Trump eyes a fresh China assault that could spark trouble on the seas

The US is considering launching an assault on China’s dominance of global commercial shipping that would disrupt global supply chains, increase prices for American consumers and add a new dimension to the Trump administration’s escalating trade wars.

Late last week, the US Trade Representative (USTR) released the result of an investigation commissioned by the Biden administration into China’s dominance of maritime logistics, shipbuilding and container production.

Donald Trump is escalating his global trade war. Credit: AP

Its report contained proposals that would result in huge increases in port fees for Chinese-built or operated vessels, as well as a requirement that would mean an increasing proportion of American goods carried on US-flagged and built ships.

The USTR accused China of using unfair practices – forced labour, artificially low labour costs, cheap state funding and access to non-market excess capacity for inputs such as steel – to develop its dominance of shipbuilding.

China does dominate the construction of ships and containers. In less than a quarter of a century, it has lifted its share of the shipbuilding market from below 5 per cent to more than 50 per cent. It accounts for 95 per cent of the production of shipping containers.

And China doesn’t just build the ships. It owns many of them – about 19 per cent of the world’s commercial fleet.

While China builds more than 1700 commercial ships annually, the US builds fewer than five. China’s share of new orders for ships is 61 per cent; America’s is about 0.4 per cent.

While there is industrial logic to an attempt by the US to try to undermine China’s dominance of the industry, there is also military logic.

The scale of China’s shipbuilding sector and the complex supply chain that supports it has enabled it to leverage its capabilities and economic advantages to build the world’s largest fleet of warships.

America’s shipbuilding capacity is almost entirely devoted to its own navy but is characterised by limited facilities, labour shortages and cost and time overruns.

The USTR recommends fees of up to $US1 million per vessel for every entry to a US port by a Chinese maritime transport operator.Credit: AP

Strong navies have historically been developed alongside strong commercial shipbuilding capabilities. The lack of those commercial capabilities represents a major vulnerability for the US Navy’s ability to keep up with China’s continuously growing and increasingly sophisticated fleet.

That nexus between the commercial and military implications of a strong shipbuilding industry has shaped the USTR’s recommendations.

The USTR proposals to increase fees on Chinese-related ships and cargoes will, however, pose a challenge for the Trump administration.

Does the administration follow its “America First” goals and the prejudices of its MAGA base? Or will it be more concerned about the implications for US industry, consumers and the inflation rate?

The proposals are complex and all-encompassing. The USTR is recommending fees of up to $US1 million per vessel for every entry to a US port by a Chinese maritime transport operator.

Container ships on routes between Asia and the US east coast generally make multiple port calls, so the fee could be charged multiple times.

The fees would be charged not just on Chinese-owned or operated vessels but also on Chinese-built ships. Any operator with Chinese-built ships in its fleet would be captured, with the port fees calculated according to the percentage of such ships in the fleet.

For those with more than 50 per cent of Chinese-built ships, the cost per port call would be $US1 million. Those with between 26 per cent and 49 per cent such ships would pay fees of $US750,000. Those with less than 25 per cent – and it could be a single ship – would pay $500,000 per call.

While China builds more than 1700 commercial ships each year, the US builds fewer than five.

On some interpretations of the proposal, a Chinese operator such as the giant Cosco would be hit twice as a Chinese operator using Chinese-built ships. It could face port charges of $US1.5 million per visit.

The proposal doesn’t just cover existing ships. It also recommends that the port fees be charged to any operators with ships being built at Chinese yards or ordered from them and expected to be delivered within two years of the proposal being adopted.

To encourage the development of a local shipbuilding industry, the USTR would require the percentage of exported goods being transported on US-flagged vessels with US operators to increase from 1 per cent to 15 per cent within seven years, by which time 5 per cent would have to be transported on US-built vessels.

That would be a huge challenge for US operators because of the need to dramatically expand the size of the US-flagged fleet and an equally daunting challenge for American shipbuilders, given the country’s current minuscule commercial shipbuilding capacity.

Nearly 20 per cent of the container ships arriving at US ports are Chinese-built, although the proportion of the largest container ships built in China would probably be higher.

That means a big slice of imports to the US would attract the new charges, which would be passed on to importers and exporters, and eventually consumers, which would add to the inflationary impact of Donald Trump’s much-loved tariffs.

The requirement to carry a rising percentage of goods on US ships would also add to costs – the American ships would be more expensive to build because the US lacks the scale, efficiencies and non-market advantages of the Chinese yards.

If adopted, the USTR proposals would create a new dimension within Trump’s trade wars.

America’s ship-building capacity is almost entirely devoted to its own navy. But it’s beset by limited facilities, labour shortages and cost and time overruns.Credit: AP

While the proposals would affect China most, the high (and growing) percentage of Chinese-built vessels in the global container fleet means they would have implications for all the major shipping operators and their home economies.

It would lead to disrupted and less efficient global supply chains, but Trump would be unlikely to be concerned by that because the proposals play to several dimensions of his America First program – reindustrialising the US, punishing trading partners for what he regards as unfair trade balances and limiting China’s economic and geopolitical capabilities.

Given that Trump thinks that exporters to the US will pay his tariffs and that his tariffs will generate massive amounts of revenue to fund his $US4.5 trillion of proposed tax cuts for the wealthy, he is likely to see the prospect of a steep increase in port charges for any ship with a Chinese connection as just more of the same.

They would be, except that it would be American companies and consumers that would again be slugged.

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