Multipolarity and Connectivity
Why US Sanctions Against China’s Shipbuilding Sector Are Only a Matter of Time

Having fallen far behind China, it will be extremely difficult for the United States and its allies to keep up with it. In most cases, they are allies only on paper, remaining bitter competitors who pursue diametrically opposed commercial interests.

Among political leaders, business executives, and experts, there is a perception that the United States’ policy of containing China primarily seeks to isolate the high-technology sectors of the Chinese economy. An example of this is Huawei, a market leader in information and communication technologies, cloud computing, and smart consumer devices. Another example is ByteDance, a Beijing-based company that owns several popular video-sharing platforms, including TikTok and Xigua, as well as news aggregators such as Toutiao and BaBe and the social networking platform Helo. ByteDance’s revenue in 2023 was over $110 billion.

In March-April 2024, Washington convincingly demonstrated that it would introduce restrictive measures, including against both the basic sectors of the Chinese economy and any others in which China is ahead of its American competitors. On April 17, the Office of the United States Trade Representative (USTR) announced that it was launching a “full and thorough” investigation into the Chinese government’s “unfair, non-market policies and practices” in shipbuilding and related sectors of the Chinese economy, including maritime shipping and logistics. Commenting on the decision, US Trade Representative Katherine Tai emphasized that the US and other countries are already well aware of “the PRC’s longstanding efforts to dominate the maritime, logistics, and shipbuilding sectors,” cataloguing the PRC’s use of unfair, non-market policies and practices to achieve those goals. “The allegations reflect what we have already seen across other sectors, where the PRC utilizes a wide range of non-market policies and practices to undermine fair competition and dominate the market, both in China and globally,” she said.

The investigation procedure is set out in Section 301 of the US Trade Act of 1974. The law gives Washington the right to impose sanctions against any state that it finds guilty of violating its trade agreements. Specifically, it gives the US Trade Representative the authority to “investigate and take action to protect the rights of the United States under trade agreements to which it is a party and to respond to certain foreign trade practices.” The nature of the investigation and the results it will lead to are indicated by preliminary statements US President Joe Biden made at a meeting with social partners at the headquarters of the Steelworkers Union in Pittsburgh on the same day, April 17. His verdict is that the Chinese do not compete, “they cheat,” thereby causing “damage here in America,” while the health of the shipbuilding industry directly affects US national security.

Economic Statecraft
US-China: Creeping Escalation
Ivan Timofeev
The United States and China assume the irreversibility of confrontation, but for their own reasons, they delay its escalation. This does not mean that sooner or later there will not be a landslide fall in relations. Predicting exactly the timing and scale of such a fall is as difficult as was predicting a crisis in relations between Russia and the West, writes Valdai Club Programme Director Ivan Timofeev.

The formal basis for Joe Biden’s statements, which organically fit into the logic of the US election struggle, and the start of the investigation was a petition filed by the five largest American trade unions. It lambasts the “unreasonable and discriminatory acts, policies, and practices of the People’s Republic of China to dominate the maritime, logistics, and shipbuilding sector that burden or restrict U. S. Commerce.” The last accusation is especially weighty. With its help, anti-Chinese sanctions of any configuration can be removed from the prohibitions imposed by the binding rules of the GATT/WTO. In practical terms, the unions propose a simple, but brilliantly effective measure: to charge all ships of any countries and companies calling at American ports an additional fee if they are Chinese-made ships.

It is believed in US government circles and the political establishment that they have more than enough grounds to launch draconian anti-dumping and any other procedures against the Chinese merchant fleet and Chinese shipbuilding. However, that will not be the first step taken in this direction. The Trump administration initially set out to put pressure on the Chinese shipbuilding industry when, in 2020, US authorities imposed restrictive measures against more than 20 Chinese companies suspected of assisting the PLA in the construction and militarisation of artificial islands in the international waters of the South China Sea. Then the Entity List (a list of organisations and individuals acting contrary to the national security and foreign policy interests of the United States) included such large corporations as China Communications Construction Company, specialising in the construction of transport infrastructure; companies developing navigation and communication technologies; as well as individual research institutes focused on the shipbuilding industry.

It is noteworthy that in the mid-1970s, the US shipbuilding industry employed 180,000 workers. The industry occupied a leading position in the world. American shipyards had orders for the construction of about 70 commercial ships. No one thought of the PRC then. Half a century later, 70% of the American commercial shipyards have been closed down, according to a petition from American trade unions. The shipbuilding industry has slipped to 19th place in the world. In 2022, only five ships were built in the United States. In China in 2022, 1,800 commercial ships were built, i.e. 360 times more. In terms of the scale of launching new ships, China has surpassed the Republic of Korea and Japan combined. China, South Korea and Japan now account for over 90% of the world’s tonnage, according to estimates by the Congressional Research Service. The US accounts for only 0.2%. In 2023, China continued to rapidly increase commercial vessel production. The shipbuilding industry in China grew by another 12%. Over the next three years, China will launch 70 to 80% of all tankers and bulk carriers built in the world.

Such phenomenal success was achieved thanks to the preferential taxation and financing of the industry, its large-scale subsidies, government orders, inclusion in plans for the implementation of the Belt and Road Initiative and colossal budgetary investments. From 2006 to 2013, when Chinese shipbuilding began to take off, the state allocated $91 billion for the development of the industry. According to the Centre for Strategic and International Studies, in the period from 2010 to 2018, it has already invested $132 billion in it. According to Western sources, the state pays from 13 to 20% of the cost of commercial ships launched by Chinese firms.

In the way China has crushed not only American, but also global shipbuilding, Western economists see a manifestation of Beijing’s mainstream economic strategy. In contrast to American and European businesses, China’s priority is not making a profit, the absence of which is a barrier for Western companies, but a dizzying increase in production and capturing markets. In the short term, they make even low-profit production profitable. Over the long term, they will ruin competitors, ensuring market dominance with all the benefits and advantages that come with it. This is how Beijing has acted, crushing the global market for solar panels, electric batteries, electric vehicles, etc., including consumer goods, electronics, and durable goods. Next in line are aircraft manufacturing and railway equipment.

In response, Beijing constantly emphasises that the accusations brought against it are lies and insinuations. Chinese companies beat the competition because they are more competitive. The Chinese economy, numerous industrial and infrastructure projects in other countries, and the Belt and Road initiative contribute to, rather than hinder their development. The current decision of the Americans to closely “take on” the Chinese shipbuilding industry represents “a mistake on top of mistakes”.

Western experts explain Beijing’s strong reaction to the new threats from overseas by noting the fact that China managed to get ahead of the curve. It protected itself from American sanctions.

It does not need American money or American components and technology. It produces everything that the industry requires on its own.

China accounts for 55% of the world’s steel production and 96% of the world’s shipping container production. The Chinese company ZPMC has concentrated 70% of the world’s production of port cranes. Chinese financial giants China Exim and Bank of China are the largest and most influential global players in the field of financial support for maritime shipping and maritime cargo transportation. The contribution of foreign firms to the construction of Chinese commercial ships today does not exceed 5%. The sector is dominated by state-owned companies. They account for 2/3 of the available capacity. Due to this, the CPC has complete control over how the industry lives and how it develops. This is all the more important because the line between civilian and military courts is fluid and, if necessary, it can be moved in the desired direction. Having fallen so far behind China, it will be extremely difficult for the United States and its allies to keep up with it. In most cases, they are allies only on paper, remaining bitter competitors who pursue diametrically opposed commercial interests.

Economic Statecraft
On the Road with Trekking: How to Sanction Diamonds of Russian Origin
Ekaterina Entina, Alexander Nadzharov
Having worked out the technology and mechanisms for coordinating and promoting sanctions initiatives in the information space over the course of 2022, the G7 plans to introduce a requirement for importers to confirm the non-Russian origin of diamonds appearing on the G7 markets. For a long time, even before the diamond industry was officially subject to sanctions, there was a discussion in European and American circles about how to limit the Russian diamond market without harming their own diamond processing industry.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.