July 13, 2025 • 13 mins
To succeed, Washington will need to look outward not inward.
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Episode Transcript
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Speaker 1 (00:00):
Why Trump's shipbuilding strategy is unlikely to work by Mark Levinson.
Mark Levinson is an economist and historian in Washington, d c.
His books include The Box, How the Shipping Container Made
the World Smaller and The World Economy Bigger Read by
Ramesh Metane. The largest container's ship ever built in the
(00:22):
United States is the Kaimana Hiler, completed in Philadelphia in
twenty nineteen. It can transport three thousand, two hundred and
twenty shipping containers, each twenty feet long. The largest container
ships now on the seas, however, were built by the
Yangxiang Shipbuilding near Shanghai and have a capacity of twenty
four thousand, three hundred forty six containers. They are quite
(00:46):
simply in a different league. That comparison underscores the misguided
logic behind the Trump administration's plan to attack China's maritime
industry dominance. Starting October fourteenth, The administration plans to tax
imports that arrive in Chinese owned or Chinese built ships,
as well as any vehicles arriving in foreign built vehicle carriers.
(01:09):
In some cases, the fees would be forgiven if the
owner takes delivery of a similar US built vessel within
three years. For good measure, the White House wants to
hike tariffs on imports of Chinese made shipping containers themselves,
as well as ship to shore cranes and the chassis
on which trucks move containers to and from ports. These measures,
(01:29):
the Administration claims, will protect US jobs, help revive U
S shipyards, and eliminate risks to national security. The money raised,
it says, could be used to fund a maritime Action
plan to revitalize and rebuild domestic maritime industries. But as
they currently stand, the proposals would squeeze American exporters and
(01:51):
manufacturers relied on imported inputs, while doing little to strengthen
the maritime industrial base. A smarter maritime policy would look outward,
not inward. Concern over U S shipbuilding pre dates Trump's
second term. In March twenty twenty four, five trade unions
petitioned the Biden administration to slap fees on Chinese built
(02:13):
vessels entering U sports, contending that China's drive to dominate
the global shipbuilding, maritime and logistics sector has caused the
decay of the U S maritime industry. The petition triggered
an investigation by the United States Trade Representative, which, in
Biden's final week in office, issued a lengthy report asserting
(02:34):
that China has lavished all sorts of supports and subsidies
on its maritime industries. Trump, who has loudly rejected most
things Biden related, has embraced this one. That the Chinese
government has supported the country's maritime sector was hardly a secret.
Successive five year plans have emphasized shipping and shipbuilding subsidies
(02:57):
to shipyards and their supplies and to buys of China.
These built vessels are a key reason more than half
the world's new ocean shipping tonnage delivered in twenty twenty
four was built in China, up from about five percent
at the turn of the twenty first century. Interestingly, though
the USTR report did not address the Union's claim that
China's policies have hurt maritime related companies in the United States,
(03:21):
the obvious reason is that the claim is ridiculous. China's
vast subsidies have little to do with the woes of
U S shipbuilders and their supplies, and more to do
with decades of US government policies that have encouraged those
shipbuilders not to worry about foreign competition. Commercial shipbuilding has
been shaped by government subsidies and supports since long before
(03:45):
China got into the game. Historically, the US itself has
been a major participant. The federally owned Emergency Fleet Corporation
initially established a strengthen the U S Merchant Marines during
World War One, spent three and a nine billion dollars
for the construction of two thousand, three hundred and eighteen
commercial vessels in US yards, most of them built after
(04:08):
the war ended in nineteen eighteen. When that agency was
put out of business. In nineteen thirty six, Congress took
a different approach with the Construction Differential Subsidy Program, which
covered more than half the cost of building vessels for
US companies serving international routes in the years after World
War Two. As international trade ballooned in the nineteen fifties,
(04:29):
European shipyards met most of the burgeoning global demand for
new ships. Japan pushed into the industry in the middle
of that decade, using a combination of cheap labor and
leading edge production methods to conquer the fast growing markets
for oil tankers and bulk ships to transport or In
the nineteen sixties, low cost financing for purchasers helped Japan
(04:52):
become the dominant shipbuilding country, and European countries fired back
with subsidies of their own. This subsidy war prompted the
Organization for Economic Cooperation and Development, a group of the
world's wealthy economies, to create a Working Party on Shipbuilding
in nineteen sixty six to seek a progressive reduction of
(05:12):
the factors that distored normal competitive conditions in the shipbuilding industry.
This was not easily done. While its members agreed to
limit cheap loans for new ships, the OECD could not
keep a lid on other types of subsidies. The largest
came from South Korea. Until the nineteen seventies, Korean shipyards
(05:33):
had built only small vessels, mainly out of wood. The government,
pushing industrialization and targeting foreign shipowners, unveiled a shipbuilding development
plan in nineteen seventy five and pressured industrial conglomerates to
open modern shipyards. By nineteen ninety, Korea's ship production was
eight times higher than it had been in nineteen seventy five,
(05:55):
while thousands of shipyard workers in other countries had lost
their jobs. The United States, in contrast, has at times
subsidized the ship building industry, but has never encouraged it
to compete for foreign customers. The nineteen twenty Jones Act,
which requires cargo moving between U S sports be carried
in U S built and U S owned vessels, though
(06:16):
some of the ship's components may be imported, effectively guarantees
U S shipbuilders one hundred percent of a very small market.
As a result, almost all merchant vessels built in the
US in the past forty years since the Reagan administration
eliminated construction subsidies for U S flight carriers in nineteen
eighty one, have been devoted to domestic trade. This inward
(06:40):
looking policy makes it so that the few American yards
capable of building merchant vessels face little competitive pressure to
keep costs low or productivity high, and thus any sizeable
ship built in the U S is likely to cost
several times as much as a similar ship built abroad.
Since all U ship yuards combined build only a handful
(07:02):
of cargo ships each year, it's likewise impossible for them
to capture economies of scale. Foreign shipyards often receive orders
for six or seven identical ocean going vessels, lowering the
cost of each, but U S shipbuilders find investment in
state of the art production methods uneconomic, a situation that
has persisted for decades. Twenty three years ago, a study
(07:25):
by the Center for Naval Analysis concluded that U S
shipbuilders use more hours, many more hours than the better
foreign shipbuilders. There is no indication that matters have improved
since then, and US exports of passenger and cargo ships
totaled a scant forty three million dollars in twenty twenty four.
Depending on its size, a single tanker built to carry
(07:48):
liquefied natural gas could cost several times as much. Even
U S owned ship lines that offer international service have
shunned vessels built in America since construction subsidies were eliminated.
The boom and international trade that began in the late
nineteen eighties created an enormous demand for container ships and
vehicle carriers, but it largely passed U S shipyards by
(08:13):
U S shipyard's poor performance does not mean that they
are hopelessly inept. They successfully turn out smaller vessels such
as river barges and offshore service vessels, with several domestic
producers battling for orders, But when it comes to building
cargo ships to transport into national trade. U S maritime
policy has been an abject failure. Its principal goals, as
(08:38):
set by Congress are to protect America's security by sustaining
a strong maritime industrial base and a skilled shipbuilding workforce.
Because the policies unattuned to commercial reality, it has accomplished neither.
From an economic perspective, this failure is not of great
consequence so long as there is competition among supplies. The
(09:01):
United States is not harmed if its imports arrive in
foreign built ships or its ports purchased foreign made container cranes.
Utarchy is not a sensible strategy. On the other hand,
the inability of u S shipyards to compete in the
international market has serious consequences for national defense. While submarines
(09:21):
and aircraft carriers are built in dedicated shipyards, other navy
and coast Guard vessels often are constructed or repaired in
yards that turn out merchant vessels as well. Aging facilities
and shortages of experienced workers limit the shipyard's capacity to
build more military ships on tight time lines. Can this
(09:42):
sclerotic industry be revived? The mission is not impossible, but
it requires policy changes that will not be welcome in Washington.
Perhaps the most important is one that runs headlong into
another Trump administration initiative protection for the U S steel industry.
Building a large ship requires a vast quantity of steel.
(10:04):
American shipbuilders, however, cannot buy steel at the world market price.
Every recent president has levied tariffs on at least some
imported steel products. Trumps fifty percent tariff on almost all
steel imports enabled domestic producers to raise prices as well,
such that steel users in the US paid more than
(10:25):
twice the world average price in March. U S shipbuilders
have no hope of being internationally competitive if they are
forced to use the world's most expensive steel. The same
is true for manufacturers of containers, chassis, and cranes. Under
the best circumstances, U S ship yards are unlikely, ever,
(10:46):
to build large vessels entirely with U S content. Even
ships that qualify for domestic use under the Jones Act
may have imported propellers, engines, and other components, but tariffs
make those more costly in the US than in other countries,
further undermining the competitiveness of its shipyards. And then there
(11:07):
is the matter of helping buyers finance new ships, not
a trivial hurdle at a time when a new container
ship can easily cost one hundred and fifty million dollars. Usually,
a shipyard sells a new merchant vessel to a special
purpose company that obtains loans and other types of financing
backed by a mortgage on the vessel or by expected
(11:27):
future revenue. Governments frequently offer such loans directly or indirectly,
or guarantee commercial loans. Thanks to these types of assistance,
ship lines can obtain new vessels at much lower cost
than they would otherwise have to pay. Taxpayers may be
on the hook, though, if a slowdown in international trade
(11:47):
or a surgeon orders for new vessels depresses the value
of the ship and the revenue generates. If Congress is
unwilling to have the U S government shoulder the risk
of ship loans going bad, buyers who can obtain such
assistance abroad are unlikely to favor US built ships unless
Congress is willing to cancel tariffs on key inputs and
(12:09):
match other countries' generosity when it comes to vessel financing.
U S shipyards are unlikely to draw foreign customers. Instead,
they will remain dependent on the highly protected domestic market,
just as they are today. Perhaps, given consistent levels of
defense spending and strong oversight, some yards will improve their
(12:29):
ability to build naval vessels. But even if the Trump
administration requires the use of US built ships for imports
of motor vehicles or exports of liquefied natural gas u S,
shipyards will produce relatively small numbers of ocean going merchant vessels.
They will face little competitive pressure to match the productivity
(12:51):
of foreign yards. Realistically, developing a maritime industrial base capable
of serving commercial customers who are not required to buy
its products would require boat loads of money. A one
time expenditure for retooling outdated shipyards won't suffice. Rebuilding that
slice of the manufacturing sector would entail a long term
(13:12):
commitment to make US producers of merchant ships and cargo
handling equipment competitive in international markets. Subsidies, whether direct or indirect,
would need to be tied to requirements that recipients fight
for sales abroad and compete with foreigners for sales at home.
Recipients should be pushed to develop specialized technologies, not simply
(13:34):
to turn out goods that are generations behind those manufactured elsewhere.
Maritime nationalism has failed America badly. If the administration's new
strategy does not help build an internationally competitive industry, it's
unlikely to succeed.
Why Trump's shipbuilding strategy is unlikely to work by Mark Levinson.
Mark Levinson is an economist and historian in Washington, d c.
His books include The Box, How the Shipping Container Made
the World Smaller and The World Economy Bigger Read by
Ramesh Metane. The largest container's ship ever built in the
(00:22):
United States is the Kaimana Hiler, completed in Philadelphia in
twenty nineteen. It can transport three thousand, two hundred and
twenty shipping containers, each twenty feet long. The largest container
ships now on the seas, however, were built by the
Yangxiang Shipbuilding near Shanghai and have a capacity of twenty
four thousand, three hundred forty six containers. They are quite
(00:46):
simply in a different league. That comparison underscores the misguided
logic behind the Trump administration's plan to attack China's maritime
industry dominance. Starting October fourteenth, The administration plans to tax
imports that arrive in Chinese owned or Chinese built ships,
as well as any vehicles arriving in foreign built vehicle carriers.
(01:09):
In some cases, the fees would be forgiven if the
owner takes delivery of a similar US built vessel within
three years. For good measure, the White House wants to
hike tariffs on imports of Chinese made shipping containers themselves,
as well as ship to shore cranes and the chassis
on which trucks move containers to and from ports. These measures,
(01:29):
the Administration claims, will protect US jobs, help revive U
S shipyards, and eliminate risks to national security. The money raised,
it says, could be used to fund a maritime Action
plan to revitalize and rebuild domestic maritime industries. But as
they currently stand, the proposals would squeeze American exporters and
(01:51):
manufacturers relied on imported inputs, while doing little to strengthen
the maritime industrial base. A smarter maritime policy would look outward,
not inward. Concern over U S shipbuilding pre dates Trump's
second term. In March twenty twenty four, five trade unions
petitioned the Biden administration to slap fees on Chinese built
(02:13):
vessels entering U sports, contending that China's drive to dominate
the global shipbuilding, maritime and logistics sector has caused the
decay of the U S maritime industry. The petition triggered
an investigation by the United States Trade Representative, which, in
Biden's final week in office, issued a lengthy report asserting
(02:34):
that China has lavished all sorts of supports and subsidies
on its maritime industries. Trump, who has loudly rejected most
things Biden related, has embraced this one. That the Chinese
government has supported the country's maritime sector was hardly a secret.
Successive five year plans have emphasized shipping and shipbuilding subsidies
(02:57):
to shipyards and their supplies and to buys of China.
These built vessels are a key reason more than half
the world's new ocean shipping tonnage delivered in twenty twenty
four was built in China, up from about five percent
at the turn of the twenty first century. Interestingly, though
the USTR report did not address the Union's claim that
China's policies have hurt maritime related companies in the United States,
(03:21):
the obvious reason is that the claim is ridiculous. China's
vast subsidies have little to do with the woes of
U S shipbuilders and their supplies, and more to do
with decades of US government policies that have encouraged those
shipbuilders not to worry about foreign competition. Commercial shipbuilding has
been shaped by government subsidies and supports since long before
(03:45):
China got into the game. Historically, the US itself has
been a major participant. The federally owned Emergency Fleet Corporation
initially established a strengthen the U S Merchant Marines during
World War One, spent three and a nine billion dollars
for the construction of two thousand, three hundred and eighteen
commercial vessels in US yards, most of them built after
(04:08):
the war ended in nineteen eighteen. When that agency was
put out of business. In nineteen thirty six, Congress took
a different approach with the Construction Differential Subsidy Program, which
covered more than half the cost of building vessels for
US companies serving international routes in the years after World
War Two. As international trade ballooned in the nineteen fifties,
(04:29):
European shipyards met most of the burgeoning global demand for
new ships. Japan pushed into the industry in the middle
of that decade, using a combination of cheap labor and
leading edge production methods to conquer the fast growing markets
for oil tankers and bulk ships to transport or In
the nineteen sixties, low cost financing for purchasers helped Japan
(04:52):
become the dominant shipbuilding country, and European countries fired back
with subsidies of their own. This subsidy war prompted the
Organization for Economic Cooperation and Development, a group of the
world's wealthy economies, to create a Working Party on Shipbuilding
in nineteen sixty six to seek a progressive reduction of
(05:12):
the factors that distored normal competitive conditions in the shipbuilding industry.
This was not easily done. While its members agreed to
limit cheap loans for new ships, the OECD could not
keep a lid on other types of subsidies. The largest
came from South Korea. Until the nineteen seventies, Korean shipyards
(05:33):
had built only small vessels, mainly out of wood. The government,
pushing industrialization and targeting foreign shipowners, unveiled a shipbuilding development
plan in nineteen seventy five and pressured industrial conglomerates to
open modern shipyards. By nineteen ninety, Korea's ship production was
eight times higher than it had been in nineteen seventy five,
(05:55):
while thousands of shipyard workers in other countries had lost
their jobs. The United States, in contrast, has at times
subsidized the ship building industry, but has never encouraged it
to compete for foreign customers. The nineteen twenty Jones Act,
which requires cargo moving between U S sports be carried
in U S built and U S owned vessels, though
(06:16):
some of the ship's components may be imported, effectively guarantees
U S shipbuilders one hundred percent of a very small market.
As a result, almost all merchant vessels built in the
US in the past forty years since the Reagan administration
eliminated construction subsidies for U S flight carriers in nineteen
eighty one, have been devoted to domestic trade. This inward
(06:40):
looking policy makes it so that the few American yards
capable of building merchant vessels face little competitive pressure to
keep costs low or productivity high, and thus any sizeable
ship built in the U S is likely to cost
several times as much as a similar ship built abroad.
Since all U ship yuards combined build only a handful
(07:02):
of cargo ships each year, it's likewise impossible for them
to capture economies of scale. Foreign shipyards often receive orders
for six or seven identical ocean going vessels, lowering the
cost of each, but U S shipbuilders find investment in
state of the art production methods uneconomic, a situation that
has persisted for decades. Twenty three years ago, a study
(07:25):
by the Center for Naval Analysis concluded that U S
shipbuilders use more hours, many more hours than the better
foreign shipbuilders. There is no indication that matters have improved
since then, and US exports of passenger and cargo ships
totaled a scant forty three million dollars in twenty twenty four.
Depending on its size, a single tanker built to carry
(07:48):
liquefied natural gas could cost several times as much. Even
U S owned ship lines that offer international service have
shunned vessels built in America since construction subsidies were eliminated.
The boom and international trade that began in the late
nineteen eighties created an enormous demand for container ships and
vehicle carriers, but it largely passed U S shipyards by
(08:13):
U S shipyard's poor performance does not mean that they
are hopelessly inept. They successfully turn out smaller vessels such
as river barges and offshore service vessels, with several domestic
producers battling for orders, But when it comes to building
cargo ships to transport into national trade. U S maritime
policy has been an abject failure. Its principal goals, as
(08:38):
set by Congress are to protect America's security by sustaining
a strong maritime industrial base and a skilled shipbuilding workforce.
Because the policies unattuned to commercial reality, it has accomplished neither.
From an economic perspective, this failure is not of great
consequence so long as there is competition among supplies. The
(09:01):
United States is not harmed if its imports arrive in
foreign built ships or its ports purchased foreign made container cranes.
Utarchy is not a sensible strategy. On the other hand,
the inability of u S shipyards to compete in the
international market has serious consequences for national defense. While submarines
(09:21):
and aircraft carriers are built in dedicated shipyards, other navy
and coast Guard vessels often are constructed or repaired in
yards that turn out merchant vessels as well. Aging facilities
and shortages of experienced workers limit the shipyard's capacity to
build more military ships on tight time lines. Can this
(09:42):
sclerotic industry be revived? The mission is not impossible, but
it requires policy changes that will not be welcome in Washington.
Perhaps the most important is one that runs headlong into
another Trump administration initiative protection for the U S steel industry.
Building a large ship requires a vast quantity of steel.
(10:04):
American shipbuilders, however, cannot buy steel at the world market price.
Every recent president has levied tariffs on at least some
imported steel products. Trumps fifty percent tariff on almost all
steel imports enabled domestic producers to raise prices as well,
such that steel users in the US paid more than
(10:25):
twice the world average price in March. U S shipbuilders
have no hope of being internationally competitive if they are
forced to use the world's most expensive steel. The same
is true for manufacturers of containers, chassis, and cranes. Under
the best circumstances, U S ship yards are unlikely, ever,
(10:46):
to build large vessels entirely with U S content. Even
ships that qualify for domestic use under the Jones Act
may have imported propellers, engines, and other components, but tariffs
make those more costly in the US than in other countries,
further undermining the competitiveness of its shipyards. And then there
(11:07):
is the matter of helping buyers finance new ships, not
a trivial hurdle at a time when a new container
ship can easily cost one hundred and fifty million dollars. Usually,
a shipyard sells a new merchant vessel to a special
purpose company that obtains loans and other types of financing
backed by a mortgage on the vessel or by expected
(11:27):
future revenue. Governments frequently offer such loans directly or indirectly,
or guarantee commercial loans. Thanks to these types of assistance,
ship lines can obtain new vessels at much lower cost
than they would otherwise have to pay. Taxpayers may be
on the hook, though, if a slowdown in international trade
(11:47):
or a surgeon orders for new vessels depresses the value
of the ship and the revenue generates. If Congress is
unwilling to have the U S government shoulder the risk
of ship loans going bad, buyers who can obtain such
assistance abroad are unlikely to favor US built ships unless
Congress is willing to cancel tariffs on key inputs and
(12:09):
match other countries' generosity when it comes to vessel financing.
U S shipyards are unlikely to draw foreign customers. Instead,
they will remain dependent on the highly protected domestic market,
just as they are today. Perhaps, given consistent levels of
defense spending and strong oversight, some yards will improve their
(12:29):
ability to build naval vessels. But even if the Trump
administration requires the use of US built ships for imports
of motor vehicles or exports of liquefied natural gas u S,
shipyards will produce relatively small numbers of ocean going merchant vessels.
They will face little competitive pressure to match the productivity
(12:51):
of foreign yards. Realistically, developing a maritime industrial base capable
of serving commercial customers who are not required to buy
its products would require boat loads of money. A one
time expenditure for retooling outdated shipyards won't suffice. Rebuilding that
slice of the manufacturing sector would entail a long term
(13:12):
commitment to make US producers of merchant ships and cargo
handling equipment competitive in international markets. Subsidies, whether direct or indirect,
would need to be tied to requirements that recipients fight
for sales abroad and compete with foreigners for sales at home.
Recipients should be pushed to develop specialized technologies, not simply
(13:34):
to turn out goods that are generations behind those manufactured elsewhere.
Maritime nationalism has failed America badly. If the administration's new
strategy does not help build an internationally competitive industry, it's
unlikely to succeed.
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