China’s maritime dominance in US crosshairs

China’s maritime dominance in US crosshairs
1/03/1975 https://www.hellenicshippingnews.com/chinas-maritime-dominance-in-us-cro...

The US government is intensifying its focus on China’s economic practices, with a new investigation targeting China’s dominance in maritime logistics and shipbuilding. The move, which could result in significant fines and unprecedented restrictions on the shipping industry, has sent ripples of concern throughout global trade circles.

Writing in an article this week, ING economists Inga Fechner, Rico Luman, and Lynn Song noted: “Every weekend seems to bring new investigations and actions from the US.” The latest action, focusing on maritime logistics, follows recent memoranda addressing America’s investment policy and foreign governments’ extraterritorial authority over American companies, signalling a broader strategy of economic confrontation.

Targeting China’s maritime ascendancy

The investigation, initiated by the US Trade Representative (USTR) in April 2024 following a petition from labour unions, seeks to address concerns about China’s rapid ascent in the maritime sector. The USTR’s findings paint a stark picture: China’s shipbuilding market share has exploded from less than 5% in 1999 to over 50% in 2023. Furthermore, China owns over 19% of the global commercial fleet and controls a near-monopoly on shipping container production (95%) and intermodal chassis supply (86%).

This dominance, the USTR argues, threatens to displace foreign competitors, stifle competition, and create dependencies.

To counter this perceived threat, the USTR has proposed a range of punitive measures, including substantial fees on Chinese maritime transport operators and restrictions on the use of Chinese vessels for US goods transport. The proposed fees are tiered, reaching up to $1 million per vessel for Chinese maritime transport operators entering a US port, or up to $1,000 per net ton of the vessel’s capacity. Additional fees could be levied based on the percentage of Chinese-built vessels in a fleet and the number of vessels ordered from Chinese shipyards. Conversely, operators utilising US-built vessels could receive refunds of up to $1 million per entry.

The proposed restrictions include a gradual increase in the percentage of US goods required to be transported on US-flagged vessels, starting at 1% and reaching 15% over seven years. The US administration also intends to engage with allies to develop a co-ordinated strategy to counter China’s maritime influence.

Ripple effects across global trade

The impact of these proposed measures could be far-reaching. ING’s economists warn that US importers will bear the brunt of the new fees. “The proposed actions would pretty much exclude major Chinese container carrier Cosco from calling at US ports (all large container carriers are based in Asia or Europe anyway),” they explain. “This means that a significant portion of imports entering the US via ports would be directly subject to hefty fines, as these additional expenses would likely be passed on from the carrier to shippers and, ultimately, to importers and exporters.”

They further suggest that because the fees would apply to Chinese-built vessels in any fleet, the share of impacted goods would be even higher, limiting re-routing options and leading to “large inefficiencies for the shipping industries and raised freight rates and costs for shippers”.

The feasibility of rapidly shifting to US-built and US-flagged vessels is also questioned. The ING article highlights the limitations of the US shipbuilding industry, noting that only a small fraction of the global merchant fleet is US-built, primarily consisting of smaller and older vessels. “Only a handful of the global order book of 5,600 vessels is placed with US shipyards,” they point out.

“The US shipbuilding industry lacks the capacity to construct the new generation of large container ships, tankers, or bulk carriers.

Additionally, this would significantly increase new build costs and pose challenges in sourcing the necessary workforce.”

While acknowledging the potential benefits of increasing the US-flagged fleet, the ING economists suggest that this goal may require a different, more nuanced approach.

Meanwhile, the impact on China’s shipbuilding sector remains uncertain. While the threat of US fines alone may not be enough to cripple the industry, given its cost advantages and strong domestic demand, it could still dampen its export growth.

“In 2024, China’s ship exports surged by 56.6% year-on-year to $43.4bn, making it one of the fastest-growing export categories,” the article said. If buyers begin to avoid Chinese shipbuilders to mitigate the risk of these new measures, this rapid growth could be curtailed.

However, the ING economists suggest that this demand is more likely to shift to other Asian economies like South Korea and Japan, rather than benefiting the US. They also emphasise that while China’s shipbuilding sector is growing, it represents a relatively small portion of its overall economy. “In 2024, ship exports accounted for around 1.2% of total exports and approximately 0.2% of GDP,” they said.

This latest move by the US government reflects a broader strategy of economic nationalism, extending beyond traditional trade disputes to encompass investment, technology, and the activities of foreign and domestic companies relying on Chinese-operated businesses. As the ING economists conclude: “This sets in motion the bigger threat of a new trade war: not limiting punitive action to actual goods trade but targeting every item on a never-ending wish list.” This approach, they warn, will have significant ripple effects on global supply chains, investor confidence, and international relations, creating further uncertainty and potentially leading to “enduring low arrival reliability with potential new disruptions and increased costs” for businesses worldwide.

Source: Baltic Exchange