Steeling for Deadweight Loss
To shipping investors, “buying steel” typically means buying a vessel. The informal statement “buying steel” will have an even deeper meaning in the U.S. as the steel industry continues to play an outsize role in shipbuilding.
The United Steelworkers (USW) tipped over the first domino in the current effort to revitalize domestic shipyards. In March 2024, USW filed a petition with other labor unions to the Office of the US Trade Representative (USTR), calling for an investigation of Chinese shipbuilding practices. 13 months later, the USTR proposed new:
Fees on Chinese-built and controlled ships;
Fees on all foreign-built car carriers; and
Restrictions on U.S. LNG exports, requiring the construction of U.S.-built vessels.
The USTR’s actions predated President Trump’s May 2024 executive order “Restoring America’s Maritime Dominance” as well as Senator Kelly’s December 2024 introduction of the SHIPS for America Act.
The steel industry is back in focus as of June 4, the effective date of President Trump’s decision to increase tariffs from 25% to 50% on steel imports into the U.S. Numerous articles describe how these steel import tariffs could raise the cost of cars and homes. But not much attention has been given to the fact that, with steel being ships’ primary construction material, these tariffs could also increase the cost of domestic shipbuilding.
Steel’s price increase would not only raise the price of vessels going forward, but could also strain U.S. shipyards financially–they likely did not budget for increased steel costs when committing to build future vessels, plus likely do not already have the steel needed to build those vessels.
This leaves the U.S. in a situation where government policy is requiring more vessels be built in domestically while simultaneously making vessel construction more expensive.
In shipping, the term “deadweight” is a measure of how much weight a ship can safely carry. In economics, the term “deadweight loss” refers to the loss of economic efficiency that occurs when the equilibrium outcome is not achieved because of market distortions–like government intervention.
The question now is: how much “deadweight loss” will U.S. shipyards be saddled with while they try to build “deadweight” shipping capacity for the domestic fleet?
The administration would be wise to consider a waiver for the tariffs for steel imports to domestic shipyards, such that one policy objective (reviving U.S. shipbuilding) is not collateral damage to another (supporting the American steel industry).
