On Wednesday, a Reuters article citing sources reported that the US is considering “softening” port fee plan for Chinese vessels after pushback. Yet, many believe that the situation is still concerning. “These fees are little more than a different form of tariff, but with a bluntness and an array of adverse consequences that makes them worse,” said John McCown (McCown), a shipping expert and non-resident senior fellow at the Center for Maritime Strategy, in his recent submission to the United States Trade Representative to voice his opposition to the port-fee proposal.

In the seventh piece of the “Wisdom on China&US” series, McCown explained why he opposes the US government’s proposal to impose hefty fees on Chinese vessels docking at US ports in an exclusive interview with Global Times (GT) reporter Ma Ruiqian. He also shared his views on the potential impact of the proposed port fees on both the US and the global economy, as well as insights on how to properly understand China’s shipbuilding industry and its relationship with the US.

GT: You said in your book Giants of the Sea that today’s shipping industry touches almost everyone on the planet in ways that they may not even be aware. Could you elaborate on the potential impact the proposed port fees might bring to “everyone”?

McCown: The port fees are a different form of tariff – a much blunter one. I can’t fully get into someone’s mind about their motivations, but there does seem to be a strong political motive here. It is disproportionate to whatever they’re seeking to achieve. I’m surprised, puzzled and dismayed by some of the recent initiatives to move away from trade, particularly in the US. The benefits from trade are real, and I put the blame on policymakers who perhaps haven’t come up with rules to better distribute those benefits.

GT: You describe the proposed port fees as “an apocalypse for trade.” What kind of ripple effects will this proposal have on US industries and the economy?

McCown: Obviously, the port fees would be incredibly dislocating to the US economy. If implemented, it would lead to immediate changes.

One of the most significant effects would be on one of the largest trade lanes in the world – the trans-Pacific route from Asia to the US. Moreover, if the port fee proposal were put into place, it wouldn’t just be a single fee. The consequences would be severe.

For example, container ship operators might consider avoiding US ports by diverting to Canadian or Mexican ports. While the cargo would still eventually reach the US, the route would be longer and more costly. This would directly impact US dock workers and the entire infrastructure and people tied to it. The result would be less economic activity in the US and significantly higher costs.

Not all ships would divert, and there has been discussion from the International Longshore and Warehouse Union about ensuring that any fee imposed on ships diverted to Canada or Mexico would be even higher, in order to preserve US jobs.

However, there would still be other challenges. Since ships often visit multiple ports on the West Coast, the imposition of the fee could lead to a situation where ships decide to visit only one port, displacing others. This would cause congestion at certain ports, and some might even struggle to handle the increased business. The congestion could mirror the massive supply chain disruptions.

Additionally, what makes the port fee proposal particularly dumb is that, by applying it to all ships, it directly and negatively impacts our exports. These proposed fees apply even to the empty ships that arrive on the US Gulf Coast simply to load US grain destined for China or other locations. Whether it’s the grain a farmer in Iowa produces, or the coal mined in West Virginia, we don’t want to erect a barrier to that.

The potential ramifications are difficult to fully grasp. There would be all sorts of negative outcomes, and the dislocation would be immense – far more significant than we might anticipate. When you look at the situation, it becomes clear that we’re taking away choices from American consumers, guaranteeing inflation, and setting in motion a series of complications with the port fee plan that will continue to unfold. The whole situation begs the question: Why are we doing this? It’s puzzling.

GT: The proposal to charge port fees on Chinese ships is seen as part of the US government’s plan to revitalize its shipbuilding industry. Do you think this plan will achieve its goal? How far is the US from a total shipbuilding comeback?

McCown: Shipbuilding has moved away from the US. We were certainly big during World War II. Today, the US shipbuilding industry is virtually nonexistent compared to what it once was, and this decline has little to do with what’s happened in China.

Shipbuilding is a relatively straightforward process, with the two main inputs being labor and steel. The US hasn’t been a competitive steel producer for a long time. Regarding labor, US wages are significantly higher than the global average. So it’s no surprise we’re not building ships – it’s simply not where our comparative advantage lies. More broadly, most of the US economy has shifted toward services.

That’s why I find it naive when people claim that the only reason we’re not building as many ships as China is because of “its unfair trade practices.” That argument is false.

GT: In your book Giants of the Sea, you analyzed China’s rise in the global economy and shipping industry. How do you view the achievements of China’s shipbuilding industry today? What is the best way for the US to engage with China as a shipbuilding counterpart?

McCown: By my calculations, at least half of the world’s merchant ships – regardless of their flag or owner – are essentially involved in either moving raw materials to China or exporting finished products from China. Given the size of China’s economy, that’s not surprising. Historically, countries with strong export economies – like Japan and South Korea – have tended to be heavily involved in the shipping business. China is doing the same.

Some people tend to overreact and see ghosts in China’s actions that aren’t really there. If your products are filling half of the world’s ships, it makes sense to be involved in the shipping industry at a scale that reflects that. Additionally, when you’re producing one billion tons of steel per year, shipbuilding becomes a significant domestic use for that steel. So again, it makes sense. Shipbuilding not only consumes steel but also provides employment – it still requires a lot of workers and welders.

I’m a strong believer that the more countries trade with each other, and see their economic futures as interconnected, the more stable and peaceful things are likely to be.

There’s a symbiotic relationship between China and the US. The goods we buy from you translate into something beneficial for your economy. On our side, we have a surplus in services – particularly creative services – with the rest of the world. I would imagine we probably even have a surplus with China, though I don’t know the specific figures. But it’s important to look at the full ledger. With the kind of reductions in trade that are being discussed, I’m concerned that these actions could unnecessarily raise tensions. They could also put different governments in a position where they feel the need to respond.
Source: Global Times