Comment on China’s Competitive Advantages in Maritime Sectors and the Appeal of the Korean Industrial Model.

Public Comment on the United States Trade Representative Proposed Measures Pursuant to Section 301 Investigation of China’s Targeting of the Maritime, Logistics, and Shipbuilding Sectors for Dominance (Docket No. USTR-2025-0002)        

This comment evaluates the likely commercial and strategic consequences of the proposed measures (“Measures”) of the United States Trade Representative (USTR) pursuant to its investigation of the People’s Republic of China’s (PRC) targeted dominance in maritime, logistics, and shipbuilding sectors. Drawing on expertise on Chinese and Korean maritime policies and practices,¹ the authors offer several considerations for USTR as it moves to refine the Measures towards fully meeting defined goals to protect U.S. commerce, strengthen the U.S. shipbuilding industry, and enhance U.S. national security.

We argue that the Measures under consideration will likely fail to meet statutory objectives unless and until they are recalibrated and implemented alongside a range of complementary legislative, regulatory, and diplomatic actions. Such actions should be designed in light of two central considerations: (1) the predictable, adverse effects of China’s observed anti-competitive practices to blunt the efficacy of the proposed measures; and (2) the lessons that can be drawn from foreign shipbuilding and maritime industrial policies, especially those of the Republic of Korea (ROK), and incorporated into U.S. actions. We conclude with (3) recommendations for coordinated U.S. actions.

(1) The Proposed Measures Fail to Fully Consider the Practical Consequences of China’s Competitive Advantages in Maritime, Logistics, and Shipbuilding Sectors.

China has achieved dominant global market share across shipbuilding, logistics, and maritime industries. By pursuing concerted industrial policy towards that end for nearly thirty years, China’s central planners have concentrated PRC firms’ control in these strategic sectors. They have also created extraordinary “dependence on PRC companies, products, services, and technology” across global maritime supply chains (USTR Report, p. 61). As a result, Chinese firms – not American or allied companies – are now best-positioned to adjust to the port fees and service restrictions proposed by USTR.

Perversely, then, the proposed Measures will distort the global market for shipbuilding, shipping, and ship-owning in ways likely to further compound China’s existing advantages. We share the USTR’s conclusion that China’s dominance in these sectors “means that its companies could almost always outbid their competitors with low pricing” (USTR Report, p. 116). Increased marginal costs to ship goods into U.S. ports will create a market structure that Chinese firms can readily exploit precisely because they are better “insulated from commercial pressures” (USTR Report, p. 116) than their foreign competitors. As a result, we anticipate that ocean carriers will continue to place growing proportions of their orders with Chinese shipyards. Nothing prevents Chinese firms from continuing to lower prices to achieve the government’s market share targets – even if that means selling ships below cost.

Today, “China is absorbing a disproportionate amount of fleet renewal investments, and as demonstrated [by USTR investigations citing PRC policy and regulation], seeks to absorb ever higher global market share” (USTR Report, p. 119). Why should we expect this pattern to change if the global market were to be further distorted by port fees and restrictions on services? Why wouldn’t the Chinese government double down on the existing pattern of government subsidies for steel, aluminum, and electricity? Or provide further tax advantages, preferential financing, and other discounts for shipyard real estate and production? Permit more extensive suppression of labor costs? Accelerate weaponization of Chinese firms’ “chokepoint” positions in global shipbuilding and other maritime supply chains (USTR Report, p. 138)? Given that Chinese planners have targeted and achieved sectoral dominance in terms of market share, why would Beijing abandon these evidently successful policies?

This consideration of likely PRC responses to the proposed Measures reveals a basic dilemma: those same unfair and anti-competitive practices that have proven so challenging and adverse are likely to deliver to China unique advantages in a race to adjust to a new shock to the global shipbuilding and shipbuilding sectors. A more comprehensive view of possible remedies is warranted, accounting for the foreseeable global reactions to the Measures and leveraging relationships with foreign maritime industrial partners.

(2) Revised Measures Should Take Lessons from Successful Foreign Shipbuilders to Advance U.S. Maritime Competitiveness and National Security.

In particular, U.S. actions should take stock of South Korea’s experience in becoming and remaining a leading shipbuilding industry player. Korea has achieved special capacity and technical expertise in high-value production, particularly in specialized vessels like LNG carriers where Korean shipbuilders command an impressive 93% market share.² Korean shipyards benefit from robust maritime infrastructure, a skilled workforce, and sustained government support positioning them for continued growth.³ The country’s strategic focus on next-generation technologies has created a formidable competitive advantage that should provide a long-term model for U.S. policy, as well as short- and medium-term opportunities for U.S. industry partnership.

Fiscal prioritization and public-private partnership are important, and potentially replicable, elements of Korea’s success in shipbuilding. Most recently, Seoul launched the K-Shipbuilding Super Gap Vision 2040 in July of last year. This continuation of long-standing government fiscal support for the industry aims to “secure and develop in green, digital, and smart areas” focusing on eco-friendly propulsion, digital automation, and autonomous vessel technologies.⁴ The initiative is backed by a 9 trillion won (approximately US $6.7 billion) five-year investment from the government and three major Korean shipbuilders.⁵

Strategic government interventions and long-term planning have been fundamental to ROK success in the commercial shipbuilding industry, in which it was the clear global leader until China surpassed it in recent years.⁶ Seoul’s coordinated approach leverages fiscal outlays, tax preferences, tailored regulations, and targeted R&D spending to create a foundation for sustainable industry growth. Perhaps most significantly, the continued prominence of Korea’s high-value outputs results from its large, high-skilled workforce. This investment in human capital has created a virtuous cycle of innovation and competitiveness in the ROK.⁷ Korean shipbuilders have built vertically integrated production systems, making contributions to local economies while maintaining global competitiveness.

(3) Conclusions and Recommendations: Avoid Playing Into PRC Advantages; Leverage Korean Knowledge and Technical Capacity

This comment evaluates “[w]hether the proposed fees or restrictions on services are appropriate” and attempted to “specifically address whether a proposed action would be practicable or effective to obtain the elimination of China’s acts, policies, and practices.”⁸ In brief, the proposed port fees and restrictions on services are inappropriate because they do not carry the findings of the USTR’s January 16, 2025 report (“USTR Report”) to their logical conclusion: if indeed China’s government has established its domestic industry’s dominant position in global shipbuilding through non-market, anti-competitive acts, policies, and practices, then these same Chinese firms will further compound their advantages under the market-distorting conditions created by the proposed port fees and service restrictions. Thus the proposed actions are likely to be ineffective in eliminating undesired maritime industrial acts, policies, and practices. The Measures currently contemplated appear impracticable at best, and should be revised according to insights gleaned from the Korean example.

The ROK’s path to becoming a leading global shipbuilder must be translated into lessons for U.S. policymakers and American maritime industries. The Korean government helped foster domestic industry prominence through long-term, coordinated industrial policy planning. This entailed substantial fiscal and tax supports for industry, creation of a favorable regulatory environment, encouragement of public-private partnerships to build infrastructure, and perhaps most critically, sustained commitment across administrations to training and maintaining a highly skilled workforce. Adapting these ideas into the U.S. system will be necessary to meet the profound challenge to U.S. competitiveness and national security posed by China’s dominance across strategic maritime industries.

Korean diplomatic and commercial partnership is also a necessary but insufficient piece of this puzzle. At present and for the foreseeable future, the U.S. lacks the raw shipyard capacity, skilled labor pool, and permissive regulatory environment to support building, owning, and operating U.S.-flagged vessels in line with the ambitious goals established in the proposed actions and other policy initiatives. The U.S. should consider partnering with South Korean (and Japanese) shipbuilders to co-own entities and open additional commercial shipyards as combined national security programs, similar to programs the U.S. applied in these industries during the Cold War.⁹ Recent developments – like Hanwha Ocean’s master ship repair agreement with Naval Supply Systems Command and acquisition of the Philly Shipyard – demonstrate the potential of this collaborative approach.¹⁰

Taxes and fees alone are inefficient methods for achieving the goals of this USTR investigation, and insufficient for meeting broader U.S. maritime policy priorities. China’s protected maritime industries will quickly exploit the market distortions that the Measures inevitably create. ROK shipyards may provide a short- or medium-term outlet – but only long-term, coordinated U.S. investments in shipbuilding infrastructure and workforce development will position America to compete.