The United States and China may have a new trade agreement for Christmas.
It would be great to end the tariff war by halting how China subsidizes so many of the consumer goods it sends to us. But it would be better to also end the enormous subsidies it is using to drive non-Chinese merchant ships off the high seas.
The impact is enormous because 90% of all world trade goes by ship.
When we talk about military ships, the U.S. Navy remains incomparable. But when we talk about merchant vessels, China is outbuilding the world as part of its plan to monopolize the very ability to ship goods all over the globe. This is a national security issue of the highest order.
Amazingly, some American groups believe we should let China dominate not only international shipping but also shipping that goes from one American port to another. The impact on the U.S. economy could be enormously bad.
As explained by MARAD (the Maritime Administration within the U.S. Department of Transportation):
"Domestic waterborne transportation is . . . between ports, coastlines and almost all states and territories — including Alaska, Hawaii, and Puerto Rico. Each year, tens of thousands of vessels transport over a billion tons of cargo, with hundreds of ferry operators transporting millions of passengers, contributing billions to our nation's economy through freight and passenger revenue, taxes and private investment. . . . To ensure the survival of this key industry, Congress has passed legislation (the Jones Act) reserving this waterborne domestic trade to specific U.S. vessels."
We have a lot at stake if we allow China or any other country to take over shipping that is purely between American ports. Currently the Jones Act essentially requires this to be handled only by American-built vessels, which are American-flagged and mostly crewed by Americans.
By contrast, international shipping either goes between a U.S. port and a foreign port, or totally between foreign ports.
What would happen if our domestic shipping began to resemble international shipping?
The Bureau of Transportation Statistics reports that only 182 of almost 44,000 ocean-going cargo ships are American (0.04%). The vast majority are from subsidized China, South Korea, or Japan. Of those commercial ships currently under construction (as tracked by the shipbrokers BRS Group), only 8 are being built in America; China is building 1,291 of them, Japan 697 and South Korea 475.
Imagine the huge loss to the U.S. economy if the number of ships handling our purely-domestic maritime trade began changing to resemble the worldwide ratios. Yet that potential exists if opponents of the Jones Act win their goal of repealing it. That also would dry up our reserve of commercial vessels which can be called upon for a national emergency, military or otherwise.
Many Jones Act opponents value globalism more than our country. They disregard national security and make a purely-economic argument: Foreign ships charge lower rates and money is all that matters. They ignore the fact that lower rates are aided by huge subsidies paid by China and others to build and operate commercial fleets.
The issue is subsidies, not free enterprise. These subsidies are a major aspect of the trade and tariff wars — except the pending trade agreement unfortunately will not address these.
China’s goal to control global cargo extends beyond the vessels themselves. Years ago it announced its Belt and Road Initiative whereby China invests mega-billions not only into building cargo ships but also into controlling port facilities all over the globe. It continues taking over strategic port facilities on both ends of the Panama Canal, in Europe, in South America, in Africa, the MidEast, the Indian Ocean and of course the South China Sea, all involving major global shipping lanes. Fortunately, the Trump Administration this year forced China to divest itself of a major shipping terminal in Long Beach.
A Harvard study found that in 2006 China designated shipbuilding a “strategic industry” and since then, “Chinese subsidies dramatically altered the geography of production and countries’ market shares.” This aid gives them an estimated 13-20% advantage in ship construction costs, which then is boosted further by lower wages and regulations. And I have been told in informal interviews with MARAD officials that once built, China pays an estimated $7 million per year, per ship to reduce the operating costs.
Many other countries have similar plans, but none as massive as China’s.
The Jones Act pales by comparison with the massive shipbuilding subsidies of China and of many other countries. Repealing the act would be surrendering to nations which want to buy a global maritime monopoly.
Reaching a trade agreement with China on other issues would be a nice gift for this Christmas. But it would be even nicer to extend that agreement to end their subsidies for shipbuilding and maritime trade. Maybe next year?
Ernest Istook worked on a vast breadth of issues as a U.S. Congressman. He now practices law, is a political science professor, and is a Distinguished Fellow at Frontiers of Freedom. Istook also is a former Distinguished Fellow at The Heritage Foundation, a Fellow at Harvard's Institute of Politics, and a talk radio host. He is founder and president of Americans for Less Regulation. Find him on Twitter (@Istook), Facebook, or at Istook.com. To read more of his reports — Click Here Now.
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