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Should the U.S. Navy Outsource Shipbuilding to Japan and South Korea? China dominates the total shipbuilding globally while US has less than 1 percent
By Patrick DrennanJuly 17, 2023
President’s Trump and Biden have both attempted to reject neoliberalism and slow the outsourcing of manufacturing to China. However, this poses unique problems, particularly in the defense industry and particularly for the U.S. Navy. Currently the U.S. Navy has a fleet of 300 warships in service, and the Chinese around 350 and rising fast. U.S. shipbuilders struggle to keep up. China commands some 45 percent to 50 percent of total shipbuilding globally, while the United States has less than one percent.
The highly experienced South Korean and Japanese shipbuilders are building warships at half the price of those built in U.S. shipyards. Companies like Daewoo and Hyundai Heavy Industries of South Korea, and Mitsubishi Heavy Industries and Imabari Shipbuilding of Japan, agree a price and delivery time, and will take the losses if they cannot complete the agreement. They extensively utilize modular construction, robotics, AI, and automated processing.
Compare this to the U.S. Naval shipbuilding industry. A 2001 Commerce Department study provided a gloomy assessment, that has hardly changed: “U.S. shipbuilding productivity had not improved since the mid-1980s and that U.S. shipyards lagged their foreign counterparts in ship construction and design, shipyard layout, and product engineering.”
The cost overruns by U.S. Navy shipbuilders like General Dynamics (NASSCO) are well documented. The Navy has commissioned new Constellation-class frigates to be built by Fincantieri Marine Group (US), but the projected cost has already skyrocketed. The Congressional Budget Office said in late 2020 that the first 10 frigates will cost at least $12.3 billion, roughly 40 percent more than an earlier Navy estimate. To save money the Navy decommissioned all Independence-class littoral combat ships after only 10 years of service. Built by Austal USA they cost the $360 million per ship. They were simply too expensive to maintain and suffered propulsion problems, hull cracks and corrosion.
So, . .
The greatest loss to America would be the forfeiture of specialist shipbuilding skills that would take decades to replace. Warships are the remarkably high tech, needing the same sort of skills as aircraft and spacecraft. Just about every cubic metre of a warship is full of complex equipment which needs heating, cooling, powering, and connection to data systems. These systems must be damage resistant, isolated in watertight compartments, yet interacting with other equipment from next door, to performing a ground strike five hundred miles away. This requires highly trained and specialised staff.
Secondly, the U. S. Navy spends about $2.3 billion in research and development on next generation platforms. Building warships in Japan and South Korea would likely require the transfer of sensitive technology and intellectual property. Although this has occurred in part already, such as the AGEIS Combat System on certain Japanese warships, it is something American politicians would balk at. Technological spying and theft have become a hot topic in the U.S. as political and economic tensions with China escalate. Furthermore, South Korea has a history of reverse-engineering U. S. military equipment to manufacture weaponry very similar to the American equivalents.
Finally, procurement of a warship is only about 15–20% of the total expenditure. It does not include ongoing maintenance, specialised weapons, fuel, and staff costs. The latter is not just the ship crews, but the maintenance teams, support staff, and engineers, all of whom must have Top Secret security clearances. These expenses fall on the U.S Navy.
In a report to Congress (updated15 May 2023) the Navy insists “A fleet’s total number of ships (or its aggregate tonnage) is only a partial metric of its capability. Many factors contribute to naval capability, including types of ships, types and numbers of aircraft, the sophistication of sensors, weapons, C4ISR systems, and networking capabilities, supporting maintenance and logistics capabilities, doctrine and tactics, the quality, education, and training of personnel”. Also, in the same report, it is noted that the Chinese include auxiliary ships in their total. These include tankers, supply, and ammunition ships.
Accordingly, there is a case for auxiliary ships of the U.S. Navy to be built, or at least sustained, by South Korea and Japan. The U. S. Navy has only 15 tankers (oil supply ships) in their whole auxiliary fleet. They were built by General Dynamics and Northrop Grumman affiliates, and most are over 15 years old.
The biggest stumbling block to overseas construction is the hundred-year-old Jones Act (1920). The Act requires that all U.S. Navy and Merchant Marine ships be assembled and serviced in America by American staff and manned by American crews. It is protectionist and very popular, particularly by pork-barrel politicians in military states that have defense contractors. However, it has its critics, and the Navy support service already outsources much of its fleet.
The Ready Reserve Force (RRF) which is used to transport Army and Marine Corps unit equipment, combat support equipment, during critical surge periods, before commercial ships can be secured, cannot rely on U.S. flagged ships. A report by the Cato Institute noted “Dependence on foreign built ships to meet U.S. sealift needs is long standing. Of the 46 vessels in RRF is a subset of vessels within the National Defense Reserve Fleet ready to support the rapid worldwide deployment of U.S. military forces, only 16 were constructed in U.S. shipyards. The 60 privately owned ships that participate in the Maritime Security Program are entirely foreign built.”
Another action that is the restricted under the Jones Act is the yearly overhaul of U.S. Navy ships in foreign ports. However, the U.S. Navy is currently studying the use of Japan's private shipyards to maintain, repair and overhaul its warships in a bid to reduce servicing backlogs back home - an idea that could expand to South Korea, Singapore and the Philippines. Currently a U. S. warship is required to return to America and is out of service from 12-14 months. This would require legislative change.
There are patriotic reasons to maintain naval shipbuilding in the United States. However, to accuse U.S. military suppliers of price gouging and U.S. politicians of being nationalistic and parochial is too simplistic. U. S. Naval shipbuilders could not survive on the razor thin margins of their South Korean and Japanese competitors. In fact, the Asian shipbuilders often find themselves in financial difficulty. Japan’s Imabari Shipbuilding had considerable profit losses in 2020 and 2021. Daewoo Shipbuilding lost $24 million last year when some of their unionised workforce went on strike for a month. The South Korean companies seem to operate under moral hazard- meaning they operate knowing that the state banks will always bail them out of financial difficulty and have done so several times in the recent past.
Nevertheless, the United States can learn a lot from the South Korean and Japanese manufacturing and production programs. The most obvious lesson is to utilize modern technologies like AI and robotic production techniques. Quality control and project management are key issues. Also, we could establish a more centralized and fluent military complex, which is not bound by the electoral districts that play host to arms suppliers. Finally, some overdue legislative changes may be necessary. China does all of this and is not inhibited by legal restrictions.
Increased incursions and threats from China, and their vassal state North Korea, have awakened our Asian allies, resulting in increased military spending and cooperation. In recent trips to South Korea and Japan, Defence Secretary Lloyd Austin touted closer military ties. Surely it is time to soften the calls for protectionism in favor of pragmatism?
