Sino Strategies: China's Influence & its Implications for the U.S.

The U.S. and China are engaged in high-level competition in numerous areas, especially on the economic and geopolitical fronts. An essential example of this competition is the restrictions of trade imposed by the U.S. for advanced technologies such as semiconductors and clean energy technologies including electric vehicle, solar, and battery storage solutions – the latter of which recently saw tariff rate increases. One nascent but highly critical area of competition is the shipbuilding industry. Indeed, China’s shipbuilding industry is the largest in the world. It also presents a national security concern for the U.S., as China’s shipbuilding industry drives the growth of the People’s Liberation Army (PLA) naval fleet. 

China’s Shipbuilding Dominance

Throughout the early part of the 21st century, Beijing invested hundreds of billions of capital into its shipping and shipbuilding industry. These government-backed initiatives enabled China to surpass competitors in the shipbuilding space and capture a larger portion of the market share from previous global leaders, especially Korea and Japan. Currently, Chinese shipbuilders collectively produce more than 50 percent of the world’s merchant tonnage annually, marking a remarkable ascent from a mere 5 percent in 1999.

Augmenting Beijing’s Military Capacity

Beijing’s shipbuilding industry supremacy has also enabled the expansion of the PLA’s naval fleet. Indeed, many Chinese shipyards embody the country’s military-civil fusion strategy, which seeks to develop the PLA into a global military force by specifically leveraging civilian intellectual property, tech advancements, key research, and – in the case of shipbuilding – manufacturing capabilities. This has important implications for foreign entities, some of which have shared crucial technology and expertise that has leveled up China’s shipbuilding capabilities, such as French natural gas company GTT. 

On April 17, 2024, President Biden pledged new action to protect U.S. steel and shipbuilding industries, including to take “a real hard look” at the Chinese government’s industrial practices, during a speech at the United Steelworkers Headquarters. Later that same day, the USTR initiated an investigation of China’s activities in the shipbuilding sector, specifically invoking Section 301 of the Trade Act of 1974 which is designed to address unfair foreign practices affecting U.S. commerce. The investigation is not expected to have short-term implications for the Chinese shipbuilding industry but could have long-term ramifications depending on the outcome. 

Implications for the U.S.

1. U.S. Policy Implications

U.S. policymakers have already taken important steps towards gaining a better understanding of China’s shipbuilding industry, as noted above. Policymakers could consider implementing more defensive measures such as tariffs specifically targeting the shipbuilding sector and other advanced industry sectors in China, pending results from the investigation. Policymakers could also promote strategies which seek to reinvigorate the domestic shipbuilding industry and that of the U.S.’s allies. It will likely also be essential for policymakers to deepen their collaboration with key allies who have been significantly impacted by China’s shipbuilding dominance, such as Korea and Japan, as well as other partners that share concerns over China’s military expansion. 

2. U.S. Business Implications

For U.S. companies in the shipbuilding industry, competing with China’s shipbuilding industry will become increasingly challenging given the Chinese government’s backing and investment in this space. American shipbuilders could consider product diversification and supply chain reinforcement as hedges against increased geopolitical risk. Additionally, American shipbuilding companies could implement operational excellence initiatives to improve capital utilization, resource allocation, product throughput, and labor productivity. 

3. U.S. Consumer Implications

American consumers may not be as directly impacted by the practices of China’s shipbuilding industry as U.S. shipbuilding companies, but consumer flexibility and price security could be impacted by Chinese shipbuilding practices due to the important role that merchant ships play in establishing global trade routes and networks. U.S. consumers could consider supporting legislators and lobbying in favor of policies which provide direct support to the U.S. shipbuilding industry in an effort to bolster this industry domestically.