Reviving America’s Shipbuilding Amidst Geopolitical Storms and Economic Revival

 

Introduction

Commercial shipping and the extensions of military power, most visible via navies and strategic port investments such as China’s Belt and Road Initiative, have rarely come into conflict while sharing the same waters. However, increased geopolitical risks, driven largely by heightened tensions between China and the United States, are pushing the commercial and government spheres closer together. As the US looks to strengthen its regional sphere of influence, bipartisan political attention is building to boost US shipbuilding, and thus, its ability to project power in the Arctic and reduce dependence on foreign carriers.

Historical Context and Current State

While political interest for a US shipbuilding renaissance might be the most favorable since the Nixon administration, the challenge is daunting. Rebuilding an industry that has been in decline since World War II would take massive and consistent multiyear efforts. Once boasting more than 2,000 vessels and 300 shipyards, the US international merchant fleet now numbers approximately 80 vessels and just 20 or so domestic shipyards.

Recent Developments and Political Support

During a call in November with the president of South Korea, Trump expressed interest in increased cooperation between the two countries’ shipbuilding industries. Hanwha Systems and Hanwha Ocean acquired Philly Shipyard, which builds US-flag ships for Jones Act trades, in December for approximately $100 million. The outgoing Biden administration, which like Trump defended US Steel from Japanese buyers, blasted Chinese steel subsidies for unfairly propping up Chinese shipbuilding. On February 10, Trump announced a 25% tariff on US imports of steel and aluminum, effective March 12.

US shipbuilding proponents are encouraged by Trump filling his new cabinet with three men known to have supported US shipbuilding while in Congress — former congressmen Mike Waltz and Jamieson Greer are now national security advisor and US trade representative, respectively, while ex Sen. Marco Rubio is Secretary of State. The Trump administration has a legislative vehicle at its disposal via the newly introduced SHIPS Act. The SHIPS Act, introduced in the Senate and House and backed by both sides of the aisle, would require all government cargoes to be shipped via the US-flag fleet. The legislation, if passed, would mandate that an annually increasing percentage of commercial goods imported from China move on US-flag ships starting in 2029, eventually reaching 10%. The legislation as of mid-February had yet to start moving through either of the respective Senate or House committees.

Proposed Actions in Section 301 Investigation

The Section 301 Investigation of China’s Targeting of the Maritime, Logistics, and Shipbuilding Sectors for Dominance proposes several actions to counteract China’s influence. These include imposing tariffs on Chinese shipbuilding products, providing subsidies to US shipbuilders, and enhancing regulatory scrutiny on Chinese investments in US maritime infrastructure. If enacted, these measures could significantly impact the global shipbuilding landscape, potentially leading to increased costs for Chinese shipbuilders and a more competitive environment for US companies.

Impact of Section 301 Measures on the Global Shipbuilding Landscape

If the Section 301 Investigation’s proposed measures are enacted, they could significantly reshape the global shipbuilding industry in several ways:

1.Increased Costs for Chinese Shipbuilders:

oÂTariffs on Chinese Shipbuilding Products:Imposing tariffs on Chinese shipbuilding products would raise the cost of these goods in the international market. This could make Chinese ships less competitive pricewise, potentially reducing their market share.

oSubsidies for US Shipbuilders:Providing subsidies to US shipbuilders would help offset their higher production costs, making US-built ships more competitive. This could lead to a resurgence in US shipbuilding activity and a shift in global market dynamics.

2.Shifts in Global Supply Chains:

oDiversification of Supply Chains:Companies might seek to diversify their supply chains to reduce reliance on Chinese shipbuilding products. This could benefit shipbuilders in other countries, such as South Korea, Japan, and European nations, leading to a more balanced global shipbuilding market.

oIncreased Demand for US-Flag Ships:The SHIPS Act’s requirement for an increasing percentage of commercial goods imported from China to be transported on US-flag ships could boost demand for US-built vessels, further stimulating the domestic shipbuilding industry.

3.Strategic and Geopolitical Implications:

oStrengthening US Geopolitical Influence:Reviving the US shipbuilding industry would enhance the country’s ability to project power globally, particularly in strategic regions like the Arctic. This could help counterbalance China’s growing maritime influence.

oAlliances and Partnerships:The US might strengthen alliances with other shipbuilding nations, fostering cooperation and joint ventures that could further bolster the global shipbuilding landscape.

4.Potential Challenges and Risks:

oRetaliatory Measures:China could respond with its own tariffs or restrictions on US products, leading to a trade war that could disrupt global trade and economic stability.

oMarket Volatility:The implementation of these measures could lead to short-term market volatility as companies and countries adjust to the new regulatory environment.

Conclusion

Reviving America’s shipbuilding industry is a complex but achievable goal. With bipartisan political support, strategic investments, and a clear legislative framework, the US can reduce its dependence on foreign carriers and strengthen its geopolitical influence. However, this revival will require sustained effort, significant financial resources, and a commitment to overcoming the challenges posed by global competition and regulatory hurdles. The enactment of Section 301 measures could lead to a more competitive and diversified global shipbuilding market, with increased opportunities for US shipbuilders and potential shifts in geopolitical power dynamics. However, these changes would also come with challenges and risks that would need to be carefully managed to ensure long-term stability and growth.