Posted on March 24, 2025
What are the key objectives behind the USTR’s proposal to introduce fees of up to $1.5 million on Chinese-built or Chinese-flagged ships entering US ports?
David McCullough: The primary goal is to push back against China’s alleged dominance in international shipping while bolstering US shipping capacity. The broader issue is the dramatic increase in the number of Chinese vessels transporting international goods. Additionally, there are other proposals to boost US manufacturing—including shipbuilding, an industry that has failed to thrive over the past 40 to 60 years. These two concerns—countering China’s influence and revitalising US shipbuilding—are at the heart of this proposal.
Benjamin Cote: This proposal draws on a statute—Section 301 of the Trade Act of 1974—that gives the USTR authority to take action to address acts, policies or practices USTR concludes to be unreasonable or discriminatory, which burden or restrict US commerce.
How has China’s share of global shipbuilding tonnage changed between 1999 and 2023, and what factors have driven this shift?
DM: According to the proposal—and I can’t personally verify the exact accuracy of these numbers—Chinese shipbuilding capacity accounted for less than 5 per cent of global tonnage in 1999. By 2023, that figure had risen to over 50 per cent. Additionally, China now owns about 19 per cent of the international fleet. These figures come from an investigation cited in the proposal. As for the factors behind this shift, it’s mainly about cost: it’s significantly more expensive to build a vessel in the United States than most other countries.
And why is that?
DM: The US has stringent requirements for its flag vessels, especially those qualifying under the Jones Act. The vessel must be built in the US, be US-owned, and have a certain percentage of US citizen crew members and officers. Manufacturing in the US is simply much more expensive than in countries with fewer regulations, lower labour costs, and fewer compliance requirements. Compared to the rest of the world, meeting these US standards is significantly costlier than operating a foreign-flagged vessel that isn’t subject to them.
BC: Another critical factor is state subsidisation and strategic approach by China. USTR’s Report indicated that the Chinese government has implemented top-down industrial policies, vertical integration, and strategic prioritisation of key industries like maritime engineering and advanced manufacturing. This approach has positioned China to dominate these sectors.
Would you say that China’s dominance in the market is purely due to economic factors and domestic policies, rather than anything nefarious or illicit?
DM: My practice over the past 17 years has focused on advising shippers of energy commodities, largely those loaded in the US. During that time, it has never been competitive to charter a US-flagged vessel to import or export products into or from the United States for the reasons I mentioned earlier, regardless of whether the competing vessel is Chinese or from another country. Even if there hadn’t been such a rapid increase in Chinese vessels transporting US commodities, those vessels would still likely not have been US-flagged. The chances of that happening are almost zero. This is more about the inherent cost differences rather than any specific actions by China.
BC: From the US government’s perspective, this isn’t purely about economics. They view it as anti-competitive behaviour occurring along a state-owned value chain, which is a core challenge the industry faces.
What economic impact could these proposed fees on Chinese-built vessels have on US businesses and consumers?
DM: In the short term, these fees will likely be borne by charterers who are unprepared for them. This proposal has largely flown under the radar for many in the US shipping industry—though not for those in vessel construction or steel sourcing. Those hiring vessels to transport goods may not yet fully grasp the scope of these changes. Many charterers are focused on other regulatory changes, so some companies may struggle to prepare.
In the long term, these fees could lead to a realignment in the vessels that call on US ports. If Chinese vessels—likely cheaper—are no longer used, they’ll be replaced by vessels constructed or flagged elsewhere. This shift will probably lead to increased shipping rates across the industry, which will ultimately be passed down to consumers.
Furthermore, this policy would make US goods more expensive, both domestically and internationally, with broad implications for the cost of goods. So, in short, the fees could lead to higher costs for both businesses and consumers.
BC: There’s a consensus that the costs will ultimately be passed on to US consumers. I’ve had conversations with shipping companies expressing concerns about how they’ll address these increased costs. The inflationary impact is expected.
Would you say that, in the long run, this policy benefits the US economy, even if consumers bear the brunt of the costs? Would the overall impact be a net positive?
BC: I believe the outcome is likely to be net negative. It seems inconsistent with the administration’s broader objectives, especially in controlling inflation—particularly when it comes to energy costs.
DM: It’s hard to argue that the fees would have a positive impact in the short term. However, the requirement for US-flagged, US-built vessels might have long-term benefits if it leads to a revitalisation of US shipbuilding. This could create jobs and enhance maritime security, but developing that capacity will take time and may not be ultimately effective. Despite a century since the enactment of the Jones Act, the law that requires the use of US vessels when shipping from one US port to another, the US shipbuilding industry is still not competitive with most of the rest of the world. Additionally, some of the proposed standards to use US-built vessels for exports may be impossible to meet for some energy commodities and, if these proposed requirements are finalised, US energy commodities—like crude oil, natural gas, refined products and renewable fuels—may remain untapped or underproduced, which would have a net negative impact on the US economy.
How has the US shipbuilding industry evolved since the 1970s, and what challenges does it face in remaining competitive on a global scale?
DM: The US flag fleet is divided into several categories. Arguably the most significant for the economy is the tanker fleet, which ships crude oil, natural gas, refined products, and renewable fuels. US shipbuilding capacity for tankers is minimal at the moment. Only a few new US tankers have been built recently, and there is only one US-flag vessel for LNG transport, which was just launched despite over a decade of pressure for such a vessel in order to supply Puerto Rico with natural gas.
Currently, the US tanker fleet comprises 1 per cent or less of the global tanker fleet shipping capacity, and many of these vessels aren’t capable of trans-oceanic voyages. In contrast, the United States is one of the largest exporters of many types of energy commodities. It may not be feasible to ramp up US shipbuilding capacity to become competitive in the global commodity shipping markets in the next five years.
BC: In the 1970s, the US shipbuilding industry benefited from government subsidies, but once these programmes ended, the industry started to suffer. The USTR’s proposed actions did not include a proposal to reintroduce subsidies for the US.
DM: The US has the Jones Act, which mandates the use of US-flagged, US-built vessels for shipping between domestic ports. But despite the Jones Act and penalties for violations, US shipbuilding still faces significant challenges. The real question is whether the proposal for a ‘Jones Act for exports’—like the USTR’s proposal—can effectively ramp up US shipbuilding. Without subsidies, it’s unclear how effective this requirement will be.
Beyond imposing fees, what other measures is the US government considering to revitalise its shipbuilding industry and reduce dependence on Chinese-built vessels?
DM: The US government is also considering a requirement that mandates US exporters use US-flagged and eventually US-built vessels to export goods. This would significantly impact markets, especially the energy sector, but the US vessel fleet may not be able to meet these requirements. If finalised, these requirements could substantially reduce the market for US goods because there are no vessels available to ship them that meet the new requirements, with major economic consequences.
BC: There’s a consensus in the industry that there are simply not enough US vessels available to meet these requirements, and building them would take a long time and significant resources.
DM: For example, the US is one of the largest producers and exporters of natural gas in the world, but we’re unable to supply the Northeast with natural gas because there are no pipelines connecting the Gulf Coast to New England. Due to the Jones Act, US-flagged vessels are required for shipping natural gas, but there are no available vessels (only one US-flagged LNG vessel exists and it was built for dedicated service to Puerto Rico). This results in imports of natural gas from other countries and higher costs for natural gas in the Northeast, despite being able to produce it cheaper on the Gulf Coast.
BC: USTR is also considering other measures including restrictions, such as reducing exposure to China’s government-sponsored National Transportation and Logistics Public Information Platform (LOGINK) or similar platforms. These include restricting LOGINK access to US shipping data or banning terminals at US ports and U.S. ports from using LOGINK software. This action relates to concerns that LOGINK is being used around the globe and how China could use the information it collects from the platform.
What are your concluding thoughts on this topic, and what do you hope for the future regarding this latest development?
DM: We believe that if finalised, this proposal could have profound impacts that have not been fully analysed. We hope for greater clarity on how these fees and requirements will be implemented—specifically, clarity on who will bear the costs, how the fees will be assessed, and how the US flag requirement will be applied. Without clear guidelines, these requirements could reduce US exports due to increased costs and lack of vessel availability.
BC: Labour unions would generally support these proposals, which align with some of the remedies requested in their original petition last year. However, industries that rely on imports or exports would stand to face challenges. Right now, many industries are also focused on other government proposals, making it difficult for them to fully evaluate or respond to this one. The implementation remains unclear, and it could result in a burden across different sectors.
