By Lisa Baertlein and David Lawder

LOS ANGELES/WASHINGTON (Reuters) – President Donald Trump’s plan to revitalize the U.S. shipbuilding industry is likely to backfire because it relies on proposed fees on China-linked vessels that will hurt domestic ship operators, seaports, exporters and jobs, industry executives said at U.S. Trade Representative hearings on Monday.

At issue are proposed, stacking fees on China-built vessels that could top $3 million per U.S. port call. The Trump administration says the fees would curb China’s growing commercial and military dominance on the high seas and promote domestically built vessels. U.S. steelworker unions, U.S. steel producers and Democratic lawmakers support the effort, saying it will boost domestic industry.

But the idea has sent a shockwave through the domestic maritime industry because it threatens the survival of the same shipping companies and customers that would drive demand for orders from the U.S. shipyards Trump wants to rebuild.

“National interest will not be served if the effort to boost American shipbuilding unintentionally destroys American-owned carriers,” Edward Gonzalez, CEO of Florida-based Seaboard Marine, the largest U.S.-owned international ocean cargo carrier, testified on Monday.

Like many U.S. operators, Seaboard relies on vessels made in China. It has 16 China-built ships in its fleet of 24 vessels, according to maritime data provider Alphaliner.

U.S. vessel operators said the fees on Chinese-linked vessels also would push more U.S. cargo to foreign-owned ocean shipping companies that have resources to better weather the change.

According to the USTR, China’s share of the shipbuilding market grew from less than 5% in 1999 to more than 50% in 2023.

U.S. shipyards turn out fewer than 10 ships annually while China’s produce 1,000, speakers said.

Meanwhile, industry executives said shipbuilders in Japan and Korea would struggle to meet demand in the years it would take U.S. shipyards to build up capacity.

Replacing existing China-built vessels is not like flipping a light switch, said Kathy Metcalf, CEO of the Chamber of Shipping of America. “Penalizing China and the U.S. marine transportation system is not an acceptable result.”

U.S. vessel operators underpin key American industries like manufacturing, mining, and agriculture by transporting goods to and from inland waterways, across the Great Lakes and up and down the country’s coasts.

Agriculture exporters already are having trouble booking ships beyond May due to uncertainty around the USTR plan, and coal industry representatives have said the fees are making it harder to get their supplies onto the global market.

“I do ask that any efforts that you seek to increase domestic shipbuilding do not come at the expense of market access to farmers,” said Mike Koehne, an American Soybean Association board member who grows soybeans and corn in Indiana.

JOB LOSSES

Nate Herman, senior vice president of policy for the import-dependent American Footwear and Apparel Association, said the port fees would result in a loss of jobs for American workers, higher costs for American exports and imports as well as shortages and rising prices for American consumers.

He cited a new study by several trade groups showing that higher costs from the fees would cause U.S. exports to fall by almost 12% and reduce GDP by 0.25%

   “Hard-working American families cannot afford further price increases and product shortages, and American manufacturers and farmers cannot afford to lose more export markets,” Herman said.

Representative Rosa DeLauro and 62 other congressional Democrats backed the proposed fees and other “swift and decisive” action in a letter sent to U.S. Trade Representative Jamieson Greer on Monday, saying China’s domination of the sector imposed “unacceptable costs and risks” in terms of job losses and critical manufacturing capacity.

They urged USTR not to grant relief that would allow firms to circumvent fees by diverting cargo through Mexico or Canada.

USTR, which will hear more comments at a hearing Wednesday before finalizing the proposal under unfair trade practices law, did not immediately respond to requests for comment.

To completely avoid the fees in the current proposal, vessel operators must be based outside of China, have fleets with fewer than 25% of ships built in China, and have no Chinese shipyard orders or deliveries scheduled within the next two years.

A draft executive order seen by Reuters earlier this month would narrow that further by levying port fees on all fleets with China-built vessels.

Vessel owners could minimize the hit by using bigger ships and limiting calls to large U.S. ports – a feast-or-famine strategy that would starve small ports, swamp the largest and cause supply-chain stresses harkening back to the early days of COVID.

Ship operators also could shift U.S.-bound cargo to ports in Canada and Mexico, and rely on trucks and trains to finish the journey, according to vessel and port operators, clogging border crossings and causing more infrastructure wear and tear.

(This story has been corrected to add the dropped word ‘not’ in paragraph 18)

(Reporting by Lisa Baertlein in Los Angeles and David Lawder in Washington; additional reporting by Andrea Shalal in Washington; Editing by Nick Zieminski and Stephen Coates)

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