The United States, warns a new essay in The Atlantic, is turning its back on the world’s oceans with deleterious consequences for the country’s national security. While much of the piece focuses on U.S. naval power, author Jerry Hendrix also highlights de minimis U.S. commercial shipbuilding as symptomatic of American maritime deterioration. To place the industry back on a solid footing, the former Navy captain urges the adoption of a reinvigorated subsidy regime. Past experience, however, suggests that simply throwing more money at U.S. shipbuilders is unlikely to elevate the industry beyond mediocrity. Equally distressing, the offered rationale for doing so rests to a disturbing degree on questionable assertions and logic.
The state of U.S. commercial shipbuilding is shambolic. Under Jones Act protectionism the industry’s competitiveness has collapsed to the point that a tanker produced overseas for $45 million would cost $185 million in the United States, and containerships that cost $225 million in this country can be built abroad for one‐fifth that amount. Faced with such prices, international demand for U.S.-built deep‐draft merchant ships is non‐existent. Domestic ship operators, forced to patronize U.S. shipyards to comply with the Jones Act, are their lone commercial customers. But confronted with astronomical capital costs, these firms cling to their ships for years—sometime decades—longer than their international counterparts before replacing them.
Given this lack of demand, the annual production of merchant ships is now in the low single digits.
Rather than emphasizing the role of protectionism in the industry’s downfall, Hendrix instead fingers the reduction of shipbuilding subsidies in the early 1980s as the relevant culprit. As he writes:
America’s commercial shipbuilding industry began losing its share of the global market in the 1960s to countries with lower labor costs, and to those that had rebuilt their industrial capacity after the war. The drop in American shipbuilding accelerated after President Ronald Reagan took office, in 1981. The administration, in a nod to free‐market principles, began to shrink government subsidies that had supported the industry. That was a choice; it might have gone the other way. Aircraft manufacturers in the United States, citing national‐security concerns, successfully lobbied for continued, and even increased, subsidies for their industry in the decades that followed—and got them.
This requires context. While a casual reader may conclude that all was well in U.S. shipbuilding until the 1960s, the industry’s lack of competitiveness stretches back at least a century before that. In 1867, for example, Canada‐built ships were estimated to be less than half the price of those constructed in United States while an 1869 estimate placed the price of U.S.-built vessels at one‐third higher than those from British shipyards. An 1894 government report comparing U.S. and British shipbuilding found a similar price difference while in 1916 The Economist placed the cost of a U.S.-built cargo freight at twice that of one built in the United Kingdom.
The rot in U.S. shipbuilding is long‐standing.
For decades the competitiveness of U.S. shipyards has only further atrophied. The postwar decline of U.S. shipbuilding that Hendrix mentions taking place in the 1960s—which in fact was well underway in the 1950s—is properly understood as a reversion to the status quo ante that prevailed before vast resources were injected into the industry during World War II. Losing market share to foreign shipbuilders wasn’t a surprise development but a return to U.S. shipbuilding’s dysfunctional normalcy.
Notions that the restoration of subsidies discarded by the Reagan administration—first implemented during the 1930s in an attempt to place U.S. shipyard prices on par with those found abroad—would return American shipyards to former glory should be met with skepticism. U.S. shipbuilding was in a worrisome state even with such measures in place. While Hendrix notes the United States produced over a million gross tons of commercial ships in 1977, the number of ships delivered was a mere 17. That same year Japan built 670. Measured by ship deliveries, the United States ranked 16th in the world.
Further evidence of U.S. shipbuilding’s long‐standing troubles are found in a 1979 Baltimore Sun article warning that U.S. shipyards faced closures due to their inability to compete with foreign shipyards. This despite subsidies so substantial that they covered up to half the cost of the ship. Foreign shipyards, the newspaper noted, could build ships in half or a third of the time required by their American counterparts while U.S. shipyards struggled to keep pace technologically.
To engineer a U.S. shipbuilding renaissance Hendrix proposes subsidies “on a par with those provided to European and Asian shipbuilders” (a curious grouping given that Asian shipbuilders—and those of China and South Korea in particular—are considered far more heavily subsidized than those in Europe), but the level of expenditures for U.S. shipyards to compete on price would have to be immense. For perspective, a 2017 paper found that Chinese subsidies reduced their shipyard costs by 13–20 percent. Matching that cost reduction, however, would be wholly insufficient for U.S. shipyards whose ships are 300–400 percent more expensive than those built abroad. On a per‐ship basis, the United States would have to vastly outspend China to offer similar prices.
Presumably, such subsidies would come on top of already existing federal aids to the shipbuilding industry. These are substantial and include the Jones Act’s requirement that vessels used in domestic trade be constructed in U.S. shipyards, federal ship financing, tax preferences, and shipyard grants. While Hendrix highlights subsidies given to the commercial aviation industry (most of which survived a WTO challenge from the European Union), unmentioned is that the U.S. maritime industry has long tapped its own rich vein of government largesse (including the Jones Act, which is sufficiently out of step with international norms that the United States was forced to obtain an exemption from international trading rules to maintain it).
Beyond the efficacy of Hendrix’s proposed new subsidies, no less dubious is the very rationale for their implementation. Hendrix attempts to make an argument for such expenditures on economic grounds by calling shipbuilding a “jobs multiplier” that creates five “well‐paid blue‐collar jobs” in downstream suppliers. No evidence is supplied for such claims, and a 2021 U.S. Maritime Administration report placed the number of jobs associated with shipbuilding jobs at a much more modest 2.67. More importantly, no evidence is offered that such multipliers or benefits exceed the alternative uses of such funds. Money lavished on shipbuilding subsidies is money not available for investment in other economic activities.
The crux of his case, however, rests on national security grounds:
It is never to a nation’s advantage to depend on others for crucial links in its supply chain. But that is where we are… Most of the civilian merchant ships, container ships, ore carriers, and supertankers that dock in American ports are built overseas and fly foreign flags. We have ignored the linkage between the ability to build commercial ships and the ability to build Navy ships—one reason the latter cost twice as much as they did in 1989. The lack of civilian ships under our own flag makes us vulnerable. Today we remember the recent backlog of container ships in the Ports of Los Angeles and Long Beach, but tomorrow we could face the shock of no container ships arriving at all should China prohibit its large fleet from visiting U.S. ports. Today we’re proud to ship liquefied natural gas to our allies in Europe, but tomorrow we might not be able to export that energy to our friends, because we don’t own the ships that would carry it. We need to bring back civilian shipbuilding as a matter of national security.
The logic presented is unclear. Contra Hendrix’s blanket assertion, the United States can be very much advantaged by utilizing foreign service providers to meet its supply chain needs. Foreign shipping, for example, transports the overwhelming majority of U.S. international trade that travels by ocean. And thank goodness. Forcing Americans to solely rely on significantly more expensive U.S. ships would amount to a de facto tax increase on the U.S. economy and reduced prosperity.
Fears that China could single‐handedly cause shipping to be swept from U.S. ports, meanwhile, are vastly overwrought. A scan of ships in the port of Los Angeles earlier this week revealed but a single Chinese‐flagged ship (the XIN MING ZHOU 106) with most flying the flags of other countries. That makes sense. Chinese and Hong Kong‐flagged ships collectively account for 15 percent of the global fleet by deadweight tonnage and approximately 18 percent of the world’s ships have ownership in China or Hong Kong. While significant, such numbers are woefully insufficient to bring U.S. port activity to a screeching halt. Calling off the Chinese fleet from servicing U.S. ports would be a blow to Chinese shipping firms that would simply drive business to their competitors.
Regarding LNG, Hendrix’s desire for U.S. ship construction and ownership of LNG tankers is a solution to a non‐existent problem. The export of LNG from the United States has never been halted or interrupted due to a boycott from foreign shipping, nor has the serious threat of one ever emerged. In contrast, the insistence on U.S. ship construction and ownership under the Jones Act means that U.S. LNG cannot be transported to New England and Puerto Rico due to the total lack of LNG tankers that meet these requirements. To assure the flow of U.S. LNG and encourage domestic supply chains the United States would be better advised to remove requirements on where ships are built and registered rather than doubling down on such policies.
Most importantly, the control of ships has absolutely nothing to do with Hendrix’s call for expanded commercial shipbuilding. Greece, one of the world’s largest shipowning countries, has few of its vessels domestically built. More ships are flagged in Panama than any other country, yet its shipbuilding industry is non‐existent. If the United States desires more U.S.-flagged ships it should relax the onerous conditions for ship registration that deter shipowners from placing their vessels under the U.S. flag.
Perhaps Hendrix’s strongest argument in favor of subsidies is that expanded commercial shipbuilding would reduce the cost of constructing vessels for the Navy. But the overlap between commercial and naval shipbuilding is perhaps less than what he and others imagine. Newport News Shipbuilding—the largest shipyard in the United States—hasn’t delivered a commercial ship since the 1990s (part of a project that resulted in a loss to the shipyard of over $300 million). Other large U.S. shipyards that build ships for the Navy have similarly not constructed commercial vessels in decades.
On the flip side, Philly Shipyard—which has built nearly half of all commercial ships in the United States since 2000—has never built a single ship for the Navy. The most recent U.S.-built commercial ship was constructed by Brownsville, Texas‐based Keppel AmFELS, a shipyard that does not engage in naval construction. It’s unclear that injecting vast new subsidies into U.S. shipbuilding would prompt a reversal of such shipyard specialization nor that any new efficiency gains would offset the cost of increased subsidies.
It’s understandable that navalists desire a revitalized commercial shipbuilding industry. But as with all demands on public coffers, calls for new subsidies must be subjected to a cost‐benefit analysis. None has been presented by subsidy advocates, and much of what we know suggests the case for their adoption remains wanting. In the quest to revitalize the U.S. maritime industry increased attention should be given to a more market‐driven approach. After decades of protectionism and numerous maritime welfare schemes—the fruits of which are seen in the struggling industry that confronts the United States today—it’s time for a fresh look at the one approach that has yet to be tried.
