The United States faces a naval shipbuilding dilemma. On the one hand, China now has the world’s largest number of battle force ships, with over 370 platforms compared to 291 for the United States. China’s fleet is expected to grow to 435 ships by the end of this decade while the U.S. fleet will not change in size. China enjoys an asymmetric military advantage in the Western Pacific where most of its ships are concentrated, while the U.S. Navy is overstretched defending all of the world’s oceans.
On the other hand, the United States appears unwilling to embrace a collective approach to naval shipbuilding and sustainment with its allies and partners to compete with China. Decades-old protectionist legislation, “buy American” quotas, and technology transfer restrictions continue to limit meaningful industrial cooperation with allies. Whether and how the United States resolves this dilemma will determine the outcome of U.S.-Chinese naval competition, and with it the future of the United States in the Indo-Pacific.
The Scale of China’s Shipbuilding Challenge
Shipbuilding has been one of the cornerstones of national power ever since the beginning of the Industrial Age, if not before. Europe’s imperial powers measured the balance of power in ships. Industrial inputs such as iron and steel production, port infrastructure, industrial workforce, and technology patents were all closely tied to national power. The United States prevailed in the Second World War and defeated Nazi Germany and Imperial Japan by outbuilding the Axis powers and becoming the world’s “arsenal of democracy.” Throughout the Cold War, the United States ensured freedom of navigation and transit of the seas. Power projection and offshore balancing remain hallmarks of U.S. strategic primacy made possible by a superior fleet.
Today, China is following in the footsteps of history’s great naval powers by harnessing its commercial and defense industrial base. Naval shipbuilding is only possible with a vibrant commercial shipbuilding sector. The U.S. Department of Defense’s plan for a 355-ship navy must, by its own admission, “rely on a maritime industry, both naval and commercial, that has significantly less capacity than the world’s other leading shipbuilding nations – South Korea, Japan, and, ominously, China.” Northeast Asia accounts for 95 percent of the global orderbook for commercial shipbuilding: China’s orderbook in 2022 was 1,794 large oceangoing ships (50.3 percent), South Korea had 734 (29 percent), Japan had 587 (15.1 percent), and Europe had 319 ships. The United States, meanwhile, built just five ships in 2022.
This market domination has national security consequences. For example, three of the 10 commercial tankers that the U.S. military relies on for operations and seven of its 12 dry cargo ships are Chinese-built. It also means that the skilled workforce needed for advanced naval shipbuilding is in short supply due to the absence of a robust commercial shipbuilding sector. Unlike in the United States where only one major shipyard builds naval and commercial vessels, many of China’s shipyards are geographically co-located to ensure workforce synergies. In less than 20 years, China has translated this rapid growth in commercial shipbuilding capacity into the world’s largest navy.
Over the past two decades, Beijing has steadily eroded the U.S. naval position in the Western Pacific. Chinese strategists have effectively pursued an anti-access/area denial strategy to push U.S. forces further away, expanded the People’s Liberation Army Navy’s reach by constructing artificial maritime features in the South China Sea, and coerced neighboring countries with grey-zone tactics. China did this while the United States was distracted by the War on Terror in the Middle East, which diminished the role of the U.S. Navy in American strategy.
American Roadblocks to Allied Shipbuilding
The United States is trying to meet the challenge of Chinese shipbuilding. Congress has enacted a raft of legislation to upgrade shipyards, expand workforce, and authorize block purchases and multi-year procurement of vessels. Defense and commercial maritime firms are showcasing new technologies that may help overcome China’s numerical superiority, such as unmanned vessels, autonomous navigation, artificial intelligence, and robotics. The U.S. Navy has embraced this technology transition. It has launched the Ghost Fleet Overlord, composed of unmanned surface vessels, and by 2045 plans to field over 150 unmanned vessels of different sizes as part of a “distributed fleet architecture.” But these efforts alone are unlikely to bridge the gap with China.
Collaboration with allies is vital to supplement America’s insufficient shipbuilding capacity. Yet when it comes to some of its most industrially advanced allies, the United States remains steadfast in resisting change. Consider, for example, the Merchant Marine Act of 1920, widely known as the Jones Act. Introduced over 100 years ago to ensure domestic sealift capabilities following the First World War, the act makes it almost impossible for the United States to acquire ships built overseas. Only ships built in the United States, with more than 75 percent U.S. ownership, and with more than 75 percent U.S. crew members are allowed to sail on major routes and use ports within the United States. Despite such restrictions, U.S. commercial shipyards have long turned to foreign partners for help building Jones Act-eligible ships in areas such as design work, steel plating, engines, propellers, and even contract workers.
The legislative restrictions governing U.S. naval shipbuilding are even more onerous. The 1933 Buy American Act was a Depression-era measure mandating the federal government purchase domestic products, but it continues to regulate the modern U.S. defense procurement system. President Joe Biden’s “Made in America” Executive Order 14005, signed in his first week in office, increases the “domestic content threshold” from 55 percent to 75 percent by 2029. Recent Senate amendments to the annual defense spending bill would further require 100 percent of U.S. navy vessels to be domestically produced by 2033. The U.S. defense export control regime, including the International Traffic in Arms Regulations, further prevents interaction with cutting-edge defense research in allied countries.
These U.S. regulations are not equally applied, however. The hierarchy among U.S. allies begins with the inner circle of most trusted partners who belong to the U.S. National Technology and Industrial Base, including Canada, the United Kingdom, and Australia. Then there are the 25 allies who have reciprocal defense procurement arrangements with the United States, including most NATO members, Japan, Egypt, and Israel. Then there is South Korea, as well as most Asian and Middle Eastern allies, who are in many respects treated no differently to non-allies.
How America’s Asian Allies Can Help
The United States is unlikely to resolve its naval shipbuilding dilemma vis-à-vis China by itself. Just as China harnessed its commercial and naval shipbuilding industries, so too should the United States fully harness the untapped potential of its allies and partners in the Indo-Pacific. Notably absent from these discussions has been South Korea, which is the world’s second-largest shipbuilder. In recent years, South Korea has emerged as a key naval supplier for U.S. allies and partners around the world. For example, South Korean firms are building frigates and corvettes for the Philippines, submarines for Indonesia, and are frontrunners to supply Canada’s future submarines.
A growing number of U.S. military and defense experts recognize that South Korea can similarly help address America’s own needs. Seoul is already demonstrating its potential in areas where the U.S. industrial base cannot meet its own needs, ranging from 155mm artillery shells to unmanned ground vehicles. Recent visits by the U.S. Navy to South Korea and by South Korean industry leaders to U.S. naval shipyards suggest there is growing reciprocal interest in shipbuilding cooperation.
Three approaches for taking advantage of the industrial capabilities of U.S. allies in the Indo-Pacific are worth considering. First, ambitious new ideas for collective shipbuilding should be explored among allies. For example, U.S. naval experts have proposed that South Korea, Japan, and the United States work on a guided-missile destroyer construction program. U.S. allies could also streamline constructing naval vessels, patrol boats, and maritime surveillance aircraft for Southeast Asian and Pacific Islands countries, as well as munitions such as anti-ship missiles and undersea warfare capabilities to defend their maritime sovereignty.
Second, more sustainment, including maintenance, repairs, and overhaul, could be done in allied shipyards in the Indo-Pacific. The United States is scheduled to conduct maintenance work on a Virginia-class submarine in Western Australia as part of the AUKUS partnership in 2024. Similarly, the United States is already considering warship sustainment in Japanese shipyards, given the enduring presence of the U.S. Seventh Fleet at Yokosuka. These efforts would free up U.S. shipyards to focus on meeting their own ambitious construction targets. South Korea is also exploring the possibility of doing sustainment work for the vessels it has sold to Southeast Asian countries in the Philippines rather than at its own shipyards. This shows that a cross-national approach to allied naval sustainment has potential benefits for all.
Finally, the United States should adopt a future-oriented outlook on shipbuilding cooperation with allies that focuses on new technologies and advanced manufacturing. For instance, South Korea and the United States are operating similar autonomous navigation efforts under the U.S. Ghost Fleet and Korean Navy Sea Ghost programs. The U.S. Department of Defense’s Replicator Initiative as well as AUKUS Pillar Two advanced defense technologies would both benefit from engaging the private sector in South Korea and Japan.
Conclusion
None of these efforts are possible without significant changes in how the United States and its allies approach cooperation. The United States, for its part, should modernize bureaucratic and regulatory constraints in keeping with the spirit of its alliances. That said, it will not be easy to repeal or modify the Jones Act and similar legislation. This means allies should also be prepared to address the concerns of U.S. stakeholders in government, industry, and especially Congress. They will need to demonstrate their credibility and readiness to adhere to a higher standard of defense industrial cooperation. But the AUKUS partnership shows that audacious leadership can overcome even the most established of orthodoxies. Shipbuilding is one area where allies like South Korea can contribute to defending the Indo-Pacific’s maritime security. The United States should welcome the help.
Dr. Choi Kang is president and Dr. Peter K. Lee is a research fellow at the Asan Institute for Policy Studies, an independent think tank based in Seoul. Dr. Choi is a leading expert on the South Korean-U.S. alliance, having served in senior roles in foreign affairs and national security. Dr. Lee works on U.S. alliances in the Indo-Pacific and is also a non-resident fellow at the United States Studies Centre at the University of Sydney.