RPT-BREAKINGVIEWS-China and US hunker down for long shipping battle

By Ka Sing Chan

HONG KONG, March 13 (Reuters Breakingviews) - A new flashpoint in U.S.-China relations has surfaced: shipbuilding. President Donald Trump's administration is preparing an executive order that will impose docking fees at American ports for Chinese-built or Chinese-flagged vessels, and will push allies to follow, according to a draft reviewed by Reuters. But it will take years and hefty investments for the U.S. to break China's shipbuilding dominance. That all but guarantees a drawn-out conflict.

Thanks to more than two decades of lavish government support and industrial policies, the People's Republic is currently the world's undisputed leader. Last year, it controlled over half of all commercial shipbuilding, according to the U.S. think tank Center for Strategic & International Studies, from 5% in 1999. That puts Chinese ownership of the world's commercial shipping fleet at nearly a fifth as of January last year, per a report from the U.S. Trade Representative's office. The USTR earlier this year proposed charging up to $1.5 million per port entry for Chinese-built vessels, among other remedies.

China's maritime rise is in sharp contrast to the once-dominant U.S, which has seen its market share dwindle to a mere 0.1% today. The gap is set to widen: Chinese firms such as government-backed behemoth, China State Shipbuilding Corporation (CSSC), captured 74% of new global orders last year, according to official data, and their total capacity is fully booked through to 2029. That should cushion any immediate impact for them, though the USTR's proposal could add up to $52 billion of additional shipping fees annually, analysts at JPMorgan flag, potentially squeezing major container carriers like China's COSCO and Denmark's Maersk MAERSKb.CO.

Washington's motivations are both commercial and strategic. Globally, more than 80% of goods are transported via sea; fewer shipbuilders mean American exporters and importers have less options and bargaining power. Moreover, China's shipbuilding prowess has also translated into gains for its military: the CSSC has played a major role in developing aircraft carriers for the People's Liberation Army Navy.

Still, it will take decades and billions of dollars for Washington to rebuild its domestic industry, let alone loosen China's grip. One estimate noted by the USTR puts Beijing's support for the sector at $132 billion over eight years.

In the meantime, China will certainly boost its port investments along the Belt-and-Road to lessen reliance on American ports and reroute shipping routes. The battle for maritime supremacy is only getting started.

CONTEXT NEWS

U.S. President Donald Trump's administration is drafting an executive order to charge fees for docking at American ports of any ship that is part of a fleet that includes Chinese-built or Chinese-flagged vessels, and will push allies to act similarly, according to a draft reviewed by Reuters on March 6.

Chinese shipbuilders account for over 50% of all merchant vessel cargo capacity produced globally each year, up from just 5% in 1999, according to an investigation report published by the Office of the U.S. Trade Representative on January 16.