Trade winds

 

"ALL QUIET on the western waterfront. And the eastern one, too. Across littoral America, stevedores are twiddling their thumbs. They have President Donald Trump to thank for this unexpected breather. It is the foreseeable consequence of his unprovoked trade world war. Eastbound shipments from China, his biggest target and source of 40% of America’s seaborne imports, are being cancelled. Some importers are switching to suppliers in places granted reprieve from his “reciprocal” tariffs. Many are just waiting out the storm. On April 29th the boss of the Port of Los Angeles, America’s biggest, predicted that imports at the facility would fall by at least 10% in the second half of 2025.

 

Such headwinds for global commerce in all manner of stuff would, you might think, also worry makers of vehicles that ferry the stuff around. Given that some 90% of it, equivalent to 12bn tonnes a year or thereabouts, moves by sea, the world’s shipbuilders ought to be feeling ultramarine.

 

Not one bit. On April 28th Hanwha Ocean, a $17bn South Korean firm that is the world’s third-most-valuable standalone shipbuilder, reported quarterly revenue of $2.2bn, an increase of 38% year on year. Operating profit nearly quintupled. The company expects continued interest in most of its vessels, from container carriers and tankers to warships.

 

Many rivals are sounding similarly buoyant. So are their shareholders. The combined market value of the world’s 120 or so listed shipbuilders has risen by 15% this year, exceeding $200bn, while the MSCI index of global stocks has edged down. The share prices of Hanwha and Mitsubishi Heavy Industries, a Japanese conglomerate with a shipbuilding sideline, are up by around 10% since Mr Trump fired his reciprocal broadside on April 2nd. That of HD Hyundai Heavy Industries, Hanwha’s bigger South Korean competitor, has increased by nearly 40%. For investors, says James Sullivan of JPMorgan Chase, a bank, “there is still time to board.”

 

Not all gangways are created equal, however. Investors are souring on Chinese shipbuilders. The third-largest of these, the Singapore-listed Yangzijiang, has lost a quarter of its value this year. Others are also underwater. That reflects worries that Chinese shipbuilders will give up market share to rivals elsewhere in East Asia. These, in turn, may prove to be the biggest winners from the Trump administration’s efforts to make American shipbuilding great again.

 

In the late 2000s South Korea and Japan together produced roughly half of global merchant-fleet tonnage, according to Clarksons, a shipping consultancy, with China accounting for around a third. By last year these proportions had more or less inverted. That is partly because the Chinese government gave generous subsidies and state-owned banks provided cheap loans, but also because Chinese yards got pretty good at welding together ships. The result is that they account for two-thirds of existing orders by tonnage, calculates BIMCO, which represents shipowners.

 

One reason Chinese shipyards may lose steam has to do with technology. Last year the EU began extending its trading scheme for industrial greenhouse-gas emissions to large ships. In April the International Maritime Organisation, a UN agency, provisionally approved new emissions standards and a carbon price of its own, starting from 2027. The regulations are biting just as vessels launched during a shipbuilding binge in the late 2000s approach retirement age. Fleet operators keen to replace clunkers with craft running on cleaner fuels such as methanol or liquefied natural gas are likely to favour South Korean and Japanese yards, which retain a technological advantage over Chinese ones.

 

They have a geopolitical advantage, too. On April 17th America’s trade representative, Jamieson Greer, unveiled new fees on all Chinese-built ships calling at American ports. To begin with, non-Chinese operators will pay perhaps $2m per American voyage for a big container ship and $3.5m for a supertanker. Ships belonging to Chinese shipping lines would be charged triple. The aim, proclaimed Mr Greer, is to curb Chinese power, shore up American supply chains and “send a demand signal for US-built ships”. He echoed Mr Trump’s executive order from a week earlier on “restoring America’s maritime dominance”.

 

Wakey, wakey

 

Dream on. The domestic industry has been virtually non-existent for decades, displaced first by the Japanese and then the South Koreans. As long ago as the 1970s America made just 5% of the world’s merchant vessels. Today that figure is 0.1%. Except for a few mostly naval facilities, there is no supply chain to speak of. Remaining commercial shipyards are small; last year Hanwha bought one in Pennsylvania for $100m, the list price of two bog-standard modern vessels. The labour pool is dry. Tariffs on steel push up the cost of materials.

 

A medium-size tanker or container ship made in America costs around $300m, BIMCO reckons, six times as much as one built in South Korea. It is proving hard enough to bring back from Asia semiconductor manufacturing, where America still accounts for one-tenth of global output. Reshoring shipbuilding is dead in the water, sums up the chairman of a large maritime-engineering firm.

 

For shipping lines eager to cut their Chinese tonnage, buying South Korean or Japanese is thus a no-brainer. They have the capacity, supply chains and know-how in place. Even the US Navy may reach the same conclusion. If sourcing whole ships from abroad seems unpatriotic, it could start by purchasing more sections or modules from foreign suppliers, including Hanwha and HD Hyundai (as well as European naval contractors like Babcock and Fincantieri). The trade war makes for choppy waters. Captains of the shipbuilding industry can still find their way.” [1]

 

 

1. Trade winds. The Economist; London Vol. 455, Iss. 9446,  (May 3, 2025): 60.