President Trump on April 9 signed an Executive Order intended to increase commercial shipbuilding capacity at U.S. shipyards. Entitled “Restoring America’s Maritime Dominance,” the EO claims to fight back against this statement from section 1 of the Order: “Recent data shows that the United States constructs less than one percent of commercial ships globally, while the People’s Republic of China (PRC) is responsible for producing approximately half.”

Shipbuilding, like all deep sea transportation, has one or in the commerce/transportation sector and the other oar in the national defense function of government. What is now the Maritime Administration was created by the Shipping Act of 1916 in response to the submarine sinking of merchant ships in the Atlantic during WWI. The postwar follow-up policies from the Merchant Marine Act of 1920 are still, in some instances, on the books, including the “Jones Act” (sec. 27), which requires that any ship carrying cargo between U.S. ports be built and flagged in the U.S. and be crewed by U.S. citizens.

Accordingly, much of the new Order is for parts of the government outside the Department of Transportation. But the relevant parts are:

• The plan. Sec. 3 of the Order says that by November 8 or thereabouts, the Secretaries of Commerce, Defense, Homeland Security, Labor, State, and Transportation, and the U.S. Trade Representative have to come up with a Maritime Action Plan (MAP) and submit it to the White House for approval and possible implementation.
• Possible investments. Sec. 4 of the Order says that before the MAP is submitted, Commerce and DHS and Transportation have to come up with a list of key supply chain components that are ripe for private investment to improve the shipbuilding base.
• Make the Harbor Maintenance Tax less harbor-related. Section 6 of the order directs the Secretary of Homeland Security to find a way to charge goods that are imported by sea into Canada and Mexico and then shipped by rail or truck into the U.S. the same ad valorem amount that they would have been charged by the Harbor Maintenance Tax (HMT) had the goods been unloaded directly at a U.S. port.

Comment: If one is in the paradigm that views the HMT just like any other tax – i.e. as a way of raising general revenues, just like the income tax or the whiskey tax or selling mineral leasing rights – then this makes all the sense in the world, especially considering the current state of things with China. But if you are in the paradigm that thinks of the HMT as a sort of user fee because it supports the Harbor Maintenance Trust Fund that finances the continued dredging of deepwater ports necessary to keep them usable, this is a terrible, horrible idea, because those ships docked in Vancouver and Halifax and Veracruz and Manzanillo are not using the U.S. Army Corps of Engineers dredging services while there and should not have to pay for those Corps services.

• A new trust fund. Section 9 or the Order directs the Secretary of Transportation and the OMB Director to “develop a legislative proposal, which shall be described in detail in the MAP, to establish a Maritime Security Trust Fund that can serve as a reliable funding source to deliver consistent support for MAP programs.  This proposal shall consider how new or existing tariff revenue, fines, fees, or tax revenue could further the goal of establishing a more reliable, dedicated funding source for programs support by the MAP.”
• New shipbuilding incentives. Section 10 of the Order says that the Secretary of Transportation must give the White House (in time to go into the MAP in November) a legislative proposal that “that establishes a financial incentives program with broad flexibility to incentivize private investment in the construction of commercial components, parts, and vessels; capital improvements to commercial vessel shipyards; capital improvements to commercial vessel repair facilities and drydocks through grants; and Federal Credit Reform Act-compliant loans and loan guarantees.  Such proposal may augment or replace existing programs with similar purpose including the Small Shipyard Grant Program and the Federal Ship Financing (Title XI) Program.”

Comment: This really gets to the heart of the plan. Remember that the Jones Act has been on the books since 1920, along with lots of other cargo preference laws. But at some point after World War II, the U.S. domestic shipbuilding industry largely died off, and first Japan, then South Korea, and now China took over. One reason for this is that cabotage and cargo preference laws, apparently, aren’t enough on their own to sustain a shipbuilding industry. One also needs cold, hard cash giveaways like the U.S. used to have back in the “good old days.”

Looking back at old federal budgets (thank you, FRASER) for shipbuilding subsidies is confusing, because there was so much money left over at the end of World War II that MARAD predecessor programs just coasted along with no new money needed until the Korean War, during which Congress modified those programs into an annual Ship Construction account and an annual Operating Differential Subsidy account.

By the turn of the millennium, both programs were gone. Direct subsidies for ship construction were canceled under President Reagan, and the direct subsidy for the greater expense of operating a U.S.-built, flagged, and crewed ship was phased out under President Clinton. Both were replaced by a hodgepodge of loan programs and self-sufficient revolving funds, neither of which is the same as cold hard cash that doesn’t have to be repaid.

(Putting those numbers in perspective – in 1960, what is now MARAD had a higher budget than the Coast Guard.)

• “Prosperity zones.” Section 11 of the Order directs the Commerce Secretary, in consultation with DOT and others, to deliver a plan to designate “Maritime Prosperity Zones” which are like the Tim Scott “opportunity zones” from the 2017 tax law which, we suppose, were based on the old Jack Kemp “enterprise zones.”
• Industry needs report. Section 12 of the Order directs Secretary Duffy to deliver a report for inclusion in the MAP (so pre-November) that “inventories Federal programs that could be used to sustain and grow the supply of and demand for the United States maritime industry.” The section lists a lot of candidate programs which are currently active at MARAD.
• Training and education. Section 13 of the Order directs the various Secretaries to issue a joint report “ith recommendations to address workforce challenges in the maritime sector through maritime educational institutions and workforce transitions.”
• USMMA. Section 14 of the Order directs Secretary Duffy to begin hiring people to fix deferred maintenance at the U.S. Merchant Marine Academy in Kings Bay, NY within 30 days, quickly finalize a long-term master facilities plan for the USMMA, and submit a 5-year capital plan by November.
• Plan to increase size of US-flag fleet. Section 17 of the Order directs Transportation and Defense to come up with a legislative proposal by November that would ensure an adequately sized U.S.-flagged merchant fleet in times of crisis, and “provide incentives” to get there. (See the comment above about cash subsidies.)
• Deregulation. Section 20 of the Order directs Defense, Transportation, and Homeland Security to perform regulatory reviews to find existing regulations to remove under EO 14192.