Newly introduced legislation designed to revitalize American shipbuilding could change the nature of how—and how many—Chinese goods are imported into the U.S.
The bipartisan Shipbuilding and Harbor Infrastructure for Prosperity and Security (SHIPS) for America Act is primarily a national security and maritime policy bill aimed at reducing reliance on foreign vessels, particularly as China has significantly surpassed the U.S. in shipbuilding.
But one section of the proposed legislation could shift the tides of U.S.-China trade, if the bill is passed in Congress.
Related Stories
Section 415 establishes a “commercial cargo preference,” which requires that within 15 years, 10 percent of all cargo imported into the U.S. from China must be imported on U.S.-flagged vessels that are also and built in the U.S. and staffed by American crews.
A requirement of 1 percent of Chinese cargo on a U.S. vessel would begin five years after the bill is enacted, and would escalate another percentage point every year after.
Any individual shippers that don’t comply with the requirements would be subject to a fine. Although it is currently unclear whether freight forwarders or other logistics providers would be tagged with a fine for non-compliance, the bill states that a final ruling four years after the bill’s enactment would determine the parties that are subject to the requirement.
“Chinese-owned or -operated vessels will be penalized,” said Lars Jensen, CEO of container shipping consultancy Vespucci Maritime in a LinkedIn post. This impacts not just the Chinese carriers but also carriers who are in alliance or [a vessel-sharing agreement] with Chinese carriers such as CMA CGM and Evergreen on Ocean Alliance. But also, ONE and HMM on the Atlantic now operating together with Ocean Alliance. Presumably will also impact other carriers chartering Chinese owned vessels.”
Another section, Section 411, raises the percentage of U.S. government cargo that must sail on U.S.-flagged vessels from 50 percent to 100 percent.
There are fewer than 200 oceangoing commercial vessels that are U.S.-flagged, -owned and -crewed, the bill states, with only roughly 80 of them participating in international commerce, compared with more than 5,500 Chinese-documented vessels.
“We’ve always been a maritime nation, but the truth is we’ve lost ground to China, who now dominates international shipping and can build merchant and military ships much more quickly than we can,” said Sen. Mark Kelly (D-Ariz), a U.S. Navy veteran and the first U.S. Merchant Marine Academy graduate to serve in Congress, in a statement. “The SHIPS for America Act is the answer to this challenge. By supporting shipbuilding, shipping and workforce development, it will strengthen supply chains, reduce our reliance on foreign vessels, put Americans to work in good-paying jobs, and support the Navy and Coast Guard’s shipbuilding needs.”
Given that none of the major ocean carriers are headquartered in the U.S., the field of vessels that are currently qualified to answer the calls of this bill is sparse.
According to Jensen, Matson, the largest container shipping firm in the U.S., would benefit. The ocean carrier currently has 16 U.S.-flagged container vessels, with three more on order.
The American subsidiaries of Maersk (Maersk Line, Limited) and CMA CGM (APL) would also be favored.
“If this is applied as proposed it will increase shipping costs for U.S. importers and exporters—except those exporters who are slated for government subsidies,” said Jensen. “More importantly it will create significant supply chain headaches for individual U.S. shippers needing to clearly measure the share of cargo moved on U.S. ships, especially if much of their cargo is from origins not necessarily served by such U.S. vessels.”
Jensen also speculated that transshipment hubs in Singapore and Busan would likely gain more traffic as shippers race to shift Chinese goods into U.S. vessels to meet the 10 percent quota.
“The port preference for U.S.-flagged ships in ports could result in worsening congestion problems rather than alleviating them in times of tight port capacity,” Jensen said.
The bill was proposed Thursday by Kelly, alongside Sen. Todd Young (R-Ind.), Rep. John Garamendi (D-Calif.) and Rep. Trent Kelly (R-Miss.).
The legislation throws another wrench in an already complicated trade relationship between the U.S. and China, which has been defined by a series of tariffs that escalated in President-elect Donald Trump’s first tenure in the Oval Office and further expanded during President Joe Biden’s term.
With Trump announcing that he intends to levy an additional 10 percent tariffs on China-made products in his second go-around as president, the new bill doubles down on the hawkish policies expected to be put in place by the incoming administration.
