The U.S.-China Trade War Widens: Planned Tariffs on Chinese Ships Would Upset Global Trade

The United States is considering a radical step to levy high penalties on containerships constructed in China as a way of reviving its long-stagnant domestic shipbuilding industry. Industry executives caution that such a move would have far-reaching economic disruptions, both to U.S. companies and global trade systems.

In accordance with the World Shipping Council (WSC), the regulations that are being considered by the U.S. Trade Representative (USTR) would affect 98% of liner ships calling at U.S. ports. Enacted, these tariffs would raise shipping costs, congest supply chains, and yield unforeseen effects for U.S. exporters, the biggest of which are in agriculture.

A Protectionist Policy or a Strategic Necessity?

The supporters of the policy contend that the US shipbuilding industry has been suffering for decades, much because of China’s state-subsidized naval superiority. Years ago, the Chinese government subsidized their shipbuilding industry, enabling companies such as China State Shipbuilding Corporation (CSSC) to drive out foreign competitors. By imposing steep tariffs or penalties on Chinese-built ships, US policymakers believe they can make the playing field even for competitors and rebuild domestic shipbuilding capacity.

The U.S. maritime industry has been decimated by foreign competition. It’s time to stand up and restore our shipbuilding capacity,” said a high-ranking USTR official at a recent congressional hearing.

While the move is part of a larger attempt to disengage key industries from China, others say that the proposed action may further weaken already tenuous global supply chains. The shipping business is recovering slowly from disruptions due to the pandemic, and tacking on retaliatory tariffs against Chinese-built ships may only aggravate delays and raise the price for American exporters and importers.

Economic Consequences: Increased Expenses, Reduced Competitiveness

These tariffs will be experienced in all industries, mainly manufacturing and agriculture. The American Farm Bureau Federation has given a warning that increased freight rates will negatively affect U.S. farmers who rely on low freight rates to ship soybeans, corn, and other grains.

“Any extra charges put on ocean freight directly affects our competitiveness in the world market,” said Zippy Duvall, American Farm Bureau Federation President.

At the same time, ocean-going shipping giants like Maersk and MSC have indicated that such trade constraints could prompt Chinese retaliatory actions against their ships and cargo, producing a setback to vital patterns of trade between the world’s two largest economies. China remains America’s third-largest trading partner, and even a rise in maritime trade procedures could further anchor the already tenuous U.S.-China trading dynamics.

Possible Responses of World Shipping Leaders

Global carriers, which move within a tightly integrated sector, are already weighing possible responses, including fleet diversion and alternative routes. If Chinese-built vessels have higher operating expenses in the U.S., firms will reroute ships to other world trade centres, potentially lowering overall shipping capacity and leading to more congestion at American ports.

Moreover, increased tariffs would also compel shipping lines to transfer costs to consumers, resulting in higher prices for imported products. Since the U.S. depends so much on international trade for a vast array of consumer items—from electronics to textiles—American families are likely to bear the brunt of these policy measures very soon.

Global Trade Uncertainty: New Frontier in US-China Trade Row

The threats to impose penalty on Chinese shipbuilders follow overall U.S. efforts to stifle China’s economic clout, especially in strategic industries such as semiconductors, energy, and telecoms. Trade analysts though counter that this kind of protectionist policy risks rebounding badly because supply chains are highly entwined and cannot be rest ruck overnight.

“While the motive to revive the U.S. shipbuilding capacity is understandable, the fact of the matter remains that international commerce is dependent much on Chinese industrial capacity,” maintained Paul Bingham, Director, Transportation Consulting, S&P Global. “Unilateral changes to maritime policies have the potential for unforeseen economic implications, in the form of increased costs both for businesses as well as customers.”

_____________________________________________________________________

Sources:

• Reuters, 2024. “U.S. Trade Representative Proposes Tariffs on Chinese-Built Ships.”
• Bloomberg, 2024. “Farmers Sound Alarm Over Rising Shipping Costs Due to Tariffs.”
• Financial Times, 2024. “Shipping Giants Warn of Disruptions from U.S. Tariff Policy.”
• The Wall Street Journal, 2024. “Trade Experts Weigh in on U.S. Maritime Protectionism.”