In the Biden administration’s final days it released a deeply flawed report, conducted as part of a Section 301 investigation, that blamed China for many of the US maritime industry’s troubles. The report’s verdict cleared the path for punitive retaliatory measures, raising the question of how the newly ensconced Trump administration would handle the matter. Last week, the US Trade Representative’s office provided an answer.
As punishment for China’s alleged unfair contributions to US maritime misery, the trade agency announced that it is considering imposing fees ranging from $500,000-$1.5 million on Chinese shipping companies, companies that use Chinese-built ships, and companies that have ordered ships from Chinese shipyards. Such fees would be levied on companies that fit one of these three categories each time one of their vessels enters a US port.
In addition (and with no obvious connection to China’s claimed malfeasance), the USTR suggested a requirement that a percentage of US exports be transported on US-flagged ships, a subset of which would also be US-built.
If adopted, the impact of such measures would be sizeable. With tens of thousands of vessels visiting US ports annually, the port fees would add billions in new costs to US imports and exports alike. The proposed export requirement, meanwhile, would not only add further costs but is almost completely unworkable. The idea that significant quantities of exports could be transported on US-flagged and built ships is sharply divorced from maritime realities.
Last year, US ports along the country’s coasts (excepting the Great Lakes and non-contiguous states and territories) received over 57,000 visits from containerships, bulk carriers, tankers, and roll-on/roll-off ships. Under the USTR’s proposals:
- Each of these visits by a vessel operated by a Chinese company would incur a fee of up to $1,000,000.
- Each Chinese-built vessel or merely operated by a company featuring Chinese-built ships in its fleet would face fees of $500,000 to $1,500,000 per visit.
- Each vessel operated by a company with pending orders from a Chinese shipyard would face fees of $500,000-$1,000,000.
Exactly what percentage of ships visiting US ports would face such fees is unclear, but it would be substantial. As of 2023, the Chinese shipping company COSCO/OOCL accounted for 11.7 percent of US container imports. As a Chinese company operating Chinese-built ships with further ships from Chinese shipyards on order, it faces hefty potential levies.
But others would be hit too. The top seven carriers that collectively account for 81 percent of US imports all feature Chinese-built ships in their fleets and additional vessels on order from Chinese shipyards.
Furthermore, with China accounting for over 50 percent of global shipbuilding output in 2023 and over 70 percent of orders in 2024, it’s a safe assumption that many of the ships that visit US ports are vulnerable to the proposed fee. If only 30 percent of last year’s more than 57,000 cargo ship visits to US ports had a Chinese connection, and each paid an average port fee of $750,000, the total fees would amount to over $11 billion.
Consider the containership Polar Mexico currently making its way from Philadelphia to Savannah (ships often call at 3 or 4 US ports, dropping off imports and picking up goods for export). As a Chinese-built vessel, fees would be levied against it at both ports. If assessed at $1.5 million in total ($750,000 x 2), that’s approximately $780 per container when spread across the ship’s capacity of 1,900 forty-foot containers. If the vessel visits a third port, the cost per container would further increase. Larger ships could spread the fees over more containers, but the fees could still reach hundreds of dollars per box.
Little wonder that shipping expert Lars Jensen recently expressed his hope that “the public debate will avert this madness.”
This madness, however, is the picture of sanity compared to the USTR’s proposed export requirements. Under this measure, one percent of all US exports ranging from consumer goods to agriculture products to chemicals and petroleum would have to be shipped on US-flagged ships from the date it is put into action.
By year two, that percentage would increase to three percent, and by year three it would increase to five percent, of which three percent must also be US-built. Finally, by year seven, 15 percent of goods would be exported on US-flagged vessels, of which five percent must be US-built.
It would essentially extend the provisions of the Jones Act, which requires the use of US-flagged and built vessels in domestic waterborne commerce, to a portion of US foreign trade.
The financial burden would be considerable. US-flagged ships cost approximately 4.4 times more to operate than their internationally-flagged counterparts ($11.1 million per year versus $2.6 million), while US-built cargo ships are approximately four to five times more expensive to construct.
And the costs don’t stop there. After reaching their foreign destination, such expensive ships would be poorly positioned to compete for backhaul cargo headed for the US. Sailing back empty or with low cargo volumes would require even higher rates on US exporters to cover the ship’s costs.
It’s a de facto export tax.
But perhaps most importantly, the plan is infeasible. US shipyards cannot supply the ships in the timeframe provided to transport the mandated percentage of exports.
Liquefied natural gas tankers offer a useful example. As the United States is the world’s leading exporter of LNG, US-built tankers would be required to transport a portion of such cargo under the USTR’s plan. However, a 2015 government report found that constructing such a vessel in a US shipyard—something that hasn’t been done since 1980—would take four to five years. So how would such a vessel be ready in three years to transport three percent of US LNG exports?
US shipyards are already struggling to fulfill their current limited orders. Last November, for example, a customer of the Philly Shipyard filed suit over delays in the shipyard’s construction of a rock installation vessel. Originally scheduled for delivery in 2024, it has now been pushed to 2026. Similarly, the Seatrium AmFELS shipyard still hasn’t delivered a wind turbine installation vessel and a hopper dredge that were both originally set for completion in 2023.
On average, US shipyards require over two years to build relatively small containerships. And that’s starting from the time construction begins, not when the deal to build them is signed. To think that such shipyards, accustomed to collectively delivering about three ships per year, could rapidly produce scores of vessels of differing types to handle the mandated volumes of US exports is fantastical.
And a lack of shipyard capacity isn’t the only constraint. Where will the mariners be found to crew these US-flagged ships? Even in its current shrunken state, the industry already suffers from a shortage of qualified personnel, which one US shipping executive described in 2023 as “acute.”
None of this makes any sense. And what do such requirements have to do with China’s alleged maritime misdeeds anyhow?
This entire enterprise is misguided. The notion that China is responsible for US maritime woes that long predate China’s rise as a shipping and shipbuilding power is without foundation. The report that serves as the basis for the proposed measures appears more driven by political expediency than facts or logic. And the proposals themselves are both costly and unmoored from reality.
As Lars Jensen put it, “If the intention is [to] drastically increase costs for US importers and make US exports uncompetitive, this proposal is likely to do the job.”
That nicely captures it. Although Chinese shipbuilders would surely feel some pain (to the benefit of shipyards in South Korea and Japan that also build large cargo ships), the cost to American businesses and consumers—already smarting from years of price increases—would be significant. The Trump administration should reverse course and shelve these reckless ideas.