Washington D.C. – In a move aimed at countering China's dominance in the global shipbuilding industry and bolstering its own maritime sector, the United States announced on Monday, April 17th (local time), that it will impose phased-in port fees on Chinese-flagged vessels and other ships built in China docking at American ports, starting this October. This decision marks a significant escalation of trade tensions between the two economic giants, extending beyond tariffs into the realm of maritime transport. Analysts suggest that this development could create a potential windfall for South Korea's shipbuilding industry.

The United States Trade Representative (USTR) formally announced the new levy, stating that "180 days from now, the U.S. will begin to impose fees on Chinese-flagged vessels, as well as on vessels operated by shipping companies that use ships built in China, and on foreign-built car carriers." The initial fee for Chinese-flagged vessels will be $50 per net ton (a measure of a ship's cargo-carrying capacity), set to take effect on October 14th. This fee is slated to progressively increase to $140 per net ton by 2028.

Furthermore, non-Chinese shipping companies operating vessels constructed in China will also be subject to a port fee, starting at $18 per net ton and escalating to $33 per net ton by 2028. Exemptions will be granted to vessels owned by U.S. companies, ships without cargo, and vessels below a certain size threshold. Additionally, a fee of $150 per CEU (Car Equivalent Unit, representing the space for one vehicle) will be imposed on foreign-built car carriers. In a move to potentially mitigate the impact on non-Chinese shipping lines, the USTR stated it would consider a waiver of fees for up to three years for existing vessels ordered by non-Chinese companies that have also ordered comparable or larger vessels from U.S. shipyards.

China swiftly responded to the announcement on Tuesday, April 18th. Foreign Ministry spokesperson Lin Jian, during a press briefing, urged the United States to "immediately cease its erroneous actions." He further stated, "China will take necessary measures to resolutely safeguard its legitimate rights and interests." This strong reaction underscores the potential for further retaliatory measures and the deepening rift in US-China trade relations.

USTR Justifies Action, Cites Unfair Practices

The USTR's decision follows an investigation initiated in April of last year, prompted by a petition from five American labor unions. The unions requested an investigation under Section 301 of the Trade Act of 1974 into China's practices in the maritime, logistics, and shipbuilding sectors. The USTR concluded that China's unfair competition has indeed harmed American industries.

In its statement, the USTR emphasized the critical importance of shipping and shipbuilding to "America’s economic security and the free flow of commerce." The agency asserted that the Trump administration's actions aim to "weaken China’s dominance, address threats to America’s supply chains, and increase demand for U.S.-built vessels." This rationale aligns with a broader strategy to reduce reliance on Chinese manufacturing and strengthen domestic industrial capabilities, particularly in sectors deemed vital for national security. The shipbuilding industry, with its close ties to naval power, falls squarely within this strategic consideration.

Concerns Over Global Supply Chain Disruptions

Despite the U.S. objectives, concerns are mounting regarding the potential repercussions of these new fees on the global supply chain. Bloomberg News reported that the fees could "effectively deepen tariffs," potentially leading to increased consumer prices and disruptions to trade flows. The report also highlighted the risk of vessels bypassing major ports to avoid the fees, which could severely impact the economies of those regions.

Furthermore, the feasibility of quickly securing alternative shipbuilding capacity remains a significant challenge. Bloomberg noted that placing new orders, even with shipbuilders in countries like South Korea that already have substantial backlogs, could take until 2028 or later. This limited availability of alternative shipbuilding capacity could exacerbate supply chain bottlenecks and further inflate shipping costs. The global shipbuilding market is heavily concentrated, with China holding a dominant market share, making a swift diversification of shipbuilding sources difficult.

White House Targets Illegal Fishing and Labor Practices

Adding another layer to the trade tensions, the White House also announced a new executive order on "Combating Illegal, Unreported, and Unregulated (IUU) Fishing and Forced Labor in the Seafood Supply Chain," which is widely interpreted as another measure targeting China.

President Trump stated in the executive order that "the United States seafood market is among the finest in the world, yet our domestic industry faces unfair competition due to the trade practices of foreign nations." The order directs the Department of Commerce and the USTR to investigate, within 60 days, the trade practices of major seafood-producing nations concerning IUU fishing and the use of forced labor in seafood supply chains. The order also mandates enhanced tracking of seafood shipments from countries with a history of violating international fishing regulations. This move is seen as a response to allegations of North Korean laborers being exploited on Chinese fishing vessels, working under conditions akin to "slave labor." Reports from human rights organizations have long documented these concerns, highlighting the complex intersection of trade, labor rights, and international relations.

Trump Signals Potential for Near-Term Negotiations

Despite the confrontational measures, President Trump indicated a potential openness to negotiations with China. While signing the executive order, he stated, "We are talking to China, and they've called many times." He expressed optimism about reaching a trade deal, suggesting it could happen "within the next three to four weeks." When questioned about direct communication with Chinese President Xi Jinping, Trump remained evasive, saying, "I'll be telling you about that in the not-too-distant future." Regarding reciprocal tariff negotiations with other nations, Trump asserted, "Many countries want to negotiate with us, but we make the decision."

China's Retaliation in LNG

The Financial Times reported on Tuesday that China had completely halted imports of U.S. liquefied natural gas (LNG) for over ten weeks following Beijing's imposition of a 15% additional tariff on U.S. LNG in February. This action demonstrates China's willingness to retaliate against U.S. trade measures, further complicating the bilateral economic relationship. The energy sector, a crucial component of global trade, is now also becoming a battleground in the escalating trade dispute.

South Korean Shipbuilders Poised for Potential Gains

Amidst the escalating US-China trade friction, analysts suggest that the South Korean shipbuilding industry could emerge as a beneficiary. With increased costs for Chinese-built vessels entering the U.S., shipping companies may look to alternative shipbuilding sources. South Korea, renowned for its high-quality and technologically advanced shipbuilding capabilities, stands as a primary alternative. Major South Korean shipbuilders like Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering already possess significant expertise in constructing a wide range of vessels, including container ships, LNG carriers, and car carriers.

However, the extent of the benefit for South Korean shipbuilders will depend on several factors, including their existing order backlogs and their capacity to absorb new orders without significant delays or price increases. The global demand for new vessels is also subject to broader economic conditions and trade patterns. Nevertheless, the U.S. move creates a potential opportunity for South Korean shipyards to gain a larger share of the global shipbuilding market, particularly for vessels destined for the United States and potentially other markets seeking to diversify away from Chinese-built ships. The long lead times in shipbuilding mean that any significant shift in orders will likely materialize over the medium to long term.

The unfolding trade dynamics between the U.S. and China are creating a complex and evolving landscape for global shipping and shipbuilding. While the U.S. aims to reshape the industry and reduce its reliance on China, the potential for disruptions to global supply chains and retaliatory measures remains a significant concern. The South Korean shipbuilding industry finds itself in a unique position, potentially poised to capitalize on these shifting global trade winds.