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For years, the focus of US-China trade tensions has been on technology. Washington’s aggressive measures, such as chip export bans and investment restrictions, have mainly targeted China’s advancements in high-tech industries. However, the sector that could have the most immediate and widespread global implications in trade disputes is not technology but rather shipping.
The Trump administration has put forward a proposal to introduce a fee on every Chinese-built commercial vessel entering a US port, along with additional charges for operators with contracts at Chinese shipyards. The goal is to challenge China’s dominance in maritime activities. This plan has the potential to not only reshape trade policies but also redefine the global balance of power in commerce.
China currently holds a significant share of the global shipbuilding market, accounting for nearly three-quarters of all shipbuilding orders worldwide. In contrast, the US has less than 1% of this market. Even major players like South Korea and Japan lag behind China in terms of scale. Chinese shipping and shipbuilding companies have been attractive investments for years, seen as a bet on China’s growing influence in the maritime industry.
In the short term, companies operating Chinese-built ships will face increased costs. Industries heavily reliant on affordable transportation, such as electronics, automotive, and apparel, as well as energy firms using Chinese tankers for oil and LNG shipments, will experience added financial pressure.
While there may be a shift towards shipbuilders in South Korea and Japan in the long run, transitioning away from Chinese shipyards will pose challenges. Building large commercial vessels takes years, and existing supply chains are deeply rooted in China. Although non-Chinese shipbuilders may benefit in the future, there will likely be significant disruptions in the near term.
Following this announcement, shares of China’s leading shipping company, Cosco Shipping Holdings, dropped by 4% in Hong Kong, while Yangzijiang Shipbuilding saw a 6% decline. The market perception of Cosco, trading at under 6 times forward earnings, contrasts with South Korean competitors like Samsung Heavy Industries, which trade at over 20 times earnings due to concerns regarding escalating tensions.
China’s response to the US proposal, condemning it as an effort to politicize and weaponize trade, hints at the potential for retaliatory actions from Beijing.
If Trump’s initiatives to reshape maritime trade are successful, it could lead to a fundamental shift away from China’s shipyards. However, if these efforts fail, it will result in increased costs for companies, consumers, and an already strained global trade system.
While restricting China’s access to AI chips may hinder innovation in one country, the repercussions are minimal for US firms. Conversely, disruptions in the shipping industry impact global supply chains for consumer goods, energy resources, and more. It is evident that Trump’s broad trade policy overhaul extends beyond goods alone.
june.yoon@ft.com