The proposed US action targeting China’s control over maritime, logistics, and shipbuilding sectors deviates from previous trade strategies.
This may result in increased port call fees or supply chain disruptions, impacting US importers, exporters, and consumers, analysts at ING Group said in a report.
The US released two memoranda on February 21 concerning their investment policy and foreign governments’ extraterritorial authority over American companies.
The latter memorandum specifically addressed digital services taxes (DSTs) imposed by countries including France, Austria, Italy, Spain, Turkey, the United Kingdom, and Canada.
The US administration’s findings, due to be detailed in reports on April 1, may result in tariffs.
These findings stem from investigations into China’s dominance in maritime logistics and shipbuilding, which were released on February 21.
The proposed actions could result in significant fines and unprecedented restrictions on the shipping industry, according to ING.
The well-known Jones Act (1920) mandates the use of US-built vessels for direct shipments between US ports.
However, this new investigation focuses on a different aspect of maritime shipping, given Asia’s current dominance in the industry.
Source: ING Research
Proposed fees
The USTR found that China’s share of the shipbuilding market increased from less than 5% in 1999 to over 50% in 2023.
By January 2024, China’s control over the global commercial fleet had grown to over 19% ownership.
Additionally, the country commands 95% of shipping container production and 86% of the global intermodal chassis supply.
“This dominance by China could displace foreign firms, reduce competition, and create dependencies. As a result, the USTR proposes implementing fees and restrictions on maritime transport services,” ING analysts said.
Chinese maritime transport operators entering US ports will face fees of up to $1 million per vessel or $1,000 per net ton.
Additional fees apply based on the percentage of Chinese-built vessels in their fleet and for future orders from Chinese shipyards.
Operators using US-built vessels may receive refunds.
Impact on US importers
Linerlytica data shows that around 17% of container vessels calling at US ports are manufactured in China.
This figure is likely higher when considering ultra-large container carriers that operate on transpacific routes.
“The proposed actions would pretty much exclude major Chinese container carrier Cosco from calling at US ports (all large container carriers are based in Asia or Europe anyway),” analysts at ING noted.
Ultimately, importers and exporters will bear the brunt of these additional costs, as carriers will likely pass on the hefty fines for non-compliance to shippers, who will then transfer the costs to importers and exporters.
This means that a substantial portion of imports entering US ports will be subject to significant fines, according to ING.
Chinese shipyards received orders for over 60% of the new, more efficient vessels in the massive total orderbook.
This means China’s dominance is set to rise over the next few years.
US shipbuilding industry not ready?
The US-built merchant fleet comprises just over 4% of the global total and is mainly composed of smaller, older vessels.
The US shipbuilding industry is not equipped to build the new generation of large container ships, tankers, and bulk carriers, resulting in only a small portion of the 5,600 vessels global order book being placed with US shipyards, ING said.
“While increasing the number of ships sailing under the US flag could be a reasonable goal, it is closely tied to legislation and may require a different approach.”
It is premature to assess the implications for China’s shipbuilding industry given the uncertainty surrounding the implementation of this plan.
Analysts at ING added:
As seen during the early days of Trump’s administration, many measures could serve as bargaining chips rather than actually being enacted.
China’s shipbuilding industry’s advantages in lower production costs and strong domestic demand make it unlikely that the threat of US fines alone will disrupt it.
Supply chain and investor confidence at risk
The America First policy of US President Donald Trump’s administration, originally focused on trade, has expanded to include investment, technology, and foreign and domestic companies that rely on Chinese-operated companies.
This expansion creates the potential for a new type of trade war, where punitive actions extend beyond goods and services to target a broader range of issues.
The enduring low arrival reliability, coupled with potential new disruptions and increased costs, will further impact global supply chains, investor confidence, and international relations.
As businesses grapple with these uncertainties, the ripple effects will create even more uncertainty in the future, according to ING.
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