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(Bloomberg) — For a symbol of the chaos engulfing world trade since the Trump administration walked into the White House, look no further than a pile of 16,000 metric tons of steel pipes. Stevedores in Germany should be preparing to load the first batch on a container ship bound for a massive energy project in Louisiana. Instead the cargo is sitting in a German warehouse after Washington proposed putting million-dollar levies on Chinese ships docking in the US.

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Talks over the terms for shipping the pipes were put on hold until there’s more clarity, said Jose Severin, a business development manager for Mercury Group, the logistics provider for the deal. For that particular route across the Atlantic, 80% of the ship owner’s vessels were built in China, meaning a shipment would be subject to a surcharge of between $1 million and $3 million. Depending on how the measure is applied, that could amount to double or triple the current cost of shipping the steel pipes from Germany.

It’s one of countless deals caught in the crossfire sparked by a proposal from the Office of the US Trade Representative aimed at curbing China’s dominance of the shipbuilding, logistics and maritime industry. China now produces more than half of the world’s cargo ships by tonnage, up from just 5% in 1999, according to the USTR, with Japan and South Korea the other shipbuilding powers. Last year US shipyards built just 0.01%, and the USTR has an eye on reviving the fortunes of the long dormant US merchant shipbuilding industry.

China’s dominance gives it “market power over global supply, pricing, and access,” the USTR said on Feb. 21 when it unveiled the proposal. In response, the China State Shipbuilding Corp., which has the largest order book of any shipbuilding group in the world, described the measures as a breach of World Trade Organization rules. 

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The subject will be at the heart of a two-day USTR hearing in Washington that begins on Monday. The entire supply chain will be represented, from soybean growers to shippers to Chinese shipbuilders. Dozens of business owners and trade groups will explain why they fear the proposals would disrupt global trade more than President Donald Trump’s approach to tariffs. 

“They see this as more of a threat than the tariffs, because of the impact it’s going to have on the supply chain,” said Jonathan Gold, vice president of supply chains and customs policy at the National Retail Federation. “Carriers have said they’re not only going to pass along the cost, but they’re going to pull out of certain rotations, so the smaller ports, Oakland, maybe Charleston, Delaware, Philly. They’re all going to suffer as a result.” 

In letters to the USTR and interviews with Bloomberg News, business owners and industry officials said the proposals don’t make sense if the goal is to revive the domestic shipbuilding industry, and would potentially be devastating for the US economy. They argue it would make American goods too expensive internationally, divert trade away from US regional hubs to Canada and Mexico, overwhelm major US ports, and force up global freight rates and inflation at home.

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The levies could theoretically generate between $40 billion and $52 billion for US coffers, according to Clarksons Research Services Ltd., a unit of the world’s largest shipbroker. But, already roiled by uncertainty over the escalating tariffs on Chinese goods, steel and aluminum, and with a fresh round of reciprocal measures expected on April 2, some American companies and others in the industry are anxious. 

“What the USTR has proposed — a backward-looking, retrospective, multi-million dollar per port call fee — won’t work,” said Joe Kramek, chief executive officer of the World Shipping Council, who is set to testify on Monday. “It will only serve to penalize US consumers, businesses, and especially farmers, raising prices and threatening jobs.” 

John McCown, a veteran of the maritime transportation industry and author of a history of cargo shipping, put it more starkly: “If you wanted to take a sledgehammer to trade this is what you would do. You take it all together — it’s like an apocalypse for trade.” 

‘Make Shipping Great Again’ 

The USTR investigation began last year under the Biden administration after a request from five major labor unions. The resulting report, delivered just days before Trump was inaugurated in January, determined that China had targeted the global maritime sector to dominate it. It left it to the new administration to come up with ways to address Beijing’s commanding position.

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The imposition of levies and additional export requirements are designed “to create leverage to obtain the elimination of China’s targeting of these sectors for dominance,” according to the initial proposals issued by the USTR on Feb. 21. Firms would be penalized using a formula based on their fleet’s existing share of Chinese-built ships, as well as others on order. Some vessels could attract fees of up to $3.5 million per port call if they are Chinese-built with a Chinese operator which also has a ship on order from a Chinese manufacturer, according to Clarksons.

An estimated 83% of container ship visits to the US last year would have been hit with fines under the proposed rules, as well as two-thirds of car-carrier calls and nearly a third of crude tankers, according to Clarksons.

The proposal also requires a share of US products — including agricultural, chemical, energy and consumer goods — to move on US-flagged, crewed, and built ships in coming years. 

Many carriers and operators say they would happily buy or hire US-built merchant ships, but that it would take decades for US shipyards to meet capacity demands and there’s already a shortage of American mariners. At the same time, the port fees would punish carriers for investments they’ve already made in Chinese-built ships.

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When Atlantic Container Line AB, which carries more than half of US exports of construction and agricultural equipment to Europe, needed to source “container-roll-on-roll-off” vessels in 2012, Japanese and Korean shipyards wouldn’t build just five of the specialized ships. American shipyards said they wouldn’t be able to deliver them for at least seven years, wrote CEO Andrew Abbott in a submission to the USTR. Instead ACL found ships in China, where they could get the vessels quickly and at a “competitive price.”

“The proposed action will put us out of business for a commercial decision taken 13 years ago,” wrote Abbott of the USTR proposal, “at a time when US shipyards were flush with US Navy orders and could not build our vessels, and when the Chinese shipbuilding industry was a minor player in the world.” 

Many of the commenters expressed support for curbing China’s maritime might, while urging the USTR to rethink its approach. There were, however, a handful of comments in support of the proposed measures among the more than 250 submissions. 

“China’s unfair production practices have made it impossible for American shipbuilders to compete on an even playing field,” said Scott Paul, president of the Alliance for American Manufacturing, who is scheduled to testify on Monday. “If fully implemented, these remedies will help to restore American economic security, push back against China’s unfair trade practices, and revitalize shipbuilding in America.”

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Several industry executives believe the proposal is likely to be watered down given how disruptive it would be to world trade. Adjustments to the fees and export requirements could certainly be made. They could even be scrapped, given the mercurial character of some administration decisions. Yet, industry lobby groups insist there is good reason to think at least some of this will stick.

The idea of restoring a US shipbuilding industry to firm up US influence at sea has captivated Trump and fits with his wider push for a return to the halcyon days of US manufacturing. He has already staffed a new maritime directorate office inside the National Security Council.

Across Washington, the maritime sector is now cast as an essential pillar of national security, a shift that is still gaining momentum. 

The USTR investigation echoes elements of a bipartisan bill introduced in December to address a shortage of merchant mariners using expanded training programs and tax incentives for companies looking to invest in US shipbuilding. The USTR proposal also shares some DNA with a draft executive order seen by Bloomberg that would funnel tariff or tax revenue to a fund to support the domestic shipbuilding industry.

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The draft document — “Make Shipbuilding Great Again” — also suggests that the US will pressure other countries to align against China’s maritime dominance, or face retaliation. The White House didn’t respond to a request for comment about the draft executive order.

Major carriers have said they could adapt to the fees by skipping smaller ports along US routes, which might potentially damage local economies and specific industries that rely on them. Operators of container ships discharging at one port might be able to share the cost across thousands of containers, minimizing their exposure. But million-dollar plus fees for each port call could devastate smaller operators, as well as low-margin agricultural and commodities exporters reliant on smaller ports like Oakland or Charleston. 

“It’s going to be immensely economically harmful,” said Philip Luck, economics director at the Center for Strategic and International Studies. “It’s not going to address the basic challenge they said they want to solve: increasing capacity of the US shipbuilding industry.”

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“If it’s a pure security issue,” he added, “we should be incentivizing investment by allies like South Korea, Japan and Finland, who are very good at building ships.”

Two-Tier Shipping

The shipping sector has recent experience of the chaos that Washington’s scrutiny of China can bring. After the US Department of Defense blacklisted China’s largest shipping line Cosco Shipping Holdings Co. in January, over alleged links with the People’s Liberation Army, some shipbrokers were asked not to offer Cosco’s vessels for charter, according to people familiar with the matter. The suspension was lifted after a few days when it became clear that the blacklist would not impact charterers of Cosco’s ships financially or legally.

If the USTR implements its proposal as written, shipping executives and brokers say a gradual split of the market is likely, where China-built ships are treated differently to those constructed elsewhere. In the tanker market where China-built vessels make up a third of all ships, it already appears to be happening. Charterers are starting to shy away from leasing China-linked tankers for long-term engagements, according to shipbrokers, because they expect that the vessels will need to call at US ports in the future, exposing them to tariffs.

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Shipowners keen to expand their fleet while avoiding the penalties would also find themselves in a bind. Yards are near capacity in South Korea and Japan with the next slot for new ship orders only available around 2028, shipbrokers said. But not acquiring new ships at a time when the age of the global fleet is rising means that they would be stuck with deteriorating vessels. 

Jose Severin will watch the outcome of the USTR decision — which is expected in the coming weeks — closely. A lack of domestic supply means those 16,000 metric tons of steel pipes are still needed for the Louisiana project, “it still needs to happen,” he added.

—With assistance from Alaric Nightingale, Alex Longley, Brooke Sutherland and Joe Deaux.

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