The SHIPS Act: Domestic Shipbuilding With a Foreign Ally
On December 19, 2024, a bipartisan coalition introduced the Shipbuilding and Harbor Infrastructure for Prosperity and Security for America Act (SHIPS Act) to Congress. The Act aims to strengthen domestic shipbuilding capabilities and foster a competitive shipping fleet. South Korea is uniquely positioned to assist us in this endeavor
The 344-page Act includes recommendations to rejuvenate America’s neglected shipbuilding infrastructure amidst China’s rapid rise as a commercial and military maritime powerhouse. Among the proposals are calls for assistance from U.S. allies with robust shipbuilding capacities, including South Korea (ROK). For its part, Seoul likely sees an opportunity to enter the U.S. market and strengthen the alliance amidst shifts in domestic politics and alliance dynamics.
In particular, the SHIPS Act stands to accelerate collaborative efforts already underway in two areas: construction of new ships and Maintenance, Repair, and Overhaul (MRO). One of the most significant opportunities for ROK shipbuilders lies in the Act’s goal to establish a Strategic Commercial Fleet, a fleet of 250 American merchant vessels that can competitively operate in international commerce.
The program notably permits the inclusion of “interim foreign-built vessels” in the fleet through 2029 until U.S.-built vessels are ready to replace them. This allows South Korea to apply for a competitive bid to build U.S. interim vessels in South Korea’s shipyards, opening significant opportunities for increased compensated gross tonnage (CGT). When considering the average period of three years for delivery time of vessels, including container ships and tankers, South Korea is well-positioned to meet much of Washington’s needs.
Looking Closely At the Act
As South Korean shipyards fill short-term U.S. demand, Title V, Subtitle A of the Act establishes financial incentives for foreign investments in U.S. shipyards, including a twenty-five percent investment tax credit for qualifying facilities. Such incentives will help lay the groundwork for long-term American competitiveness.
Flagship projects are already underway; the newly configured Hanwha Philly Shipyard has recently resumed operations on the five National Security Multi-Mission Vessels for the Maritime Administration. The provision enables ROK shipbuilders to prepare the freshly renovated American shipyards to meet future demand after 2029.
The SHIPS Act should also be viewed in the context of the Regional Sustainment Framework (RSF), a Department of Defense strategy aiming to strengthen a resilient global defense ecosystem by leveraging allied capabilities. The Act contributed to the RSF’s vision through provisions for MRO projects, such as Hanwha’s MRO of two U.S. naval vessels in its Geoje shipyard.
With a $1.7 billion backlog in surface-ship maintenance alone, it is likely that provisions for continuing such collaboration are critical to revitalizing the fleet, as well as the aim to expand domestic MRO capacities.
Therefore, the SHIPS Act is the latest development in a carefully planned strategy of reshoring manufacturing of the most critical technologies to the United States, with the Chips and Science Act (CHIPS Act) being a notable comparison. In the process of reshoring, the two Acts can strengthen America’s economy and national competitiveness while also expanding the economic dimension of its alliances.
Foreseeable Hindrances
However, a closer examination reveals several ambiguities in the Act’s provisions that can be addressed to effectively entice foreign investments and boost domestic maritime capacity. Without such additions, the Act in its current form may be perceived as a protectionist push, similar to the Merchant Marine Act of 1920 (Jones Act).
If left unaddressed, these provisions risk hindering, rather than fostering, maritime industrial cooperation, dissuading ROK shipbuilders from proactively investing in the U.S. shipbuilding industry.
Although seen as an opportunity for South Korea to gain financial incentives for its investment in the U.S., the Act is ambiguous in how quantifiable an adequate amount of U.S. investment is. It mentions that the vessel’s owner must provide a written certification to the Maritime Administrator confirming a “good faith” effort was made to invest in the U.S. shipyards to gain financial incentives.
However, it remains unclear whether a simple shipyard acquisition, like the Philly Shipyard case, is sufficient to be considered “good faith,” particularly regarding the proportion of U.S.-made and based ship parts used and the adequacy of U.S. citizen employment.
In addition, Section Three of the bill indicates that Congress intends to increase domestic ship repair capacity with programs and policies enabling the growth of United States shipyards and the maritime industrial base. The U.S. understandably aims for this goal because a strong industrial base capable of MRO operations is crucial in maintaining mission readiness and preventing system failures.
Yet, considering the sheer degree of neglect that domestic shipyards have faced, it may not be feasible to promote such strategies immediately. Without further clarification of the criteria foreign shipbuilders must meet in funding, the provision may dissuade ROK shipbuilders in fear that their market share will be reduced.
Therefore, if certain parts of the acts remain ambiguous, not only will the previously mentioned potential cooperation directions be rendered invalid, but it is also questionable whether the South Korean shipbuilders will move beyond their pilot stage to further cooperation until the bill becomes more concrete.
For example, the Act imposes a fifty percent duty on repairs made in allied foreign shipyards for any U.S.-flagged vessels, the Maritime Administrator can waive the duty for ships that make a reasonable and “good-faith” effort to conduct repairs in the United States. Further negotiations around these details can effectively reassure ROK partners to go all in on shipbuilding cooperation.
Where To Go From Here
The U.S.-ROK alliance has expanded its cooperation from traditional to nontraditional security. The recent introduction of the SHIPS Act to Congress enables the alliance to further deepen its trust and collaboration in shipbuilding, as evidenced by President Trump’s call to former President Yoon for shipbuilding cooperation.
However, the bill’s ambiguity raises the uncertainty about whether the ROK shipbuilders can fully benefit in the long term, making further clarifications involving key stakeholders crucial to attracting Korean partners. Since South Korea faces the largest order backlog of ships in years, the 119th Congress must reintroduce the bill with amendments containing definite standards as soon as possible so that South Korea can participate in the grand plan of revitalizing the U.S. shipbuilding industry.
SeungHwan Kim is a researcher at the Korea Foundation USA and a research fellow at the Vanguard Think Tank, focusing on security, statecraft, and the Indo-Pacific. His previous experiences include roles at the East-West Center, the Maureen and Mike Mansfield Foundation, the Korea Studies Institute, and the ROK National Assembly. His works were published in numerous publications, including the Diplomat, the National Interest, East Asia Forum, Asia Times, and the Pacific Forum. This article represents the author’s personal views and does not represent the Korea Foundation.
Jaehyoung Ju is a second-year Master’s student focusing on economic security strategy and policy in East Asia. He is currently a research assistant for the Special Competitive Studies Project, where he works on the Defense Panel. Previous institutions he worked at include the Korea Economic Institute of America, the US-ASEAN Business Council, the Asia Society Policy Institute, and the Korea Society.
Image Credit: Wiki Commons.