How Trump is targeting China’s shipbuilding dominance
Cheaper Chinese ships help cut freight costs and keep global cargo moving
[WASHINGTON] As part of US President Donald Trump’s campaign to bring more manufacturing to American shores, he wants to engineer a revival of domestic shipbuilding. To that end, his efforts to chip away at China’s dominance in the industry have become a flashpoint in the wider trade war.
The US has not made ocean-going commercial vessels in significant numbers since the 1970s, and such is the scale of China’s competitive advantage today, even major shipbuilding countries such as South Korea are struggling to keep up. Nonetheless, the Trump administration is hoping to restore American shipyards to their former glory by taxing the arrival of vessels connected to China.
From Oct 14, ships operated or owned by Chinese entities, as well as those built in China and operated by non-Chinese companies, could be charged up to five times a year for their voyages to the US. The fees, based on a vessel’s cargo capacity or the number of containers it discharges, will ramp up every April through to 2028 and could result in a multibillion-US dollar annual bill for some shipping companies.
If the costs are passed on to US consumers through the supply chain, they could increase inflationary pressures and dampen demand for imports – all while having a questionable impact on boosting US shipbuilding. China has retaliated with similar fees on American ships docking at Chinese ports.
What’s behind Trump’s push to bring back US shipyards?
Concerns about China’s clout in the shipping industry pre-date Trump’s second term. The administration of President Joe Biden initiated a so-called Section 301 investigation into China’s shipping practices in April 2024. The probe conducted by the Office of the US Trade Representative concluded that China’s dominance in shipbuilding was achieved through unfair means, deprives other countries of commercial opportunities, and makes supply chains more fragile by leaving ship owners overly reliant on one supplier.
The USTR’s report was published a few days before Trump returned to office in January and his administration leveraged the findings to call for a US shipbuilding renaissance. The rationale isn’t just to expand American manufacturing and create jobs, but also to enhance national security by reducing dependence on China and having access to more US-built, crewed and flagged vessels that can be called upon in times of crisis.
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The idea of “maritime security as national security” has been gaining traction in Washington. A bipartisan bill reintroduced by lawmakers in April – the SHIPS for America Act – aims to shore up the US maritime-industrial base and provide tax incentives for shipyard investments.
As well as the penalties on Chinese vessels, The Trump administration has rolled out a charge on foreign-built vehicle carriers, and from Nov nine will impose a 100 per cent tariff on Chinese ship-to-shore cranes and the chassis on which trucks move containers to and from ports.
Why did the US shipbuilding industry go into decline?
The hollowing out of many American industries followed the “China shock,” whereby China joined the World Trade Organization in 2001 and rapidly became the world’s factory with its low-cost manufacturing. But US commercial shipbuilding had already shrivelled by the time China stepped up its state-backed maritime efforts.
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American shipmaking reached its height during World War II, when the nation’s shipyards churned out thousands of vessels to transport personnel and supplies to allies around the world and support military operations. At the end of the war, the US operated almost two-thirds of the world’s ships.
The domestic industry for commercial ships contracted sharply in the following years. By the late 1970s, the US was still making cargo ships, tankers and oil drilling support vessels, backed by government subsidies. In the 1980s, however, the Reagan administration terminated federal subsidies and the industry collapsed, unable to compete with cheaper competition that had emerged from Japan and South Korea.
US shipyards became almost exclusively reliant on work for the navy, producing a steady supply of warships. The remaining commercial shipyards largely focus on making ships for domestic trade and aren’t geared towards building the container ships and other giant vessels that underpin global trade. That’s because they’ve been guaranteed a captive local market by the 1920 Jones Act, which requires cargo moving between US ports be carried in US-built and US-owned vessels.
The shipping industry’s shift to “flags of convenience” took a further toll on America’s maritime industry. This is the practice through which a shipowner registers their vessel in a different country, often with the aim of lowering the financial and regulatory burden of ownership. The US also has a shortage of crew for merchant vessels.
How much of an impact could the new US port fees have?
Since the Trump administration unveiled the fees in April, shipping companies have been readying options to minimise their exposure to the punitive measures. This includes the reshuffling of fleets – for example, Chinese ship owners and operators may focus on non-US journeys, while others could switch to their non-Chinese ships for deliveries to the US.
The workarounds, as well exemptions for certain vessels, could help some shipping companies retain their current pricing structures. Major container liners such as AP Moller-Maersk A/S and CMA CGM have committed to not put surcharges on their services due to the US port fees.
Still, some 35 per cent of vessels in the global fleet of tankers, bulk carriers and container ships could be hit by the new US charges, according to global shipping organisation Bimco. Analysts at Bloomberg Intelligence estimate that the fees could total US$10 billion annually for the container shipping industry, with China’s Cosco Shipping Holdings facing the biggest bill at more than US$4 billion (including subsidiary Orient Overseas Container Line Ltd). Switzerland-based MSC Mediterranean Shipping could be on the hook for an estimated US$2.4 billion due to its reliance on ships leased from Chinese owners.
Is a US shipbuilding revival realistic?
The key question is whether the extra costs from the Trump administration’s port fees will be enough to stimulate demand for US ships. Under the USTR’s rules, the charges on Chinese-built vessels could be suspended for up to three years if, within that time frame, the owner orders and takes delivery of an US-built ship of equivalent or greater size. But even if there’s appetite to make such a switch, the US is lacking capacity to manufacture big commercial ships.
On the supply side, the Trump administration has yet to implement measures that would address the availability of trained workers and the high cost of labour and materials, in order to be able to narrow the cost differential with Asian shipbuilders. Trump’s tariffs risk making the case for US shipbuilding even more uneconomic if imported material and components become more expensive.
Meanwhile, China’s retaliation against the US port fees could put pressure on international companies that are in a position to help revive the moribund American shipbuilding industry. In mid-October, China sanctioned the US subsidiaries of South Korean shipbuilder Hanwha Ocean, including the Philly Shipyard it acquired in Pennsylvania last December. Earlier this year, the South Korean government pledged US$150 billion to the “Make American Shipbuilding Great Again” initiative as a sweetener during trade talks with the US.
The shipping industry, which transports more than 80 per cent of global trade, operates on long investment horizons – beyond four-year presidential terms – and there’s no guarantee that Trump’s policies will be maintained by future administrations. Getting new American shipbuilding capacity up and running would be a yearslong and expensive process, and shipyards would need orders for multiple vessels in order to capture economies of scale, keep costs down and be commercially viable.
How big of a lead does China have in global shipbuilding?
China was a minnow in the shipbuilding industry a quarter-century ago, while Japan and South Korea were the whales. But China has since become the leader. By tonnage, more than a third of vessels currently in service were built in China, according to Clarksons Research Services Ltd, versus less than 1 per cent from US shipyards.
China is the top player when it comes to ships under construction, too, accounting for 67 per cent of vessels expected to hit the water in the next two or three years. Its dominance is set to grow further as more than 55 per cent of new orders by tonnage have been placed with Chinese yards.
How did China gain its lead in shipbuilding?
The foundations of China’s shipbuilding expansion were laid in the early 2000s, when it became a full member of the WTO. Building ships not only gave China the means to export its cheap products to the rest of the world, but also a way to bring in the energy and other raw materials it needs to power its economy.
Under a series of five-year plans, China became a major constructor of container and bulk-cargo ships, and then oil and fuel tankers. The coastal city of Shanghai was transformed into a global shipping hub. State planning ensured that shipyards received the steel they needed at affordable prices and benefited from a well-trained but relatively cheap labour force. government subsidies and cheap loans from state banks also helped. Even today, many of China’s big shipbuilders remain in state hands.
How much has Chinese shipbuilding benefited from state subsidies?
Beijing’s financial support for its shipbuilding sector totalled US$132 billion between 2010 and 2018, according to analysis by the Center for Strategic and International Studies. This includes direct subsidies and state financing but doesn’t cover other forms of support, such as low-interest loans provided by state-owned banks, infusions of equity and debt forgiveness.
The US government says the legacy of subsidies has created overcapacity in China that makes it hard for shipyards elsewhere to compete. “There is little to no business opportunities for US shipbuilders where Chinese producers are active,” the USTR said in its January report.
The extent to which China’s shipbuilders still benefit from state subsidies may be beside the point. The economies of scale that Chinese shipyards have achieved make it hard to compete with them on any terms.
Whether China is playing fair or not, there is an upside for the entire global economy from the massive, state-led investments it has made over the years: The abundant supply of cheaper Chinese vessels has helped push down freight rates and keep cargo moving around the world. BLOOMBERG
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