Trump's Plan To Make US Shipbuilding Great Again

basically the end of World War Two. The United States has progressively lost its footing as a primary builder of commercial ships in the world, forfeiting that position to emerging powers in the Indo Pacific, in particular Japan and Korea, initially but eventually China, which has increasingly risen as the primary point of production for both commercial ships and arguably the fastest producers of naval vessels now on Earth, almost

entirely for the People's Liberation Army Navy. Now, the concerns about shipping our bipartisan here in the United States and are long running, but it is clear that President Trump has somewhat been bitten by the shipping bug and has taken this issue head on and is trying to use the power of the office to force the industry to change significantly and drive investment in the United States to push out both commercial shipping developments and potentially naval developments

as well. And that's really where it comes down to this core question of the US national security and how shipbuilding kind of relates to it. Overall, you have this question of the commercial benefits of a ship being built in the United States, jobs and technology development, all of those things. But for Trump and for this administration, it's all about national security and ensuring that the United States

has the tools it needs in a crisis scenario. So on one front, it is the tangible question of military construction. For those who follow any of this closely, we all know that the United States is struggling to meet the demands of the United States Navy and has progressively been seeing its dominance on the seas questioned, and that has been partially due to the fact that it simply cannot move and build ships as fast as it wants to and is unable to actually expand the size of the

Navy as they see it today. The delays right now on major shipping could range between twelve and thirty six months on major production, all because the US shipbuilding facilities lack kind of basic infrastructure are dated in their technology

and are unable to compete. And with that as well, you have this question of merchant ships and the need to be able to marshal a large number of merchant ships in the event of a crisis, particularly one as far away as as something in the Indo Pacific, maybe a Taiwan contingency or a North Korean contingency where you're going to need to move large number of troops and

equipment quickly. But if the United States does not have enough ships that it owns and operates and can build, it feels that it could be at a disadvantage, and particularly in a China scenario, that the Chinese could use that against them.

just to one of China's major shipping organizations. They produced over two hundred and fifty vessels in twenty twenty four, which just for context, is more than the United States produced in all of World War Two by tonnage, and so the numbers are not even close. When it comes to ships that enter and exit the United States bring all the goods the US consumes. Those ships are made all around the world, but particularly in Korea, Japan and now increasingly China.

And Shair Adam, do you need a strong commercial shipbuilding industry to also have a strong navy? Are they complementary to each other?

of supplies, expand production facilities. All of these things are benefits that the Chinese benefit from on a day to day basis and the United States does not. For example, many Chinese shipyards produce both commercial and naval ships right next to each other, with individual experts moving between ships day to day. And that's something the United States simply can't do.

sum up to somewhere around ten billion dollars annually. And what's notable is more than forty percent of that amount comes from Chinese Costco Group alone. That is not surprising given that the levees are aimed squarely at leveling the playing field between the US and Chinese shipping players and shipbuilders. Perhaps what's more surprising or less obvious to people outside of the industry is that the levees are set to

penalize shipping companies outside of China as well. So based on our calculations, actually Switzerland's MS Mediterranean shipping company, they are second in place, right behind Costco in terms of the expected levees to be paid in total per year. So you know, this shows that while the proposal aims to punish or you know, in a way imposed a levee on Chinese shipping and stribulers, they do go much further than that, and everyone in the industry in consumers

will feel the impact as well. However, our model also suggests that it's not the end of the world for shipping companies and consumers, So even Costco group themselves, they could potentially reduce the impact of the proposed levees significantly by basically spreading out the levees that they aim to recoup across all container cargoes that they transport globally, rather than just those bounds for US pots, which would you know,

attract the levees in the first place. We submit that the percentage incremental cost per container is actually somewhere around one hundred dollars per teu, just north of that figure, and in percentage terms, you know, if I compare to average prevailing phavores, that's only just under six percent. It's not insignificant, but not quite what you would expect to see in terms of the hum done to consumers and inflation.

based on how effective they think they are. Another thing I'd point out is that there are several pieces of legislation in moving around Congress right now that relate to this. There's a specifically a shipbuilding they'll call the Shipbuilding and Harbor Infrastructure for Prosperity Act, otherwise known as SHIPS. It's the Ships Act, and it's a bipartisan arrangement that is designed to address many of the core issues that we've

already started to discuss. It includes tax credits, loans, guarantees, all designed to push for more commercial shipping to be produced in the United States to help build out and expand commercial shipyards. As we've seen in doing so, help

with naval construction as well. Specifically, an interesting part of that is also the establishment of something they called the Strategic Commercial Fleet, which would be two hundred and fifty US built vessels that would serve that purpose of being in reserve an event of a US crisis, and the orders that the United States puts in and pays for that would come out and hopefully revitalize commercial shipping. But

none of that is guaranteed. We haven't seen that move through Congress yet, and it is a lot of money that would be required there, and given increasing concerns about the debt, notwithstanding the passage of the most recent budget bill, I think there are questions on whether that will actually move forward.

outside of China is Korea in Japan. But maybe Kenneth can talk a little bit about how they had hoped to incentivize the construction of US Belt vessels.

a self Coin shipyard. And the second aspect is in terms of the delivery timeline, it's just going to be a lot more efficient to order from a shipyard that you know could deliver in three to four years time with certainty, because you know there's economies of scale and expertise that's required to service the needs of global shipping companies in South COREA and Japan. And we are not talking about China here because we're talking about the impact

of the levees targeted at the Chinese industry peers. But you know, if you consider time and cost, it definitely makes sense to order from the South Covins and the Japanese rather than the American shipyards. And the levees are not here to while they would like to see orders that US shipyards increase as a reason of the levees, they're not here solely to drive orders towards UB shipyards. So under the proposal, there are conditions that incentivize new

orders from US shipyards. For instance, if you currently operate Chinese built but you put in a new order with the US shipyard, under certain conditions, there will be exemptions

available to you as a shipping company. So if you place a new order with the US shipyard within the next three to five years, for instance, then that might basically reduce the amount of levies you will pay over that same period until you take delivery of the US ship But there's nothing actually stopping shipping companies from pivoting toward the South Kurrerents and the Japanese instate, So essentially the proposal is here to stop shipping companies from going

straight to the Chinese. You know, in the long run, that is done with the intention of basically funneling orders away from the Chinese shipyards and reducing their dominance in the industry, which, as John mentioned at the beginning of the podcast, they control more than seventy percent of critical segments such as containerships and tanker vessels.

sending those goods over into the US? Is there potentially going to be more air shipping for example, could there be more goods coming through Mexico? Like, how would it impact the shipping routes themselves.

for the US. Another way is they could work with their alliance partners, so in container shipping, you know the three larger shipping alliances at the moment, and for Costco Group, they could potentially work with their alliance partners ever Green from Taiwan and CMAC GM from France, and what they could do between the two of them would be too deferred or re deploy the Chinese build vessels on two routes that do not involve US podcorns, and that would

effectively reduce the total levees incurred by Chinese Cosscoal Group annually. And also they could potentially reduce the levees further by just adding a certain number of orders with the US shipyards as intended. So there are multiple options of the vary in terms of viability and commercial value, but there are multiple options available and exemptions as well under this proposal that they could leverach.

go up on a fee schedule, what's the impact? And what we actually found was that when you look at the value of the goods that are actually being transported and look at that in comparison to the fee, you're actually talking about only a point seven percent increase in total costs, or, if you want to think about it from a tariff perspective, because that's what we do, a point seven percent tariff, and given where we are in the tariff picture today with over forty percent tariffs currently

on Chinese goods, zero point seven percent just really doesn't change calculus. So we very well might see our drop in shipments to the United States, but that's going to be driven by those broader trade talks with China and the tariff rates that exist, rather than the fees themselves.

And so you know, certainly an individual company, as our reporting indicates, if Costco paid the full fee, they would actually take a large hit on their profits, but they have the ability likely to pass that on to a variety of different entities within the supply chain or the process, the logistics process of shipping in a manner that most

folks will be willing to pay. And you know you mentioned airshipping, but the costs are so drastically different between the two, with ship bound goods being just so much cheaper that it just won't make a big difference.

T shirts in such a container. So that's one hundred and eighteen dollars divided by two hundred thousand T shirts. It's not even going to show up as a decimal point.

naval capacity. The United States, there's a big deal right now. During the Biden administration, there was a deal to work with Australia and the United Kingdom on the construction of nuclear submarines under something called Aucus. And this is all

built around the Virginia class nuclear submarine. And the entire premise of this agreement was that by increasing the order book for this submarine and increasing the amount of funds flowing into the program, with Australia buying in and potentially the United Kingdom as well, that the United States would be able to improve its ability to produce ships because it is falling woefully behind in producing these advanced submarines that it needs for its strategic position in the Indo Pacific.

So the US is looking in every place to do this, and the idea here is to just give even more support and funding to drive that development.

started to do. However, if the competing priority here is to increase the size and efficiency of the US Navy as fast as possible, and to do that, we actually need, or at least folks are considering actually using the shipyards in Korea and Japan to both do maintenance on our current fleet and potentially actually construct elements of our current fleet, and so there is this tension that exists between the

two objectives. Both Korea and Japan are very much aware of how focused the United States is on this issue and have already made large proposals in regards to how they could help the United States build out and improve the shipbuilding industry as part of these trade or tariff negotiations that are ongoing.

things could easily take more than ten years. So while the proposal by the US here they aim to finance these investments using the levees collected, that still leaves the issue of rapidly raising a huge pool of trained workers, as Adam mentioned earlier, and this is something that's unlikely

to be accomplished under the proposal alone. So this is where we think shipbuilders in South Korea and Japan they are well positioned to come to the aid of the US so to speak, since these two countries are in the world's number two and number three largest shipbuilders after China. And one way this could be done is to bring in these shipbuilders to invest in US ship yards, such as Hanwa Ocean, which invested one hundred million dollars into

Philly Shipyard. This was sometime last year twenty twenty four, and you know, bringing these experts in they could help make US shipyards commercially viable again, which also could be very lucrative undertaking for these companies themselves. But yes, I agree completely with Adam that you know, no one's really looking to make the US one of the worst leading shipbuilders.

The idea is really to narrow the gap between China and the rest of the world, so US and its allies, and also to blunt the dominance of China shipbuilding industry so that the entire world doesn't become so reliant on the Chinese that they hold sway over what happens in the industry, especially when due economic tensions on the rise.