A massive shipment of 16,000 metric tonnes of steel pipes is stuck in a German warehouse instead of being sent to Louisiana for a major energy project. The reason? The U.S. government has proposed new taxes on Chinese-made ships docking in the country. Normally, these pipes would be on their way across the Atlantic. However, according to Jose Severin, a business development manager at Mercury Group (the logistics provider for the shipment), talks about shipping them have been put on hold due to uncertainty over the new rules. The problem is that 80% of the ships available for this route were built in China. If the new tax is applied, each shipment could face an extra cost of $1 million to $3 million. That would effectively double or even triple the current shipping costs, making it too expensive to proceed for now.

A proposed policy from the US Trade Representative (USTR) is causing disruptions in many deals as it aims to reduce China’s dominance in shipbuilding, logistics, and the maritime industry. According to the USTR, China now builds over half of the world's cargo ships by weight, a huge increase from just 5% in 1999. The other major shipbuilding nations are Japan and South Korea. In contrast, US shipyards built only 0.01% of cargo ships last year. The USTR hopes to revive the long-declining American merchant shipbuilding industry. China has "market power over global supply, pricing, and access" due to its dominance, the USTR stated on February 21 when it revealed the plan. In response, the China State Shipbuilding Corp., the world's largest shipbuilding firm in terms of the order book, said the actions violated WTO regulations.  

A two-day USTR hearing in Washington will begin on Monday, focusing on this issue. Representatives from the entire supply chain, including soybean farmers, shippers, and Chinese shipbuilders, will take part. Many business owners and trade groups will share their concerns, explaining why they believe these proposals could disrupt global trade even more than the tariff policies of President Donald Trump. “They see this as more of a threat than the tariffs, because of the impact it’s going to have on the supply chain,” said Jonathan Gold, vice president of supply chains and customs policy at the National Retail Federation. “Carriers have said they’re not only going to pass along the cost, but they're going to pull out of certain rotations, so the smaller ports, Oakland, maybe Charlestonne, Delaware, Philly. They’re all going to suffer as a result.” Business owners and industry experts told Bloomberg News and wrote to the USTR, expressing concerns that the proposed measures might hurt rather than help the US shipbuilding industry. They believe these changes could harm the economy by making American products too expensive for global markets, pushing trade toward Canada and Mexico, overloading major US ports, and increasing freight costs and inflation in the country.

According to Clarksons Research Services Ltd., a leading shipbroking firm, these levies could bring in between $40 billion and $52 billion for the US government. However, with ongoing uncertainty due to rising tariffs on Chinese goods, steel, and aluminum—and another round of trade restrictions expected on April 2—many American businesses and industry players are worried about the impact. “What the USTR has proposed — a backward-looking, retrospective, multi-million dollar per port call fee — won’t work,” said Joe Kramek, chief executive officer of the World Shipping Council, who is set to testify on Monday. “It will only serve to penalize US consumers, businesses, and especially farmers, raising prices and threatening jobs.” The author of a history of cargo shipping and a veteran of the maritime transportation sector, John McCown, put it more bluntly: “If you wanted to take a sledgehammer to trade this is what you would do. You take it all together — it’s like an apocalypse for trade.” The USTR investigation started last year under the Biden administration after five major labor unions requested it. The final report, released just days before Trump took office in January, found that China was working to take control of the global maritime industry. It was then up to the new administration to decide how to respond to China’s dominant position.

The USTR's initial proposals, released on Feb. 21, state that the new export requirements and taxes are intended "to create leverage to obtain the elimination of China’s targeting of these sectors for dominance." Companies will face penalties based on a formula that considers the number of Chinese-built ships they already own and any they have on order. Some ships could be charged up to $3.5 million each time they dock if they are built in China, operated by a Chinese company, and the company has also ordered a new ship from a Chinese manufacturer, according to Clarksons. Last year, about 83% of container ships visiting the US would have faced fines under the proposed rules. Additionally, two-thirds of car carriers and nearly one-third of crude tankers would have been affected, according to Clarksons. The proposal also requires a portion of US goods—such as agricultural products, chemicals, energy, and consumer goods—to be transported on ships that are built, owned, and operated in the US in the coming years.

Many shipping companies say they are willing to buy or rent US-made merchant ships. However, US shipyards would need decades to build enough ships to meet demand, and there is already a shortage of American sailors. Meanwhile, the new port fees would penalize carriers for using Chinese-built ships they have already invested in. In 2012, Atlantic Container Line AB, which transports over half of the U.S. exports of construction and agricultural equipment to Europe, needed five specialized "container-roll-on-roll-off" ships. However, Japanese and Korean shipyards were unwilling to build only five ships, and American shipyards said they would take at least seven years to deliver them. As a result, ACL turned to China, where they could get the ships faster and at a more competitive price, according to CEO Andrew Abbott in a statement to the USTR. "The proposed action will put us out of business for a commercial decision taken 13 years ago,” wrote Abbott of the USTR proposal, “at a time when US shipyards were flush with US Navy orders and could not build our vessels, and when the Chinese shipbuilding industry was a minor player in the world.” 

Many commenters supported efforts to limit China's maritime power but urged the USTR to reconsider its strategy. However, out of more than 250 submissions, only a few backed the proposed measures.  Some industry leaders believe the proposal might be weakened because it could greatly disrupt global trade. Changes to the fees and export rules are possible, and in some cases, they might even be removed due to unpredictable government decisions. However, industry lobby groups argue that at least some parts of the proposal are likely to remain. Trump is particularly interested in reviving the US shipbuilding industry to strengthen the country's naval influence. This aligns with his broader goal of bringing back the golden age of American manufacturing. He has already set up a new maritime directorate office within the National Security Council. Across Washington, the maritime industry is now recognized as a key part of national security, and this idea is continuing to gain support. The USTR investigation has similarities to a bipartisan bill introduced in December, which aims to fix the shortage of merchant mariners by expanding training programs and offering tax incentives to companies investing in U.S. shipbuilding. The USTR proposal also aligns with a draft executive order, seen by Bloomberg, that suggests using tariff or tax revenue to create a fund supporting the domestic shipbuilding industry. 

According to the draft manifesto, "Make Shipbuilding Great Again," the United States will exert pressure on other nations to oppose China's maritime hegemony or risk reprisals. An inquiry concerning the proposed executive order was not answered by the White House. Major shipping companies have said they might adjust to the fees by avoiding smaller ports on U.S. routes, which could hurt local economies and industries that depend on them. Large container ship operators, who unload at major ports, can spread the cost across thousands of containers, reducing their financial burden. However, smaller operators and low-margin exporters, such as those dealing in agriculture and commodities, could struggle with million-dollar fees per port stop. This could be especially harmful to ports like Oakland or Charleston, which rely on these businesses. “It’s going to be immensely economically harmful,” said Philip Luck, economics director at the Center for Strategic and International Studies. “It’s not going to address the basic challenge they said they want to solve: increasing capacity of the US shipbuilding industry.” “If it’s a pure security issue,” he added, “we should be incentivizing investment by allies like South Korea, Japan and Finland, who are very good at building ships.”

The shipping industry has recently seen the disruption that Washington’s scrutiny of China can cause. In January, the US Department of Defense blacklisted China’s largest shipping company, Cosco Shipping Holdings Co., due to alleged ties with the People’s Liberation Army. As a result, some shipbrokers were advised not to offer Cosco’s vessels for charter. However, the restriction was lifted within a few days when it became clear that the blacklist would not create financial or legal problems for charterers using Cosco’s ships. If the US Trade Representative (USTR) enforces its proposed policy, shipping executives and brokers believe the market could gradually split, with China-built ships being treated differently from those made elsewhere. This trend is already noticeable in the tanker market, where Chinese-built ships account for a third of the total fleet. Shipbrokers report that charterers are avoiding long-term leases of China-linked tankers, anticipating that these ships may need to visit US ports in the future, where they could face tariffs.

Shipowners who want to expand their fleet without facing penalties are in a tough spot. According to shipbrokers, shipyards in South Korea and Japan are almost full, and new ship orders won’t be available until around 2028. However, if they don’t invest in new ships now, they’ll be left with aging vessels that are gradually wearing out. Jose Severin will be keenly monitoring the USTR decision's conclusion, which is anticipated in the upcoming weeks. "It still needs to happen," he continued, adding that the Louisiana project still need 16,000 metric tonnes of steel pipes due to a lack of local supplies.