The major policy change recently announced by the Trump administration, called “A Free and Open Indo-Pacific,” is intended to reverse Chinese supremacy in the global shipbuilding industry. Going into effect 180 days, the rules create a new assessment on Chinese-built vessels or Chinese-owned vessels that call on U.S. ports. Most recently—on December 1, 2006—five national labor unions filed a petition for an anti-dumping investigation into Chinese shipbuilding practices. The United States Trade Representative (USTR) announced their willingness to pursue this issue under Section 301 of the 1974 Trade Act in April 2024 in response.
Fees as high as $1 million per each Chinese-built ship are being proposed. Foreign-owned ocean carriers that operate fleets with large numbers of these ships will pay even higher fees of $1.5 million. This initiative is a key part of a broader strategy to roll back Chinese influence. Yet in 2024, Chinese-built vessels accounted for a shocking 81% of the global shipbuilding market share. Additionally, China controls approximately 48% of the liquefied petroleum gas (LPG) vessel market and 38% of the liquefied natural gas (LNG) market.
Background of the Investigation
The USTR’s investigation was prompted by escalating concerns regarding China’s practices in shipbuilding. The business roundtable countered that these practices not only violate U.S. economic security, but are an existential threat to the free flow of commerce. Ambassador Greer underscored how fundamental shipping is for American economic security. He said, “Ships and shipping are essential to American economic security and the free flow of commerce.”
China’s Ministry of Commerce condemned the probe. They referred to it as “a mistake upon a mistake” in reaction to the original proposals last summer. The trade war has deepened, with China upping the ante by imposing new retaliatory tariffs of 125% on U.S. exports. In retaliation, the Trump administration has slapped a whopping 145% tariff on all Chinese imports.
Future Implementation Phases
The newly announced fees are only the opening salvo of a larger policy campaign. A second phase is already planned to focus on foreign-built LNG vessels, due to enter into force in three years. This multi-phase approach reinforces the administration’s commitment to resetting trade dynamics with respect to maritime commerce.
Donald Trump even tweeted about these fees, agreeing with our prediction of the negative economic impact. He said, “Well, after a certain point, I don’t want them to go higher as it disincentivizes people buying. He continued, “I should want to go to as little as possible because, uh, you want people to bid.” His remarks aptly convey the appreciation for the fine balance that must be struck between encouraging domestic interests while facilitating and promoting international trade.
Implications for Trade Relations
With a strategic mind, China would react to target strategic sectors. These would be new legal consultancy, tourism, and education services back in the U.S. If true, this marks a major change from previous periods and suggests that the trade conflict will move beyond tariffs and retaliatory measures to deeper economic consequences.
With both nations piloting through these stormy waters, the effects of these decisions will certainly be felt for some time to come. Together, the bold moves made by the Trump administration serve as a critical inflection point in U.S.-China relations. It attempts to recapture a competitive advantage in the increasingly competitive global marketplace.
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