In March, U.S. Navy Secretary Carlos Del Toro flew to South Korea and Japan to pitch, in his words, “a simple, yet profound opportunity: invest in America.” Specifically, he was imploring the chief executives of shipbuilding giants like HD Hyundai Heavy Industries and Hanwha Ocean to invest in American shipyards. 

The unusual business solicitations were part of Del Toro’s vision for a “new maritime statecraft,” but really they represent the U.S. government’s growing panic that the country can no longer produce enough ships.

The numbers are indeed dire. From 2000 to 2023, U.S. shipyards collectively built fewer than 3 ships per year on average; in contrast, just one South Korean shipyard built 47 ships in 2023. China, South Korea and Japan account for over 90 percent of global tonnage, according to a U.S. congressional report from November, while the U.S. represents just 0.2 percent. 

And yet the U.S. Navy is demanding more ships and submarines. From 2020 to 2024, it increased its shipbuilding budget by 12.5 percent per year, and its most recent 30-year plan calls for the construction of 290 to 340 new ships by 2053. Moreover, the AUKUS partnership — an agreement between the U.S., Australia and the UK to build nuclear submarines — is projected to require an additional 100,000 workers across U.S. shipyards. 

The elephant in the room for what Del Toro calls a “transformational” change in America’s maritime strategy is, of course, China, which is the world’s single largest shipbuilder and which supplies half of all global shipbuilding output, according to data compiled by Clarksons Research.

“People would be concerned about the U.S. shipbuilding industry under any circumstances given the state it is in, which is the worst I’ve seen in 25 years,” says Eric Labs, a senior analyst for naval forces and weapons at the Congressional Budget Office. “But the context in which China poses this significant geopolitical challenge creates an additional interest and urgency.” 

In contemporary Washington, in other words, America’s ship deficit poses a strategic question: How can America compete with and potentially win a war against the People’s Republic if it is overwhelmed by Chinese naval ships and relies on Chinese-built cargo ships for its military transport?

“The advantage that the United States had in World War I and II was that we could overproduce our opponents,” says Zack Cooper, a senior fellow at the American Enterprise Institute who is writing a book about how militaries change during shifts in global power. “The longer those conflicts went on, the stronger the U.S. became. Given China’s massive shipbuilding capacity, we don’t want to be in a reverse situation [in a wartime scenario].” 

Maritime prowess has long been seen as crucial to U.S. power. As far back as 1890, the American historian Alfred Thayer Mahan argued in The Influence of Seapower upon History that nations can only become great powers once they have secured “command of the seas.”

Mahan meant this in both the naval and commercial realms: Merchant ships, transporting American goods and sustaining a domestic shipbuilding workforce, would reinforce America’s naval supremacy. The book revolutionized global naval strategy, and the thinking has been entrenched in U.S. defense circles ever since.

But after an eastward shift in global industrial capacity beginning in the 1970s, America’s shipbuilding industry, in both commercial and naval output, has been on a precipitous decline. In the 1970s, U.S. shipyards were building about 5 percent of the world’s tonnage, or around 15 to 25 new ships per year. By the following decade, this fell to around 5 ships per year, which is the current rate of U.S. shipbuilding. On the naval side, 14 “defense-related shipyards” have shut down since the 1970s, and only one new shipyard has opened (Austal in Alabama, in 1999). 

We need to partner with allies to adapt the things, or perhaps just outright purchase the things, that they do well, because trying to introduce into the United States processes that we haven’t done for decades will take forever.

Bradley Martin, a senior policy researcher at RAND

Every existing major shipyard in the U.S. today services virtually one customer, the U.S. Navy.

Chinese policymakers, meanwhile, have absorbed Mahan’s ideas to extraordinary effect: Between 2010 and 2018, Beijing funneled $132 billion into its shipbuilding and shipping industries, through state banks and direct subsidies, according to analysis by the Center for Strategic and International Studies (CSIS). Its shipbuilding workforce ballooned as a result and is now around four times larger than America’s. It also boasts 20 large shipyards that construct military and civilian commercial ships (compared to 7 large shipyards in the U.S.) as well as 140 dry docks capable of rapid repair work. Just one Chinese yard, Jiangnan Shipyards near Shanghai, has more capacity than all of America’s shipyards combined. 

What’s more, in Chinese shipyards, equal weight is given to commercial and military interests, à la Mahan: PLA Navy destroyers are often built next to container ships for Taiwan’s Evergreen or cruise liners for America’s Carnival. In 2022, Chinese shipyards received about 1,700 ship orders from clients across the globe, according to orderbook data compiled by BRS Shipbrokers. American yards received a total of five orders.

“What we’re seeing now is really the dividends of investments that China has been making over a long period of time,” says Matthew Funaiole, a shipbuilding expert at CSIS. “They identified this as a strategic priority decades ago and continue to over and over again.”

America has only begun to make corrections. In 2021, the first in a series of alarm bells rang when the U.S. Department of Defense published a report officially declaring China’s navy as the world’s largest, with 355 ships to Washington’s 298. Advances in engine production, weapons and electronic systems, the report noted, meant that China was “nearly self-sufficient for all shipbuilding needs.” 

Then, in July 2023, a briefing slide from the Office of Naval Intelligence was leaked to the press that showed China possessed 232 times as much shipbuilding capacity as the United States. This revelation really “brought China into the equation,” says Ronald O’Rourke, a veteran shipbuilding expert with the Congressional Research Service (CRS). “That ratio heightened concerns and alarm over the situation.”

Rep. John Garamendi (D-CA) told The Wire China that the shipbuilding industry in America is now seeing “a springtime” of opportunity. A handful of bipartisan bills are circulating on Capitol Hill, such as the Ships for America Act. The Navy has begun various programs to fix its gross inefficiencies, such as in workforce recruitment, supplier contracts and ship design. And the White House has been looking into areas where it can leverage American comparative advantages in strategic ways, such as working with allies to construct icebreaker ships for use in the thawing Arctic regions. 

“Watching this for the past 30 years, this is the most active time I’ve ever seen in both attention toward the maritime sector and legislation,” says Sal Mercogliano, a maritime historian at Campbell University and adjunct professor at the U.S. Merchant Marine Academy. 

Advocates for revitalizing America’s shipbuilding industry are optimistic that, with the right fixes, a revival can be achieved. But it will require all hands on deck.

BLOWN OFF COURSE

The bugbear of any shipbuilding conversation is the Jones Act, a protectionist law passed in 1920 that requires goods shipped between U.S. ports to be transported on ships that are built, owned, and operated by U.S. citizens. 

The Jones Act inspires vociferous criticism from those who blame it for the prohibitively high costs of U.S. shipbuilding and shipping today. The libertarian Heritage Foundation, for instance, has long called to terminate the Jones Act, which it believes “increases energy costs, stifles competition, and hampers innovation that is essential to the long-term competitiveness of the U.S. shipping industry.” 

To take one example, a single container ship called George III, which was built in 2022 at Keppel AmFELS in Texas, cost $225 million; a similarly-sized container ship ordered from a South Korean shipyard cost only $41 million. In 2019, the Wall Street Journal estimated that the price of a U.S.-built liquefied natural gas tanker is $520 million more than its Asian equivalent. 

These differences in cost all but ensure that large ocean-going ships are never built stateside, which has direct consequences for American consumers. For instance, while the U.S. is the world’s top exporter of liquified natural gas (LNG), both New England and Puerto Rico must rely on imported sources because there are zero Jones Act-compliant tankers capable of transporting LNG there. This, of course, raises costs. In the fourth quarter of 2023, for instance, indoor heating-dependent New Englanders paid 31 percent more for LNG than the average American, according to the Energy Information Administration. 

Given the price differential in shipbuilding costs, however, defenders of the Jones Act argue that repealing it would only hasten the outsourcing of U.S. shipbuilding to places like South Korea and increase U.S. dependency on East Asia. Rep. Garamendi says he has spent the past ten years “educating members of Congress” on why the Jones Act is “absolutely critical” to maintain some semblance of a maritime industry in the U.S. and contribute to U.S. power projection. As one recent CRS report puts it, “The Jones Act’s domestic construction requirement likely underpins the entirety of U.S. commercial ship construction.” 

Many experts also note that the American shipbuilding industry has always been uncompetitive. In its heyday, in the mid to late 20th century, American shipbuilders were heavily subsidized through a provision called the Construction Differential Subsidy, or CDS. The CDS provided an average of $121 million per year to U.S. shipbuilders, ensuring that American ships could stay competitive with foreign-built ones, especially as Korea and Japan ramped up production. 

“Back in the early to mid 1980s, I was told by my predecessor that you could build a cargo ship in Asia for the same cost as the tax that you would pay on the cost of a ship built in the United States,” says O’Rourke at CRS. “That was his way of expressing how great the differential was back then.”

Despite that vast competitive gap, President Ronald Reagan ended the CDS in 1981, saying that it distorted free market economics. His administration planned to shift commercial shipbuilding overseas and prioritize naval shipbuilding in America, setting out to build a 600-ship Navy. 

The first part of his plan worked: Sans the CDS, American commercial shipbuilding declined precipitously, sliding into global irrelevance. But the second part never came to fruition, mostly because, after the dissolution of the Soviet Union in 1989, defense spending (naval and otherwise) plummeted. These trends continued into the nineties, when it became clear that America faced no immediate peer competitor on the global stage. Soon, Reagan’s goal of a 600-ship Navy was cut in half. 

“These were smart people at the time, with the best information in front of them which said, ‘The Cold War is over.’ There was no maritime superpower like Russia to compete with anymore, and we had to spend every dollar smartly,” says Jonathan Page, an engineering professor at the University of Michigan and veteran Navy ship designer.

By the time Pax Americana came under threat again, during the War on Terror and the rise of China as a peer competitor, America’s naval shipbuilding capabilities had severely deteriorated. 

For the foreseeable future, the U.S. has a comparative advantage in nuclear propulsion. That’s where you’re going to start to develop a comparative advantage, where the American shipbuilding industry differentiates from South Korea and differentiates from China.

Brent Sadler, a maritime security expert with the Heritage Foundation and former Navy official

China, meanwhile, was contributing enormous resources to its own naval capabilities. Through joint-ventures with Japanese and Korean shipyards starting in the nineties, Chinese shipbuilders gained technology and engineering know-how, such as the use of modular shipbuilding and the use of software to control machine tools. 

PRC technocrats also developed a roadmap: the “Long and Medium-Term Plan for the Shipbuilding Industry (2006–2015)”, which set ambitious targets. Most were exceeded, and no other newcomer to the shipbuilding industry has developed at a faster rate.

The improvements continue today. Following a series of consolidations throughout the industry in China, the country’s two largest state-owned shipyards, China CSSC Holdings and China Shipbuilding Industry Corporation, are currently merging to create the world’s largest ship manufacturer. 

“They are continuing to try to consolidate and streamline and improve the shipbuilding industry,” says Funaiole at CSIS. “They want to just keep cranking ships out, whether they’re for commercial clients, domestic or foreign, or the Chinese military.” 

As China consolidates, the global shipbuilding industry is contracting. According to data from Clarksons Research, there has been a 40 percent reduction in shipyards since 2013. The number of large, active shipyards dropped from 321 at its peak in 2009 to 131 today, with existing yards focusing more on specialization: one yard might only build cruise ships, for instance, while another does dredgers. 

“People sit there and say the U.S. doesn’t have a lot of shipyards, but the world doesn’t have a lot of shipyards,” says Mercogliano at Campbell University. “We’re seeing that reduction across the globe.”

HARD ALEE

If China’s great shipbuilding advantages are its large workforce, low wages and gargantuan subsidies, America’s advantages are its powerful allies and innovative capacity. In reviving U.S. shipbuilding, experts are calling for Washington to tap into both. 

“We need to partner with allies to adapt the things, or perhaps just outright purchase the things, that they do well, because trying to introduce into the United States processes that we haven’t done for decades will take forever,” says Bradley Martin, a senior policy researcher at RAND. 

Cue Navy Secretary Del Toro’s soliciting of Korean and Japanese investment in March — which seems to have paid off. In June, the South Korean shipbuilder Hanwha announced its $100 million acquisition of the Philly Shipyard in Philadelphia. 

Opened in 1997 after the closure of a naval shipyard, the Philly Shipyard is itself already owned by a foreign company — Aker, the Norwegian industrial investment company — and currently produces around half of all large American commercial vessels, including tankers and container ships. Although changes in shipyard work culture can take years, the acquisition could bring Korean-style shipbuilding efficiency to one of the largest shipyards in America. 

Progress as of May 2023 on the construction of the National Security Multi-Mission Vessel, at the Philly Shipyard. Credit: Philly Shipyard

Policymakers, however, say the U.S. is not just chasing quantity, but also quality when it comes to encouraging U.S. shipbuilding. 

“Our industrial strategy focuses on competing in sectors where we can excel, such as high-tech, high-specialty ships that require precision manufacturing and significant design IP,” William Henagan, a director on President Biden’s National Security Council, said in August. “Icebreakers perfectly exemplify this category of ultra-specialized, complex vessels.”

Icebreakers are seen as critically important in enabling the U.S. Coast Guard to execute missions in the far north. And as the Arctic thaws, adversaries like Russia and China are competing with the U.S. and its allies over valuable shipping routes and mineral resources there. 

“There are authoritarian nations that are offering icebreakers to the world who want to corner the icebreaker market,” National Security Advisor Jake Sullivan told Defense News in July. “We’re determined to have democracies in the lead and producing icebreaker capabilities.”

But the U.S. hasn’t built a polar icebreaker in 50 years — a problem Sullivan is hoping to solve with the Icebreaker Collaboration Effort, or ICE Pact, which the U.S., Canada and Finland announced in July. The three nations will each invest in their own domestic polar icebreaker building capabilities, and will collaborate on “workforce development.” By leveraging the Arctic allies’ expertise, the Pact will, it is hoped, see U.S. shipyards build a new generation of polar icebreakers that will eventually be used domestically and marketed to allied nations. 

The first vessel is being built by Bollinger, a major U.S. shipbuilder, at a shipyard in Mississippi. But while the Coast Guard aimed to have the first icebreaker delivered in 2024, it has been plagued by delays, and the project is now aiming for 2028. Moreover, the estimated cost has ballooned from $2.1 billion to $3.2 billion. A CRS report published in May blamed the delays, in part, on a “limited numbers of available naval architects and design engineers.” It is hoped that assistance from Finland and Canada through the Pact will improve matters. 

Alongside leaning on allies, America is also hoping an innovation revolution could help revitalize U.S. shipbuilding. Building unmanned transport ships, for instance, could reduce shipping costs substantially. And building ships powered by small modular nuclear reactors (instead of heavy fuel oil, a major carbon emitter) could decarbonize shipping and enable higher sustained speeds and shorter turnaround times.

“For the foreseeable future, the U.S. has a comparative advantage in nuclear propulsion,” says Brent Sadler, a maritime security expert with the Heritage Foundation and former Navy official. “That’s where you’re going to start to develop a comparative advantage, where the American shipbuilding industry differentiates from South Korea and differentiates from China.”

Of course, none of these industry reforms or influx of investments will work without a well-trained and dependable workforce in the United States. After decades of industry contraction and the reduction of America industrial capacity writ large, shipyard workers and ship designers are in short supply. Analysts note that the pandemic hit welders, pipefitters and engineers of all stripes especially hard, nudging many of those with experience into retirement. Today, 75 percent of American shipyard workers possess only five years or less of relevant experience, according to Labs, at the Congressional Budget Office — which translates into more hours needed to build ships as well as more rework that needs to be done afterwards. 

The Navy is also struggling with far fewer in-house ship designers than it had in the past. Page, at the University of Michigan, says the Navy’s tools for building this pipeline of talent haven’t yet been modernized.

“We just aren’t experienced with going through a full design process because, as a navy, we don’t do it that often, especially for combatant ships,” he says.

To address the workforce problem, both the Navy and private shipyards have taken straightforward actions. The Navy, for instance, recently upped its recruitment efforts by paying for a blitz of targeted “We Build Giants” TV commercials. In September, the firm responsible for those ads, the BlueForge Alliance, was awarded a $951 million Navy contract to “uplift” the submarine industrial base. The Navy has also funded worker training programs such as the Accelerated Training in Defense Manufacturing initiative, run by a Virginia state agency. 

Individual shipyards have also been offering higher wages and better working conditions to attract workers. Some of these improvements include fixes as simple as building coverings over yards so that workers don’t have to labor in the cold, sun or rain, or providing closer food services or parking lots to shipyards. 

“Both the Navy and the shipyards have recognized that they’ve got to make these jobs more attractive,” says Labs, who has visited dozens of shipyards for his research. “For the yards that have improved wages and benefits already, they say they have seen improvement in their recruitment and retention. If they can do that more, that definitely will help.” 

Navy Secretary Del Toro has put it more forcefully: “For those companies that are having problems in retention: Damn it, take better care of your people,” he recently griped. “If they can’t find housing in your local communities, well, then work with the governments to build housing in the local communities to get about it. That’s what problem solvers do.” 

Del Toro added that on his recent trip to Korea and Japan, he was struck by the fact that the shipyards “actually build the hospitals, the schools, the [child care centers], the bowling alleys, everything else you can imagine to try to attract workers to their shipyards and then retain them.”

It’s tough recruiting workers when it’s just for one niche, like submarines. It becomes a different equation when it’s submarines, naval ships, commercial ships, research ships, etc. There is a rising tide effect.

Jonathan Page, an engineering professor at the University of Michigan and veteran Navy ship designer

Del Toro believes, as do many industry insiders, that attracting more workers into the commercial shipbuilding industry will ultimately benefit the Navy — that the two have a symbiotic relationship.

“It’s tough recruiting workers when it’s just for one niche, like submarines,” says Page. “It becomes a different equation when it’s submarines, naval ships, commercial ships, research ships, etc. There is a rising tide effect.” 

Capitol Hill seems to agree. The Ships for America Act, the most substantial shipbuilding legislation put forward thus far, proposes investing in training programs for new shipyard workers. The bipartisan, bicameral initiative led by Rep. Mike Walz (R-FL) and Sen. Mark Kelly (D-AZ) also addresses regulatory reform and financial support for the industry, such as tax credits. 

Over 200 members from both houses have pledged support, and it is set to be formally brought up for a vote after November. The goal, according to the sponsors, is to foster a prosperous commercial shipbuilding industry, which will in turn pay dividends to naval shipbuilding. 

“A shipyard can easily flex to building Navy ships, but you also need the supply chain of the parts that go into building a ship,” Sen. Kelly said in September. “That’s what we’re lacking now. We see this when we’re trying to build Virginia-class submarines or any Navy ship today. It’s more difficult because we don’t have this robust commercial supply chain in the shipbuilding industry.” 

But some experts warn that this conflation between naval and commercial shipbuilding could be dangerously misleading. They contend that the two arenas share few developmental processes in common, with naval ship designs typically presenting much more complex engineering challenges. Moreover, they say, since both industries will compete for the same, diminished workforce, Washington should prioritize fixing its naval shipbuilding shortcomings, not its commercial ones. 

“If I own a Walmart and I can’t find enough people to work there, is the solution to build a Costco right across the street that would compete for the same workers?” asks a Hill staffer who tracks shipbuilding issues but requested anonymity to speak freely. “The whole idea that somehow reinvigorating commercial shipbuilding would help us with Navy shipbuilding is plausible sounding but potentially problematic.”

Part of this argument is also about urgency. The U.S., these critics say, doesn’t have the luxury of waiting on reforms to trickle down from the commercial industry to the Navy’s benefit. America is struggling to stay afloat, they warn, while China’s navy is full steam ahead. 

As if Washington needed a reminder of this, in mid October, as retribution for the president of Taiwan’s annual national day speech, the Chinese conducted large-scale military drills that wholly surrounded the island. The exercise was seen by observers as a demonstration of China’s ability to block air and sea access to would-be American interveners. Alongside an unprecedented number of warplanes, the drill included 14 naval ships, 18 coast guard vessels and one of China’s three active aircraft carriers. 

A fourth, rumored to be nuclear-powered, is under construction.

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