While the US exports vast amounts of energy overseas – it ships millions of tonnes of liquefied natural gas (LNG) around the world each month – none of the ships used to transport the gas were built in America, and none are currently on order.
No containers used to move commodities around the world are built by the US. Similarly, none of the ship-to-shore cranes used to load and unload containers are manufactured at home, compared with 80 per cent in China.
In addition, the White House warned that Chinese state-owned software is increasingly being installed in port operations across the US “with limited to no alternatives”.
China has overtaken the US to operate the world’s largest maritime fighting force, operating 234 warships to the US Navy’s 220.
It’s not just Trump who has concerns. The White House is continuing an investigation initiated by the Biden administration in what seems like a rare bipartisan issue over the risks posed to American security.
The Centre for Strategic and International Studies (CSIS), a Washington, DC-based think tank, has warned that foreign companies were effectively funding China’s navy expansion.
Last month it warned that China’s highly efficient “dual-use” facilities were able to churn out commercial vessels paid for by Western companies alongside their battle fleet – increasing China’s military prowess.
Now, China has overtaken the US to operate the world’s largest maritime fighting force, with 234 warships to the US Navy’s 220. That poses an imminent risk for America’s ability to counter China in the military stakes.
Foreign companies are effectively funding China’s navy expansion, according to a US think tank. Credit: AP
“The erosion of US and allied shipbuilding capabilities poses an urgent threat to military readiness, reduces economic opportunities and contributes to China’s global power-projection ambitions,” the CSIS warned.
Trump had proposed drastic action, including charging Chinese ships up to $US1.5 million ($2.4 million) per port call, or $US1000 per net tonne of the vessel’s capacity. He also wanted the share of US goods transported on American ships to rise from below 1 per cent today to 15 per cent over seven years.
Lars Robert Pedersen, from the Baltic and International Maritime Council (BIMCO), one of the world’s largest international shipping associations, says if the administration instead decided to charge by the tonne, it would end up costing mega-ships $US100 million per port call.
A backlash from the global maritime industry led the Trump administration to drastically water down proposals.
From October, Chinese-built and owned ships will only be charged $US50 per net tonne, or $US120 for each container discharged, whichever is higher. These amounts will increase over the next three years, but are still a far cry from the $US1000 per tonne originally proposed.
A shipbuilder in Newport News, Virginia. The US government wants to increase the country’s shipbuilding capacity.Credit: Bloomberg
Chinese-built ships bearing a different flag will be charged $US18 per tonne, with annual fee increases of $US5 over the same period.
Loading
The administration also exempted ships that only move between domestic ports, Caribbean islands and US territories. LNG exports will also move towards being carried by US ships, but on a very long timeline. Just 1 per cent of exports will be required on US-built, operated and flagged vessels within four years.
Despite the climbdown, Jamieson Greer, the US trade representative, continues to talk tough.
“Ships and shipping are vital to American economic security and the free flow of commerce,” he said. “The Trump administration’s actions will begin to reverse Chinese dominance, address threats to the supply chain and send a demand signal for US-built ships.”
But reversing a decades-long tide that has seen the demise of more than 20,000 domestic shipbuilding suppliers and shipyards shuttering across the country will be difficult.
The first issue is cold, hard cash.
Building a medium-range tanker able to transport 200,000 barrels of oil costs $US50 million in South Korea. In the US, that same ship costs $US250 million, according to BIMCO.
The century-old Jones Act already dictates that goods shipped between US ports must be transported on US-flagged vessels.
This means the ships must be registered in the US, built there and crewed mostly by American staff – making it more expensive.
Today, most Chinese vessels don’t even carry the Chinese flag because in maritime law, the flag of the ship represents its nationality.
Many fly under the Liberian or Panama “flag of convenience” to avoid stricter regulations and costs at home. BIMCO adds that even if ships can be identified as Chinese, they are unlikely to be the ones footing the final bill.
The ships already built of Chinese origin will not disappear from the world fleet if the proposed port fees are introduced. Rather, the shipping industry will seek to avoid paying fees.
Analysis by Signal Ocean shows there were 18,386 port calls in the US last year, with Chinese-built ships accounting for 6480 of them.
Cary Davis, chief executive of the American Association of Port Authorities, warns that attempts to minimise costs will hurt smaller ports hardest.
Loading
Speaking ahead of the Trump administration’s decision, he said: “Most concerningly for our ports, the proposed fees would incentivise ocean carriers to consolidate traffic to the nation’s largest ports, while cutting out small and medium-sized ports from their routes.
“This would cause significant congestion at large ports and the collapse of business lines at small and medium-sized ports. The results would be higher inflation, more unemployment, and higher trade deficits.”
BIMCO’s Pedersen says reviving the US shipbuilding sector remains a pipe dream. “US shipbuilding has not been competitive for a long time.
“If it is required to carry US exports on US-built, US-flagged tonnage, and that such tonnage is becoming available, the transport cost would increase significantly and impact US export’s competitiveness on the world market. This is especially true for low-value commodities such as grain and soy.”
For example, soybeans are one of America’s biggest exports, with $US24.6 billion worth sent abroad last year. In commodities trading, where margins are razor-thin, this would represent a serious blow to exporters.
A backlash from the global maritime industry led the Trump administration to drastically water down his proposals.Credit: AP
Yet many agree that action must be taken to break China’s dominance in shipbuilding.
The CSIS believes the Trump administration should encourage “friend-shoring” – a strategy which seeks to offer better deals to key US allies – as a counterweight to China.
“Despite the salient national security risks of buying vessels from China, it will be impossible to fully shift order books away from Chinese shipyards, and the US shipbuilding industry is itself not a sizeable player,” it said.
Loading
“In the short to medium term, efforts should focus on shifting market share from Chinese tier-one and tier-two shipyards to South Korea and Japan, which are the only two countries with existing capacity to absorb shifting supply chains.”
There must also be a focus on key areas rather than a drive to dominate everything, the think tank adds.
“The US is not currently poised to compete in the global shipbuilding industry, but there is a clear strategic rationale for maintaining a domestic shipbuilding industry,” it said.
“The ability to build, maintain, and crew a merchant marine fleet can provide sealift capacity for national security needs – especially during wartime.”
The Telegraph, London
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
