honda Comments on the Commerce Investigation of Imports of Autos

U.S. Department of Commerce Section 232 National Security Investigation of Imports of Automobiles Comments of American Honda Motor Company, Inc. June 29, 2018 These...

U.S. Department of Commerce

Section 232 National Security Investigation of Imports of Automobiles

Comments of American Honda Motor Company, Inc.

June 29, 2018

These comments are filed on behalf of American Honda Motor Co., Inc. (“Honda”)[1] in response to the Notice of Request for Public Comments and Public Hearing on Section 232 National Security Investigation of Imports of Automobiles, including Cars, SUVs, Vans and Light Trucks, and Automotive Parts published in the Federal Register on May 30, 2018 (83 FR 24735).  The Secretary of Commerce initiated this investigation to determine the effects on national security of imports of the above referenced products.

The Association of Global Automakers (“Global”), of which Honda is a member, has filed comments in this proceeding.  Honda associates itself with those comments and provides these additional comments that are specific to its operations in the United States.

Honda’s Presence in the United States

The culture of free trade in the United States has been a welcoming beacon for investment. There is no better example of this than Honda’s journey in America.

Honda has been manufacturing cars and light trucks in the U.S. longer than any other international automaker.  Nearly 40 years ago, we began manufacturing automobiles in Marysville, Ohio.  Since then, we have produced more than 25 million cars and light trucks in the U.S. at our plants in Ohio, Alabama, and Indiana.  To aid in this vehicle production, Honda also builds automobile engines and transmissions in the U.S., including at our transmission plant in Tallapoosa, Georgia; engine and transmission plants in Anna and Russells Point, Ohio respectively; and engines at our Lincoln, Alabama plant.  In 2017 alone, we built 1.4 million automobile engines and 1.13 million transmissions at these U.S. facilities.  Furthermore, Honda has entered into a joint venture with General Motors to manufacture advanced fuel cell stacks in Michigan beginning in 2020 for use in our fuel cell electric vehicles.

In addition to motor vehicles, we build power equipment and general purpose engines, ATVs and side x side utility vehicles, and jet engines and airplanes in our 12 manufacturing plants, which are among our 75 facilities in the U.S.  These also include 14 R&D facilities, parts centers, and marketing, sales, service and financing operations. Our U.S. capital investment is in excess of $20 billion.  Thirty one thousand associates are employed by Honda in the U.S., not to mention the indirect employment Honda fuels through its $41.7 billion in purchases of parts, materials and services from suppliers nationwide.  Additionally, there are 1,320 Honda and Acura dealers across the U.S., providing more than 98,000 jobs.

During the Great Recession of 2007-2009, Honda did not lay off any of its full-time permanent associates in the U.S., and we have continued to increase our employment numbers since then.

Honda’s automobile production in the U.S. has tripled since 1994. We produced more than 1.2 million cars and light trucks in the U.S. in 2017.   Last year, two thirds of the vehicles Honda sold in the U.S. were made in the U.S., among the highest percentage in the auto industry. Moreover, 75 percent of the vehicles in the top 20 for domestic content, as measured by 2018 AALA data, bear either the Honda or Acura nameplate.[2]  And Honda has four of the top ten vehicles in the Cars.com 2018 American-Made Index[3] – the most of any automaker. Even so, globally sourced parts are necessary to support our U.S. production, and every auto manufacturer in the U.S. uses some imported components in their U.S.-produced vehicles.  From concept to design, development to manufacturing, Honda conducts these activities in the U.S. to bring products to market.  For example, the 2019 Acura RDX was designed and engineered in America, with styling design conducted in the Acura Design Studio in Los Angeles, California, and development conducted by Honda's North America engineering team headquartered in Raymond, Ohio, adjacent to the RDX's manufacturing home in East Liberty, Ohio.

These are not abstract numbers.  They tell the story of a company that has integrated itself into the U.S. economy through a strong commitment to localization and a welcoming trade environment.  In every respect, Honda is a proud member of the U.S. auto industry.

The Use of Section 232 to Protect U.S. Manufacturing in the Auto and Auto Parts Industry is a Misapplication of the Statute

Section 232 represents extraordinary authority vested in the President, and its explicit purpose is to protect national security.  The stark fact is that there is no national security concern in the auto and auto parts sectors, and to impose protectionist tariffs on them would be a significant departure from how that statute is intended to be used.

There is no shortage of production capacity in the auto sector in the United States

Implicit in the criteria in the National Security Industrial Base Regulations (NSIBR)[4] is whether there is insufficient production capacity in the U.S. that is attributable to imports and that shortage poses a threat to national security.  The NSIBR, as reflected in the Department’s notice of this proceeding, commands that the Department look to “[d]omestic production needed for projected national defense requirements” and “domestic production and productive capacity needed for automobiles and automotive parts to meeting projected national defense requirements.”  It also requires an examination of the “existing and anticipated availability of … production equipment, and facilities to produce automobiles and automotive parts.”

With respect to auto production capacity, there is no such shortage now and no one has predicted one in the future.  Auto manufacturing is alive and well in America.  There are 14 companies who produced nearly 11 million vehicles in the U.S. last year. Investment in U.S. production capacity continues to grow and that growth is powered by international companies, which have doubled U.S. production in the last 15 years.[5]  Honda alone has added $5.9 billion in capital investment in the last five years.  Last year, automakers announced plans for investment of over $10 billion in U.S. facilities.

Some manufacturers have recently built, or are building, their first U.S. facility.  Tesla, a U.S. company, is ramping up its new manufacturing plant to 500,000 vehicle capacity in California.[6]  Additionally, Mazda is scheduled to open its first U.S. production facility as part of a $1.6 billion new joint venture in Alabama.[7] This investment, in addition to those made by other international automakers in Alabama, including Honda, will eventually make the state the third largest auto producer in the country, bringing new career opportunities and economic activity throughout the region. Manufacturing capacity in the U.S. is growing, not stagnant or contracting.

Imports Are Not Threatening National Security

The expanding nature of U.S. manufacturing leads to the core question in this proceeding – what is the relevance of “imports”?  The Commerce Department states in its announcement of this investigation that 48 percent of passenger vehicles are now imported into the United States.  Secretary Ross stated in his announcement initiating this proceeding that “[t]here is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry.”[8]  The relevance of this statistic is unclear since by itself, it says nothing about the threat of impairment to the national security and domestic production – the production of vehicles in the United States is growing.

For purposes of Section 232, imports would be relevant if they were the cause of diminished U.S. capacity in sectors that are important to the national security.  That cannot be shown to be the case here.  As noted, domestic production is growing, not contracting.  There has been no assertion that capacity is somehow inadequate.  The Detroit-based companies did not seek this investigation or protection, nor did any other entity within the U.S. auto industry.  As far as is known, those responsible for our national defense did not seek protection.

To justify the use of Section 232 requires a showing that (1) the growth in production capacity in the U.S. is insufficient; (2) imports have been the cause of that insufficient growth; and (3) an increase in production capacity if there were a shortage would diminish the risk to national security (which incidentally would include building minivans, coupes, SUVs, crossovers, small pickup trucks and family sedans).

If the assertion is that auto production capacity could be converted to munitions or the production of combat vehicles for defense purposes, it has been more than three quarters of a century since auto plants were converted to war time production.  That seems unlikely in today’s world.  The U.S. has been engaged in numerous conventional wars for more than a quarter of a century and not once has there been a need to convert auto production capacity to national defense needs.

And, as discussed above, the fact that a portion of that capacity is owned by companies of foreign origin is also not a serious concern.  Under the NSIBR, the Department must determine [w]hether and, if so, how the analysis of the above factors changes when U.S. production by majority U.S.-owned firms is considered separately from U.S. production by majority foreign-owned firms.[9] [10] We point out above that to the extent vehicle production capacity in the U.S. is owned by “foreign-owned firms,” it is in safe hands.  There are many economic, political and mutual defense imperatives that assure that the production capacity will be made available by those companies if there is a national security threat.  And, theoretically, even if there was an effort to withhold it, U.S. law empowers the government to seize assets in a time of national security crisis.[11]

The Imposition of Tariffs Under Section 232 Would Have a Detrimental Impact on the U.S. Economy

It has been asserted that the national security is at risk when the national economy is weakened.  If the concern is that imports are damaging the national economy, Section 232 is not the right tool to address the problem.  There is an arsenal of weapons in U.S. trade law that enable the government to address economic risk.  Actions can be brought for dumping, countervailing duties, patent infringement and safeguard protections, to name a few.

But even if those tools were not available, there is no risk that the auto industry is “causing or will cause a weakening of our national economy” as identified as a factor in the NSIBR.[12]  The auto industry in the U.S. is healthy, and is it is an important economic engine to regional economies in the Midwest and the South, as well the U.S. economy overall.  Conversely, should tariffs be applied to imported vehicles and auto parts it will have a depressing effect on the auto industry.  Doing so would increase prices for consumers, both of imported and domestically built cars, which would likely lead to decreased sales and could ultimately negatively impact auto industry jobs, from production to suppliers to dealers.

Moreover, the use of Section 232 in this circumstance will backfire, causing harm to the U.S. economy.  The Peterson Institute for International Economics estimates that production would fall 1.5 percent and cause 195,000 U.S. workers to lose their jobs over a 1-3 year period or longer.[13]  Another study predicts a net loss of 157,000 U.S. jobs, and tariffs would add about $6,400 to the price of an imported $30,000 car.[14]  The National Taxpayers Union estimates that the average price of imported cars would increase $4,205 per vehicle, and vehicles assembled in the U.S. would increase by an average of at least $1,262.[15]

Additionally, other countries will retaliate and may do so by broadening their own definition of “national security” just as the United States purports to do here.  In addition to retaliatory tariffs applied to U.S. exported vehicles and parts, they will claim that their commodities must be protected from imports.  The implications for U.S. agriculture in particular will be profound, with nations asserting that food security and national security are inextricably linked.  Indeed, an expansive definition of national security will invite retaliation in almost any sector of the U.S. economy as we are witnessing with the retaliatory announcements of our global partners in response to the Section 232 Steel and Aluminum tariffs.  With 95 percent of the world’s consumers outside the borders of the U.S., American industrial growth and employment will be stymied by the loss of access to foreign markets.

Conclusion

In exercising the power to impose protectionist tariffs under Section 232, the President should act with caution and restraint, and employ that authority when there is a true risk to our nation’s security.  Imported vehicles and automotive parts are not a national or economic security threat.  In fact, employing Section 232 here could cause “a weakening of our national economy,” just what the Department is instructed to prevent in applying section 232.


[1] American Honda Motor Co., Inc., is a wholly owned subsidiary of Honda Motor Co., Inc., and files these comments on its own behalf and on behalf of Honda’s manufacturing, research and development, and sales companies In the U.S., each of which is incorporated in a state and together research, design, develop, manufacture and sell cars, SUVs, vans and light trucks in the United States for domestic sale and for export.

[2] https://www.nhtsa.gov/sites/nhtsa.dot.gov/files/documents/2018_aala_percent_03132018.pdf

[3] https://www.cars.com/articles/carscom-2018-american-made-index-whats-the-most-american-car-1420700348632/

[4] 15 CFR Parts 700 - 709

[5] Here for America, http://www.hereforamerica.com/wp-content/uploads/2017/05/2017-Economic-Impact-Report.pdf

[6] https://www.tesla.com/factory

[7] https://www.nytimes.com/2018/01/10/business/toyota-mazda-plant-alabama.html

[8] https://www.nytimes.com/2018/05/23/business/trump-tariffs-foreign-autos.html

[9] 15 CFR 705.4.

[10] For many years, the Department of Commerce has implored international companies to invest in America, to build cars in America, and to employ American workers.  International automakers have responded.  It would indeed be ironic if that investment would now be seen as a liability under the NSIBR.

[11] 10 USC § 2538

[12] 15 CFR 705.4.

[13] https://piie.com/blogs/trade-investment-policy-watch/trumps-proposed-auto-tariffs-would-throw-us-automakers-and

[14] Joseph Francois, Laura M. Baughman and Daniel Anthony, An Accident Waiting to Happen?  The Estimated Impacts of Tariffs on Motor Vehicles and Parts, Trade Partnership Worldwide, LLC (May 29, 2018)

[15] https://www.ntu.org/foundation/detail/trumps-car-tax-would-boost-average-new-car-and-truck-prices-by-1262-to-5809

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