Port Fees On Chinese Ships Will Sink Trump’s Energy Policy Goals

(Originally published at Forbes)

Who will be fired when President Trump learns his own administration is subverting his promise to achieve U.S global energy dominance? On January 20, Trump lifted the Biden administration’s liquified natural gas (LNG) export licensing ban as a crucial first step toward “Unleashing American Energy.” Yet, the current Office of the U.S. Trade Representative (USTR), running with a Biden administration initiative undertaken to please organized labor, has determined that the best policy response to China’s state-support for its shipbuilding and maritime industries includes imposing hefty port fees on Chinese vessels that call on U.S. ports. It won’t be long before a White House advisor informs the president that there is no discernible difference between those fees and Biden’s LNG export licensing ban in terms of the adverse impact on America’s energy sector.

Beginning next month, the new port usage fees will be imposed on Chinese containerships, bulk carriers, and other cargo vessels. USTR asserts that these levies will reduce U.S. demand for Chinese shipping and provide investment incentives to U.S. shipbuilders who have long struggled against Chinese, state-supported competition. It’s clear that Beijing’s support for Chinese shipbuilders has been excessive and in violation of the spirit, if not the letter, of international trade rules. But the sorry states of the U.S. shipbuilding and shipping industries have many mostly domestic causes, which will continue to deter investment by orders of magnitude greater than any port levies might encourage it.

While once a global leader, American commercial shipbuilding has been in decline for decades. Today, U.S. shipyards primarily build naval vessels, with commercial shipbuilding representing a tiny fraction of total output. The challenges facing U.S. shipbuilders are structural, not merely competitive. Building ships in the United States is far more expensive than it is in Asia due to higher labor costs, environmental regulations, and the absence of the economies of scale enjoyed by Chinese, Korean, and Japanese shipyards. Imposing port fees on Chinese ships will not change these structural disadvantages.

Removing superfluous, outdated regulatory barriers and getting shipbuilding incentives right are worthy pursuits. But resuscitating an industry that has been neglected for decades is a long-term undertaking, which must not be prioritized to the detriment of crucial U.S. industries that have no short-to-medium term alternatives to using foreign-owned, -built, and -flagged vessels. 

The U.S. LNG industry will be among the hardest hit by these new port fees – an outcome that deeply conflicts with the administration’s commitment to “unleashing” the energy sector to achieve U.S. dominance. The United States is the world’s top producer and exporter of LNG, accounting for 22 percent of global supply and generating about $34 billion in annual export revenues, exceeding the GDP contributions of corn and soybeans combined. Since 2016, LNG exports have accounted for over $400 billion of U.S. GDP, supplying energy to economies in Europe and Asia (including China) and supporting hundreds of thousands of high-paying U.S. jobs. Assuming economic conditions and policies continue to support growth, the U.S. Chamber of Commerce expects U.S. LNG exports to double over the next 15 years, potentially doubling employment and tripling its contribution to GDP.

The success of U.S LNG exporters has unfolded despite a near total absence of any U.S.-built or -flagged LNG carriers. No LNG carriers have been built in the United States since the 1970s. No U.S. shipyard has the infrastructure or technical expertise to build one.

In a competitive, global energy market, even marginal increases in transportation costs can result in lost contracts. This could open the door for large LNG suppliers in Qatar, Australia, and Russia to gain market share at the expense of U.S. producers. Far from being a strategic win, the policy could damage one of America’s most successful export industries.

Beyond energy, the proposed port fees will deal a heavy blow to U.S. manufacturers who rely on integrated international supply chains. Indeed, more than half of the value of U.S. imports every year is composed of capital equipment, raw materials, and other intermediate goods – not final goods. Many of those industrial inputs – from electronics and automotive parts to machine tools and chemicals – flow into the United States on Chinese vessels. In fact, last year Chinese-built ships accounted for approximately 30 percent of all visits to U.S. ports.

Higher port fees would inevitably raise shipping costs, which would likely be passed on to consumers, making U.S.-made goods more expensive both domestically and abroad. Of course, reduced demand would erode profit margins and dampen economic growth – particularly in manufacturing-intensive regions of the country already struggling with inflation and global competition. And that’s before even considering the adverse effects of any Chinese retaliation.

Greater self-sufficiency would help mitigate the risks associated with overreliance on countries that may not be dependable or trustworthy, but the reality is that our complex ecosystem of global trade means that interdependence remains a necessity. As are the cases with respect to steel, fertilizer, sugar, and other raw materials, shipping services are production inputs. Shipping LNG abroad is an intermediate service – an integral supply chain component. For suppliers to operate profitably in a competitive environment, revenues must rise (find more customers and new markets), and costs must be contained. Policies that make these supply chain components more expensive will only drive up the cost of the final product, exposing U.S. exporters to competition from foreign companies unhindered by things such as self-flagellating port fees.

If the objective is to reduce U.S. dependence on foreign shipping or to revive U.S shipbuilding, there are more constructive ways to achieve it—such as through infrastructure investment, regulatory streamlining, encouragement of clean maritime technology, and trade diplomacy. 

Port usage fees will do nothing to incentivize the investment, workforce development, or technological innovation required to make American shipyards competitive in the global market. Indeed, the policy is more likely to harm the very industries the United States needs to support – LNG exporters and manufacturers – without generating any incentives or meaningful benefits for the domestic shipbuilding industry. 

The USTR and other administration officials will realize soon enough that port fees are not what President Trump had in mind when he set out to unleash American energy.