Colin Grabow
As the Biden administration readied its exit last week, the US Trade Representative’s office released a report that found China’s subsidies and other market-distorting measures targeted at various maritime industries to be unreasonable and a burden on US commerce. The result was unsurprising, particularly given previous sympathetic statements from both US Trade Representative Katherine Tai and President Biden for the 2024 petition filed by politically allied unions that triggered the USTR’s investigation into the matter.
The officials’ less-than-neutral stance would perhaps be forgivable had the new USTR report supported its conclusion in favor of the petitioners with compelling facts and argumentation. But that’s not what was delivered. While the report provides voluminous evidence of Chinese market abuses and accurately notes the depressed state of the US shipping and shipbuilding industries, it fails to establish any causal relationship between the two.
Instead, the report’s findings are based on scant relevant evidence and questionable logic. Rather than first establishing facts to inform a carefully considered judgment, the USTR report smacks of a document hastily released to advance a predetermined conclusion beneficial to the outgoing administration’s political allies.
Even the report’s press release is flawed. In it, US Trade Representative Tai states that the United States currently ranks 19th in the world in commercial shipbuilding, while in 1975 it ranked number one with an annual production of over 70 ships.
None of these numbers are correct.
In 2023 (the most recent year for which data are available), the United States ranked 14th. Notably, Tai’s 19th place figure is mirrored in the 2024 petition’s first page (the US position in 2015), while her own USTR report placed the US at 16th (the US position in 2022). As for US performance in 1975, that year’s US Maritime Administration’s annual report shows the United States ranked twelfth—a far cry from first place—with 20 ships delivered (see page 68).
Tai’s inaccurate numbers are sloppy, but they’re small beer compared to the report itself, which—while mangling some facts of its own—fundamentally errs in concluding that China plays a meaningful role in US maritime misfortunes. Below are a few examples of the report’s central (and erroneous) premise:
China’s targeted dominance of the maritime, logistics, and shipbuilding sectors is a key factor that contributes to the United States not being able to achieve shipbuilding and shipping sectors of the magnitude or size necessary to “carry the waterborne domestic commerce and a substantial part of the waterborne export and import foreign commerce of the United States and to provide shipping service essential for maintaining the flow of the waterborne domestic and foreign commerce at all times.” (page 4)
China’s targeting of the maritime, logistics, and shipbuilding sectors frustrates the United States’ ability to maintain sufficient domestic shipbuilding, shipping, and logistics capacity to sustain US commerce, as directed by US law. (page 63)
China’s targeting of these sectors for dominance burdens or restricts US commerce because it undercuts business opportunities for and investments in the US maritime, logistics, and shipbuilding sectors…For China to achieve its targeted dominance, including as demonstrated by explicit global market share targets, Chinese companies must displace foreign companies in existing markets and take new markets as they develop. Such displacement affects China’s current top competitors in Korea and Japan, as well as US shipbuilders… (page 116)
The core flaw in the USTR’s causal argument is that US shipping and shipbuilding firms aren’t merely uncompetitive with China; they’re uncompetitive with every country of maritime significance. If China’s maritime industries ceased operations today, their business would simply shift to other countries with competitive shipping and shipbuilding firms — a group that decidedly does not include the United States.
For all the teeth-gnashing about China, US shipbuilders’ lack of competitiveness is such that their output trails that of even much smaller countries such as the Netherlands and Norway.
Despite this, the USTR report places considerable blame on China for US maritime travails. It states, for example, that in the year 2000 “glimmers of hope” had begun to appear for the US shipping and shipbuilding industries, but that—like other sectors of the economy—they fell victim to the so-called “China shock” stemming from the country’s 2001 accession to the World Trade Organization. As the report states:
A number of US shipyards have been forced to close as cheap Chinese ships have flowed into the global market. For example, Bender Shipbuilding in Mobile, Alabama declared bankruptcy and was sold in 2009, and delivered its last ship in 2012. Avondale Shipyards in New Orleans, Louisiana announced it was closing in 2010 and delivered its last ship in 2014. US shipbuilding employment has seen a corresponding impact. From 2008 to 2021, the number of shipbuilding and repair production workers in the United States fell by 14.9 percent and the number of production hours worked fell by 19.5 percent.
Later, the report quotes Scott Paul, the president of the union-aligned Alliance for American Manufacturing, stating that “US shipbuilding production has declined as artificially low prices of ships flood the market. China’s unfair production practices have made it impossible for American shipbuilders to compete on an even playing field.”
But the global market has little bearing on the fortunes of uncompetitive US shipbuilders, who have long subsisted on the protected Jones Act market for commercial vessels and military sales reserved for domestic shipyards. Indeed, a 2023 Congressional Research Service brief noted that no large US-built ship has been sold to an overseas buyer in decades, while a 1992 US International Trade Commission report noted that the US shipbuilding industry “had not produced a commercial vessel for export (that is, to be foreign-flagged) since 1960.”
The Avondale and Bender shipyards cited by the USTR report offer good examples of the lack of exposure to international competition (itself a notable contributor to the industry’s problems). For at least 30 years before its closure, the Avondale shipyard exclusively built ships for Jones Act and defense customers (and, before being defunded in 1981, a federal shipbuilding subsidy program). Bender was similarly dependent on building vessels for a captive domestic commercial market as well as occasional Navy contracts.
Put simply, neither Avondale nor Bender lost contracts to Chinese firms (or any foreign shipyard) because they never competed with them.
Beyond claims that China has contributed to US maritime struggles since 2000, the USTR report also alleges that Chinese policies are hindering efforts to revitalize the US maritime industry. It credulously quotes, for example, a letter from the Shipbuilders Council of America holding Chinese subsidies responsible for an inability of “private-industry US shipyards to compete for contracts to build or repair ships for international commerce.”
To substantiate these claims, the report offers the example of specialized vessels to construct offshore wind turbines. As it states:
Despite this strong demand signal [for offshore wind vessels], few US vessels are in development or construction. For example, while the [National Renewable Energy Laboratory] report indicates that four to six wind turbine installation vessels are needed, only one purpose-built offshore wind installation vessel has been launched in the United States. This is in part due to China’s flooding the market with offshore wind installation vessels, which decreases US shipyards’ perceived cost competitiveness and artificially restricts the ability of shipowners to compete for available work.
For example, the US-built offshore wind installation vessel capable of installing the largest wind turbines is reportedly expected to cost approximately $715 million. By contrast, a European vessel operator has contracted a similar vessel to be built in China for only $400 million, due in part from cost savings from building two similarly designed vessels in China. This initial contract price provides an indication of the impact of China’s unreasonable acts, policies, and practices. From an initial cost perspective, the Chinese-built wind tower installation vessel was 25 percent less expensive than a wind tower installation vessel built in United States. Yet, as detailed above, the non-market advantages that flow from China’s targeting of this sector for dominance confer artificial cost advantages to Chinese shipyards through related party transactions, labor rights violations, mispriced and misallocated financing, underpriced steel and other inputs, and others. With cost reductions from matured vessel designs, and costs and pricing reflecting series orders, US shipbuilding could be considerably more competitive.
Such language creates the impression that, but for China, US shipyards could compete in the construction of highly sophisticated wind turbine installation vessels. But such an outcome is beyond difficult to believe as US shipyards can’t compete with other foreign shipbuilders that construct WTIVs either.
While the report highlights the construction of a wind turbine installation vessel for $715 million in the United States compared to $400 million for a “similar” vessel in China, it neglects to mention that a South Korean shipyard contracted to build the exact same model vessel as the one currently under construction in a US shipyard for $330 million—less than half the US price and less than the China price.
Thus, even in China’s absence, vastly uncompetitive US shipyards would still be out in the cold.
Perhaps with this in mind, the report attempts to justify its finding by employing yet another argument. Beyond alleged past and current damage inflicted, the report claims that Chinese policies burden US commerce by creating undue risk. As it states:
China’s targeting of the maritime, logistics, and shipbuilding sectors for dominance burdens or restricts US commerce because it creates economic security risks from dependence and vulnerabilities in sectors critical to the functioning of the US economy.
A disparate set of facts are mustered to substantiate this claim. The report points out, for example, that 22 percent (hardly an overwhelming number) of the non-US flagged ships that entered US ports in 2022 were Chinese-built.
This fact is soon followed by the assertion that “Over-reliance on a single economy for shipping, shipbuilding, and logistics increases the cost of any disruption,” and a digression into the costs of disruptions to shipping in the Red Sea, their knock-on effects, and a claim that similar disruptions in the South China Sea could cause a $5 trillion decline in global GDP.
How this relates to Chinese subsidies in shipbuilding and related maritime industries, however, is a mystery. Would a Red Sea-style shipping disruption be less damaging if the vessels involved were constructed outside of China? The report never says.
The report is perhaps on firmer ground with its argument that China’s shipbuilding dominance could allow it to prioritize the orders of Chinese and other shipowners over those of US shipowners. Even so, this is a hypothetical outcome rather than one borne out in practice. Furthermore, Chinese shipyards still aren’t the only game in town with numerous capable shipyards remaining in South Korea, Japan, and elsewhere.
Such odd argumentation feeds a sense that the report’s conclusion was determined long before evidence was compiled, with much argumentative pasta flung at a wall in the hope that some would stick. That the report’s sources include an op-ed published just 48 hours before the report’s release only adds to such suspicions.
To be clear, the report’s flaws do not absolve China of distorting the global maritime market. That Beijing lavishes substantial subsidies on its shipping and shipbuilding industries is well documented. But the real question is whether such policies have even the slightest explanatory power for the US shipping and shipbuilding industries’ moribund state and lack of competitiveness — a situation that long predates China’s maritime rise. The answer is clear.
The incoming Trump administration will undoubtedly be tempted to seize on the new USTR report to justify new tariffs on China. But if administration officials seek to reverse US maritime fortunes, their time would be better spent examining possible reforms to address US policy failures than blaming others for long-standing ills.