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Friday, March 21, 2025 |
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Proposed U.S. maritime trade sanctions would impact Hawaii
By Michael Hansen @ 10:19 PM :: 624 Views :: Jones Act, Taxes, Cost of Living
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Proposed U.S. maritime trade sanctions would impact Hawaii
by Michael Hansen, Hawaii Shippers Council
The U.S. is considering trade sanctions against Chinese shipping that would negatively impact Hawaii’s more than 200 annual foreign-flag ship calls for cargo transactions,[1] [2] compromise our supply chain and increase inflation.
China dominates the world’s construction of large oceangoing merchant ships. In 2024 China garnered 74.1% of newbuilding contracts and delivered 55.7% of all new ships globally. In comparison, U.S. shipyards deliver about one commercial ship annually.[3] [4] China also dominates the manufacture of intermodal ocean shipping containers with a 95% market share and container road chassis with an 86% share globally. [5] Chinese firms control marine terminal assets in ninety-six ports in fifty-three countries outside of China,[6] and operate about 20% of the world’s commercial shipping fleet.[7]
The underlying national security issue is the global reach of China’s maritime industry that could obstruct U.S. logistics in a crisis.[8]
The U.S. International Trade Representative (USTR) found China is unlawfully attempting to dominate the international maritime industry and proposes countervailing fees and mandates.
The USTR investigation began under the Biden Administration on April 17, 2024, in response to a petition of March 12th from five maritime unions.[9] Their report, “China’s targeting the maritime, logistics, and shipbuilding sectors for dominance is actionable under Section 301 of the Trade Act of 1974,” was issued January 16, 2025.[10] President Trump, inaugurated on January 20th, continued the USTR action, issuing, on February 21st, a notice of public hearing on the matter scheduled in Washington, D.C., March 24th.[11]
The USTR’s proposed sanctions parallel a half-dozen dead pieces of legislation[12] introduced over the past decade including the most recent SHIPS for America Act of 2024[13] and focus on shipbuilding as follows:[14]
- Customs “service fees” assessed on each foreign vessel arrival:
>> Chinese-flag or -operated vessel up to $1.0 million
>> Chinese-built vessel not Chinese-flag, -owned or -operated up to $1.5 million
- Mandates as “cargo reservation” [15] on exports:
>> An escalating requirement that export cargoes be carried on U.S.-built U.S.-flag ships beginning with 1% of the cargo volume in the first and 15% by the seventh year.
There are two sanction approaches.
Trump’s Commerce Secretary, Howard Lutnick, disclosed the other approach during an interview with Fox News’ Jesse Waters on February 19, 2025. [16] Lutnick complained about “tax scams” including the evasion of U.S. taxation by foreign-flag ships engaged in the U.S. foreign trade. Lutnick’s remedy is a “freight tax,” which is currently imposed on foreign shipping calling on several countries primarily in Africa, Asia and Latin America. [17]
Lutnick justifies a freight tax on foreign shipping, which carries more than 98% of the U.S. foreign trade,[18] to remedy their US corporate income-tax-exempt status. Where U.S. foreign trade is carried by U.S. ships, those businesses and their employees pay U.S. taxes. As with the USTR proposal, Lutnik’s proposal is also intended to privilege U.S.-flag ocean carriers so they might increase their share of the U.S. foreign trade.
To address recent misconceptions [19] and elucidate the issues:
>> Matson Navigation and Pasha Hawaii dominate the domestic Hawaii ocean common carrier trade in container and vehicle cargoes, but actually a far greater volume of bulk cargo is imported by foreign-flag ships as contract carriers. [20]
>> The Hawaii Organic Act of 1900[21] first applied to the coastwise laws[22] to the Islands. It’s the body of domestic shipping laws that includes, and in 1900 contained virtually all the cabotage requirements of, the 1920 Jones Act.
>> During World War I (1917-1918) President Wilson waived the coastwise laws permitting foreign-flag ships in the Hawaii trade.[23] It was granted because so many of the Hawaii trade steamships were requisitioned for the war effort.
>> The absence of any Liquefied Natural Gas (LNG) carriers in the coastwise-eligible fleet is likely immaterial to Hawaii. Barring any tariff on Canadian energy exports, the most abundant and strategic source of natural gas for Hawaii is Western Canada,[24] [25]where six marine LNG export terminals are being developed.[26] They can supply Hawaii using smaller foreign LNG carriers (LNGC)s suitable for State harbors awaiiHaon shorter more economical voyages.
>> Puerto Rico, a U.S. island territory encompassed by the coastwise laws, is currently being supplied with U.S. LNG under regulatory exemptions by two different means: (1) indirect via a pipeline-supplied liquefaction plant in Mexico using foreign-flag LNGCs;[27] and, (2) direct by Crowley Maritime’s Foreign-built U.S.-flag LNGC.[28]
>> Hawaii Gas imports Liquefied Petroleum Gas (LPG) to market as propane on foreign-flag gas carriers from Western Canada,[29] as opposed to more distant sources.
>> Virtually all new Asian-manufactured motor vehicles arrive directly in Hawaii by foreign Pure Car and Truck Carriers (PCTC)s calling approximately 30-times yearly,[30] as opposed to via the U.S. West Coast.
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RELATED: Column: Maritime trade sanctions apt to torpedo Hawaii’s economy | Honolulu Star-Advertiser March 20, 2025
Michael N. Hansen is President of the Hawaii Shippers’ Council representing merchant cargo owners and an independent consultant on maritime business.
FOOTNOTES:
[1] Michael Hansen, “Jones Act Does Not Bar International Trade From Hawaii,” Hawaii Free Press, October 3, 2013, “There are approximately 232 arrivals of international ships to Hawaiian ports annually for the purpose of transacting cargo and these ships are collectively on berth in Hawaii ports for approximately 638 ship days each year.”
[3] Colin Grabow and Scott Lincicome, “Protectionism Kills U.S. Merchant Shipping,” Cato Institute, February 26, 2024, “While U.S. allies churn out scores of ships each year, you can count U.S. shipyards’ annual deliveries on one hand. Last year they collectively delivered one large oceangoing merchant ship, and the next won’t arrive until 2026.”
[4] John Frittelli, “U.S. Commercial Shipbuilding in a Global Context” (IF12534), Congressional Research Service (CRS), November 15, 2023. “No overseas purchase of large U.S.-built ships has occurred in decades because U.S.-built ships can be four or more times the world price.”
[6] Andew S. Erickson, “Pier Competitor: China’s Power Position in Global Ports,” Must-Read in International Security!, 13 May 2022, , “China is a leader in the global transportation industry, with an especially significant position in ocean ports. A mapping of every ocean port outside of China reveals that Chinese firms own or operate terminal assets in ninety-six ports in fifty-three countries.”
[8] John Frittelli, “U.S. Commercial Shipbuilding in a Global Context” (IF12534), John Frittelli, Congressional Research Service (CRS), November 15, 2023. “Congress has long-standing concern with the state of the U.S. commercial (i.e., non-Navy) shipbuilding industry. Now that China has become the world’s leading shipbuilder, that concern has intensified.”
[9] “Report on China’s Targeting the Maritime, Logistics and Shipbuilding Sectors for Dominance” (Section 301 Investigation), Office of the U.S. Trade Representative, January 16, 2025, Page vi, “On April 17, 2024, the U.S. Trade Representative initiated an investigation of China’s acts, policies, and practices targeting the maritime, logistics, and shipbuilding sectors for dominance under Section 301 of the Trade Act of 1974, as amended (the “Trade Act”).” Page xii, “On March 12, 2024, five labor unions1 filed a Section 301 petition regarding the acts, policies, and practices of China to dominate the maritime, logistics, and shipbuilding sector.”
[12] What happens to a bill that has not become law at the end of a Congress? The Law Library of Congress, Jan 23, 2025, “If a bill from any Congress does not become law during the Congress in which it is introduced, it is considered “dead.” For a “dead” bill to be enacted in a new Congress, it would have to be reintroduced with a new number and begin anew its journey through the legislative process.”
[17] “International Shipping – Pillar One Recommendations,” International Chamber of Shipping. December 7, 2021, “A number of countries, primarily in some parts of Asia, Latin America, and Africa, subject shipping companies, in lieu of the regular corporate income tax, to gross income-based income taxes that are typically called freight taxes.”
[21] Chapter 339 – An Act to provide government for the Territory of Hawaii (The Hawaii Organic Act of 1900), April 30 1900, U.S. Statutes at Large, Volume 31 (1900-1901), 56th Congress, Library of Congress, Pages 141-162, Page 141, “Section 5, Application of the Laws of the United States. That the Constitution, and, except as herein provided, all the laws of the United States which are not locally inapplicable, shall have the same force and effect within the said Territory as elsewhere in the United States.” (the incorporation clause), and Page 161, “Section 98, American register for certain vessels. That all vessels carrying Hawaiian register . . . shall be entitled to be registered as American vessels, with the benefits and privileges appertaining thereto . . . shall be regulated in accordance with the provisions of law applicable to such trade between any two great coasting districts.”
[22] What Are U.S. Coastwise Laws?, Winston & Strawn LLP, Retrieved March 4, 2025, “Also known as maritime cabotage laws, U.S. coastwise laws reserve U.S. domestic maritime trade to qualified U.S. registered (referred to as “U.S.-flag” vessels). These laws are also commonly referred to as the Jones Act.”
[23] John Frittelli, “Shipping Under the Jones Act: Legislative and Regulatory Background” (R45725), Congressional Research Service (CRS), November 21, 2019, Page 2, “The Jones Act of 1920 was not the first law requiring that vessels transporting cargo domestically be U.S.-built, owned, and crewed. Rather, it was a restatement of a long-standing restriction that was temporarily suspended during World War I by P.L. 65-73, enacted October 6, 1917.”
[24] Arash Ostovar and, Nashaat N. Nass, “Natural Gas in Canada,” The Canadian Encyclopedia, June 3, 2019, “Natural gas production is concentrated in the Western Canadian Sedimentary Basin (WCSB), with the highest production in Alberta and British Columbia. In 2016, these provinces accounted for 67.1 per cent and 30 per cent of total Canadian production, respectively.”
[25] Natural Gas and California, California Public Utilities Commission (CPUC). “Most of the natural gas used in California comes from out-of-state natural gas basins. In 2017, for example, California utility customers received 38% of their natural gas supply from basins located in the U.S. Southwest, 27% from Canada, 27% from the U.S. Rocky Mountain area, and 8% from production located in California.”
[26] Canadian liquefied natural gas projects, Natural Resources Canada / Government of Canada, January 7, 2025, “There are seven liquefied natural gas (LNG) export projects and one infrastructure project in various stages of development in Canada. Cumulatively, these projects represent a possible capital investment of almost $109 billion and a potential production capacity of 50.3 million tonnes per annum (MTPA) of LNG. All of the export projects are in British Columbia.”
[27] “CBP Lets Foreign-Flag Ships Move U.S. Natural Gas to Puerto Rico,” The Maritime Executive, January 30, 2024, “U.S. Customs and Border Protection will allow foreign-flag LNG carriers to move U.S. gas to U.S. markets, without violating the Jones Act, according to New York-based New Fortress Energy. The company has secured a CBP ruling for the operations of its Mexico-based LNG plant, which will process, liquefy and ship U.S.-origin natural gas to Puerto Rico.”
[28] Lucy Hine, “New Crowley vessel set to make history as first LNG ship to be reflagged to US under Jones Act loophole,” TradeWinds / DN Media Group. January 29, 2025, “Kpler data shows the 130,405-cbm Intan (ex-Puteri Intan, built 1994) is scheduled to arrive at Sabine Pass on 27 January. Those familiar with the vessel have indicated that the membrane-type ship will be used to lift US-produced cargoes to Puerto Rico. A US Coast Guard inspection is expected as part of the reflagging process and talk has circulated that the ship will be renamed the American Energy.”
[29] Rajesh Joshi, “Analysis: Canada Upstages U.S. by Shipping Propane to Hawaii,” Oil Price Information Service, LLC (OPIS) / A Dow Jones Company, April 27, 2021, “The inaugural propane cargo from Pembina Pipeline Corp.'s new 25,000-b/d Prince Rupert LPG export terminal on Watson Island in British Columbia, lifted by Handysize LPG carrier Pertusola on April 14, is being delivered this week at multiple ports on the Hawaiian Islands.”
[30] Michael Hansen, “Jones Act Does Not Bar International Trade From Hawaii,” Hawaii Free Press, October 3, 2013, “Foreign flag Pure Car and Truck Carriers (PCTC) call at Honolulu’s Pier 32 approximately thirty times per year with part cargoes of new vehicles manufactured in Japan and South Korea; these ships typically proceed to U.S. West Coast ports to discharge their remaining cargo.”
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