URSABLOG: Steeling Ourselves For The US Presidential Election

Earlier this year a friend and loyal follower of this blog suggested that I write an ‘outrageous predictions’ article where instead of timidly suggesting that the BDI might be quite strong, or that new carbon emission regulations would boost tonne-mile demand, I would write some really ridiculous predictions. I toyed with the idea for while, but in the end I decided not to because as the world was developing in such an alarming way, either people would take my forecasts seriously or they would actually become true. His suggestion, as follows, proved that perhaps I was wise to desist, however tempting it was:

“Here is one: US bans ships financed or owned (or built!!) in China calling their ports.”

It has not quite come to pass, but it’s getting there.

Back in early March, the United Steelworkers union (USW) asked President Joe Biden to open a trade investigation into alleged Chinese unfair economic practices in the shipbuilding sector. They and other unions filed a petition with the US Trade Representative outlining alleged discriminatory practices that have helped China dominate global shipbuilding. The petition was made under Section 301 of the Trade Act of 1974 — ironically the same statute that former president Donald Trump used to justify the imposition of tariffs on Chinese imports when he launched a trade war with Beijing back in 2018.

Speaking before the unions filed the petition, USW president David McCall said: “The United States was once a leader in the commercial shipbuilding industry, but over the past two decades, the Chinese Communist party enacted a comprehensive strategy to dominate the full spectrum of global trade, making massive investments in shipbuilding and engaging in predatory trade practices”.

Now this is obviously rubbish as anybody with even the slightest knowledge of commercial shipbuilding would know. The last time that the US shipbuilder was a leader in the commercial international shipbuilding industry was during the Second World War, during the Liberty Ships era. For goodness sake, the British shipbuilding industry was more powerful than the US until their yards went into decline in the 1970s. To suggest that the decline of shipbuilding only occurred in the last twenty years is not only disingenuous, it is wrong.

As my friend pointed out, the only US built handy bulk carriers in existence now are the lakes trading JOHN SHERWIN and STR EDWARD RYERSON:

“These are the only handies I am aware of, still in existence. Being built 1958 and 1960, they are obviously sturdy things even if now enjoying the easy life of lay-up.”

There is no US commercial shipbuilding industry as far as the rest of the world is concerned. The Jones Act has assured its own uncompetitiveness, by creating a cosy home market for expensive ships that captive buyers must take.

But we must remember that this is an election year, and anything goes. The American steel industry has once again become a political issue and nowhere more so in the critical swing state of Pennsylvania, where the USW is based. In a race to the bottom, Biden must take up the mantle of the steelworkers otherwise he will be taunted by Trump for his weakness. And so he has. Announcing the probe, President Biden has shown how serious he is:

“Shipbuilding is critical to our national security, including the strength of the United States Navy,” he said. “That’s why my administration takes it very seriously that US Steelworkers, along with four other unions, have asked us to investigate whether the Chinese government is using anti-competitive practices to artificially lower prices in the shipbuilding industry. We’ve heard you. And if the Chinese government is doing that and the unfair tactics to undermine free and fair trade competition in the shipping industry, I will take action.”

One of the suggestions that the USW would propose, would be to increase port dues on Chinese-built vessels to create a fund to help revitalise US shipbuilding. This would be laughable if it were not so worrying, and indeed many other apparently laughable measures have indeed since become law. But even with a cursory glance the figures themselves seem unassailable: China has the largest share – 46.59% – of the global shipbuilding market, the US has 0.13%, and this is mostly for US owners trading Jones Act vessels in domestic trades. A doubling of US shipbuilding capacity would have no effect on the balance of power in shipbuilding, even if it would make the US fleet safer. In any case I know of no shipowner outside the US who has even for one second considered building a ship in the US.

Leaving aside the exorbitant cost, they have no designs suitable for international trade, and the technology at their disposal is obsolete. They would be better off employing steelworkers to rebuild their creaking infrastructure as the recent tragic collapse of the Francis Scott Key Bridge in Baltimore has shown. The container vessel DALI was more or less unscathed after it hit the unprotected bridge due to an engine failure. And we must be thankful that the ship was built in South Korea rather than China, otherwise there would be all sorts of conspiracy theories floating around.

The USW petition claimed that Chinese shipbuilders have benefited from protectionist government policies, including preferential financing ranging from state-run bank loans to tax breaks. But as those of us with longer memories will remember, the boom in the Chinese shipbuilding sector was not some kind of sinister market grabbing predatory action, but demand driven. From 2003 onwards, as the Chinese economy boomed and the demand for ships rose with it, shipyards were mushrooming out of literally greenfield sites. The US was nowhere in the game, and could not compete even it had showed any desire to do so; not because of predatory pricing but because they had neither the capacity, the expertise, the designs or even the desire to build commercial ships for the international market.

Most of the Chinese yards that were built at the time to satisfy this demand were privately owned and developed, and mostly without significant state support. It showed. In those days, you never knew whether your ships would be delivered at all, and in any case most of these yards ceased to exist after about ten years ago.

If the US wished to stamp out anti-competitive practices to artificially lower prices, they they should look at their allies Japan and South Korea too. But the Japanese shipbuilding industry, now in decline for much the same reasons that the US shipbuilding industry no longer has a commercial shipbuilding industry to speak of, i.e. lack of a labour force willing to work in all weathers outside, was built on US support and subsidies after the Second World War, but this is a rather inconvenient truth to address. South Korea was also a recipient of US aid for many years.

I cannot really criticise the USW and its allies: they have seized this electoral opportunity, seeing the US$ 52 billion that Congress provided to help rebuild the US domestic chip industry, and in any case Biden has shown a willingness to pursue industrial policy through legislation such as the Inflation Reduction Act. But it’s not helpful, geopolitically, or economically, and any legislation introduced to extract greater port dues from shipowners – but more likely time charterers and liner operators – to call in US ports will increase costs to US consumers and further fragment the fleet and increase tonne-mile demand. It’s also ridiculous.

There is a potential face-saving solution for everyone concerned once the real facts are absorbed and digested, and indeed it seems that the US Department of Defense is on the right track. Defense secretary Lloyd Austin has been touring Japanese and South Korean yards looking at ways to strengthen the US shipbuilding sector. Upgrading, modernising and investing in US naval shipyards whilst they upgrade, modernise and invest in military ships, in development, construction, repair and refitting, would shift the focus to something useful.

A Chinese Commerce ministry spokesperson, dismissing the investigation by the US Trade Representative, told reporters:

“It lacks factual basis and goes against economic common sense to blame China for America’s own industrial problems.”

I agree. Shipyards take a long time to build, let alone ships, especially considering the backlog stacking up in the order book. The logical thing to do would be to assist the development of shipbuilding capacity in countries of allies that could do with the support, for geopolitical as well as ‘supply chain’ reasons, together with their Korean and Japanese friends. But this is also unlikely, as it is the American steel industry itself that has become a political issue in the 2024 presidential election, especially after Nippon Steel last year launched a $14.9bn takeover of US Steel, based in Pittsburgh, Pennsylvania. The USW, which is based in Pittsburgh, also opposes the Nippon Steel deal.

I have no idea where all this will end up, but this US presidential election – crucial on so many different levels – will throw up more than the usual share of eccentric electoral promises. What seems different this time, but as Evan Medeiros, a Georgetown University China expert and author of a recent report on US-China relations said in the FT “The broader challenge is that we are now in an era of US-China ties where domestic politics in both countries is as influential, if not more so, than geopolitics in shaping relations.” And not just China too, but in many other areas and industries around the world. It seems that now there is no outrageous prediction that couldn’t – partially at least – come true.

Simon Ward