The scale of China’s ship-building sector and the complex supply chain that supports it has enabled it to leverage its capabilities and economic advantages to build the world’s largest fleet of warships.
America’s ship-building capacity is almost entirely devoted to its own navy but is characterised by limited facilities, labour shortages and cost and time overruns.
The USTR recommends fees of up to $US1 million per vessel for every entry to a US port by a Chinese maritime transport operator.Credit: AP
Strong navies have historically been developed along strong commercial ship building capabilities. The lack of those capabilities represents a major vulnerability for the American navy’s ability to keep up with China’s continuously growing, and increasingly sophisticated, fleet.
That nexus between the commercial and military implications of a strong ship-building industry that has shaped the USTR’s recommendations.
The USTR proposals to increase fees on Chinese-related ships and cargoes will, however, pose a challenge for the Trump administration.
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Does the administration follow its “America First” goals and the prejudices of its MAGA base? Or will it be more concerned about the implications for US industry, consumers and the inflation rate?
The proposals are complex and all-encompassing. The USTR is recommending fees of up to $US1 million per vessel for every entry to a US port by a Chinese maritime transport operator.
Container ships on routes between Asia and the US East Coast generally make multiple port calls, so the fee could be charged multiple times.
The fees would be charged, not just on Chinese-owned or operated vessels, but on Chinese-built ships. Any operator with Chinese-built ships in its fleet would be captured, with the port fees calculated according to the percentage of Chinese-built ships in their fleet.
For those with more than 50 per cent of Chinese-built ships, the cost per port call would be $US1 million. Those with between 26 per cent and 49 per cent Chinese-built ships would pay fees of $US750,000. Those with less than 25 per cent – and it could be a single ship – would pay $500,000 per call.
Where China builds more than 1700 commercial ships each year, the US builds fewer than five.
On some interpretations of the proposal, a Chinese operator such as the giant Cosco would be hit twice as a Chinese operator using Chinese-built ships. It could face port charges of $US1.5 million per visit.
The proposal doesn’t just cover existing ships, as it also recommends that the port fees be charged to any operators with ships being built at Chinese yards, or ordered from them and expected to be delivered within two years of the proposal being adopted.
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To encourage the development of a local ship-building industry, the USTR would require the percentage of exported goods being transported on US-flagged vessels with US operators to increase from 1 per cent to 15 per cent within seven years, by which time 5 per cent would have to be transported on US-built vessels.
That would be a huge challenge for US operators because of the need to dramatically expand the size of the US-flagged fleet and an equally daunting challenge for American ship builders, given the country’s current minuscule commercial ship-building capacity.
Nearly 20 per cent of the container ships arriving at US ports are Chinese-built, although the proportion of the largest container ships built in China would probably be higher.
That means a big slice of imports to the US would attract the new charges, which would be passed on to importers and exporters, and eventually consumers, which would add to the inflationary impact of Donald Trump’s much-loved tariffs.
The requirement to carry a rising percentage of goods on US ships would also add to costs – the American ships would be more expensive to build because the US lacks the scale, efficiencies and non-market advantages of the Chinese yards.
If adopted, the USTR proposals would create a new dimension within Trump’s trade wars.
America’s ship-building capacity is almost entirely devoted to its own navy. But it’s beset by limited facilities, labour shortages and cost and time overruns.Credit: AP
While the proposals would affect China most, the high (and growing) percentage of Chinese-built vessels in the global container fleet means they would have implications for all the major shipping operators and their home economies.
It would lead to disrupted and less efficient global supply chains but Trump would be unlikely to be concerned by that because the proposals play to several dimensions of his America First program – reindustrialising the US, punishing trading partners for what he regards as unfair trade balances and limiting China’s economic and geopolitical capabilities.
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Given that Trump thinks that exporters to the US will pay his tariffs and that his tariffs will generate massive amounts of revenue to fund his $US4.5 trillion of proposed tax cuts for the wealthy, he is likely to see the prospect of steep increase in port charges for any ship with a Chinese connection as just more of the same.
They would be, except that it would be American companies and consumers that would again be slugged.
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