Revitalising US commercial shipbuilding is likely to be a complex and lengthy endeavour, as explained by Clerc, indicating that protectionist measures alone, such as tariffs, are unlikely to quickly achieve the desired industrial revival.

The Trump administration’s aggressive stance on trade, marked by the threat of new tariffs on countries like China, Canada, and Mexico, and its decision to pull out of global agreements such as the Paris Climate Agreement and the World Health Organization, signals what is expected to be a significant shift in US foreign economic and industrial policy. As part of a broader effort to resurrect its manufacturing capabilities, the US is also setting its sights on revitalising its shipbuilding industry. This move is particularly critical in the context of national security, keeping in mind that China’s state-owned shipbuilders account for over 70% of the world’s commercial shipbuilding capacity.

For the US, this might be a fair argument, as Vincent Clerc, CEO of Maersk, speaking at the World Economic Forum in Davos explained. The shipbuilding industry is not solely about commercial shipping and trade; it also encompasses technology, military power, and the capacity to project influence through naval forces, he said. Therefore, it is ‘understandable’ for the US to want to build up its capacities and ‘know-how’ given the broader implications of China, its main rival, controlling such a vital sector.

However, the process of rebuilding the US shipbuilding industry is far from simple. Clerc explained that while it’s a reasonable goal to pursue, the scale and complexity of undoing decades of global supply chain development make this a long-term endeavour. “It took 25 years to build the global supply chain we have today. It won’t be undone by tariffs,” he remarked. Even if tariffs on Chinese-built ships were introduced today, it would take a minimum of six to seven years before the first commercial ship would emerge from a US shipyard, a timeframe that extends well beyond political cycles, he pointed out.
In an earlier proposal, the Biden administration suggested a US$1 million annual fee on any ship built in China calling at US ports. Clerc explained that, since no ships currently sailing are built in America, there would be no immediate way to avoid the tariff. While companies like Maersk could redeploy ships built in Korea and Japan, some Chinese ships would still be required to call at US ports. He added that if the US aimed to use such tariff funds to rebuild its shipbuilding sector, it would still take six to seven years before the first ship could be constructed.

A Complex Endeavour
As of December 2023, the United States has over 150 private shipyards across 29 states and the U.S. Virgin Islands. Nevertheless, the majority of these facilities focus on smaller vessels such as tugs, barges, and supply vessels for offshore oil, gas, and wind development. A considerable focus has also been given on constructing naval vessels, led by shipyards like Huntington Ingalls Industries, General Dynamics NASSCO, and Bath Iron Works. Only a limited number are equipped to build large commercial vessels such as container ships, like KeppelAmFELS Shipyard in Brownsville, Texas which has built LNG-powered container ships for Pasha Hawaii, and Philly Shipyard, which has built LNG-fuelled container ships for Matson. The latter was acquired late last year by Korea’s Hanwha Ocean, formerly known as DSME, after facing financial troubles.

The challenge, Clerc explained, lies in the intricate network of suppliers that supports the global manufacturing process. “You can move the final assembly of your television to Mexico or the US, but the glass still comes from China, the microchips still come from Taiwan,” he said. This layered supply chain makes the transition to a fully domestic shipbuilding industry a complex and gradual process.

In addition, while the Trump administration has proposed tariffs as a way to incentivise domestic manufacturing, the reality is that such measures could have unintended economic consequences. The US could face inflationary pressures in the short term, with the full benefits of the manufacturing shift potentially taking years to materialise. Moreover, tariffs would increase shipping costs, affecting every American producer reliant on imported goods. It could also lead to significant labour market disruptions. The shift in resources would likely pull workers from other sectors, causing potential harm to exporters.

Speaking on the country’s green energy policies, Clerc said that given the fact that the Inflation Reduction Act IRA was passed as a budget act, it would require 60 Senate votes to undo, not just 50. With over 70% of the money going to red states, it’s unlikely that significant changes to the IRA will happen quickly. He pointed out that despite symbolic opposition, the overall direction of the US toward green energy will likely continue, especially since much of the IRA benefits red states like Texas and Georgia. At the same time, fossil fuel use will likely increase to keep energy prices low. With that in mind, the US could repeal the act with another budget act with the support of 50 senators.Commenting on the way forward, Clerc said that Europe must face these challenges united. A coordinated response is needed to prevent countries from being divided by the US-China tensions. European countries should work together and resist being picked off individually, he added, noting that the protectionism policies in the West are ‘here to stay’.

Source : worldcargo