Monthly Spotlight

The U.S. Trade Representative (USTR) is considering implementing penalties on Chinese-built ships, a move aiming to reduce dependence on foreign shipbuilding and promote domestic manufacturing. These measures may help to revitalize U.S. shipbuilding in the long-term, but risk far-reaching repercussions for U.S. agricultural producers who depend on cost-effective and efficient shipping for their exports.

Under the USTR proposal, hefty fines will disincentivize the use of Chinese-built vessels. Ships built in China would face fines of up to $1.5 million per U.S. port stop. Vessels not built in China, but that belong to a shipping company with any Chinese-built vessels in their fleets would face fines of up to $1 million per port entry. Given that China accounts for 75% of new ship construction, these penalties could impact nearly every ship carrying goods into U.S. ports. This proposal also aims to shift domestic exports to ships built in the U.S., which currently produces fewer than 10 ships annually and has a cargo vessel fleet of less than 200 vessels.

Implications for agriculture:

• Increased import costs: Fines will likely be passed along to shippers and the goods being transported. Many agricultural inputs including fertilizer and machinery parts are imported, which likely have added fees passed along to producers.
• Reduced global competitiveness: For agricultural exporters, increased transportation costs could reduce competitiveness in export markets as these costs are passed along to international buyers. A study by Trade Partnership Worldwide estimates that wheat producers could see a reduction in exports ranging from 9% in the best-case scenario to 65% in the worst-case scenario.
• Limiting ships: Some vessel owners are increasingly hesitant to provide future shipment contracts due to the proposed fines, which could lead to a reduction in available shipping options and delays. This is particularly concerning for U.S. agriculture, which heavily relies on ocean freight backhauls to export goods efficiently. Without these backhaul opportunities, producers could face higher transportation costs and logistical hurdles, further straining their ability to compete in global markets.
• Port consolidation: To minimize fines, shipping companies may bypass smaller ports in favor of larger ones. For instance, a vessel might opt to dock only at Long Beach instead of both Portland and Long Beach, avoiding additional penalties. Agricultural producers near smaller ports may need to transport goods over longer distances, increasing costs and causing logistical bottlenecks.

Long-term considerations

The prospect of shifting trade dynamics raises questions about the long-term feasibility of these penalties. Can domestic shipyards build the infrastructure in time to support U.S. exporters? Does the U.S. want to dedicate the land space needed for new shipyards, requiring more than 25 square miles each, to produce these vessels? Will agricultural producers continue to remain competitive if they face higher costs and reduced access to shipping routes? These are concerns that will need careful consideration as the USTR evaluates the potential ripple effects of this policy.

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