Follow Up the Chips Act with the ‘Ships Act’

E arlier this month Congress passed, and the president signed, the Chips Act, which allocated funds to incentivize the global computer-chip manufacturing base to locate more of its production facilities in the United States. The reasons for this act were obvious. The nation had become far too dependent on computer chips being made overseas, including in China, and for national-security reasons we needed to “onshore” more of this capacity, regardless of the costs of doing so. Chips made in America will most likely cost more than chips made overseas, owing to the nature of our regulatory state and to higher labor and construction costs, but they will be available if a war were to break out, so this made strategic sense. The Chips Act passed with strong bipartisan support. For these same reasons, Congress should pass, and the president should sign, a “Ships Act.”

The United States once was the strongest shipbuilding nation in the world. We were both a major sea power, sitting as we do in the midst of commercial trade routes for both the Atlantic and the Pacific Oceans, and a major industrial manufacturing power and net exporter of finished goods. As we once made steel, we also built ships. That began to change during the 1970s and accelerated in the 1980s. Younger economies with more-modern industrial plants overtook the United States in manufacturing as we transitioned to a computer and service-based economy.

The government, beginning in 1981 under the leadership of Ronald Reagan, applied conservative laissez-faire economic principles and began to cut government subsidies to major industries, including shipbuilding, that had helped them to remain competitive in the global market. The belief in David Ricardo’s economic philosophy of “comparative advantage” was given free rein, and key American industries withered at home as they grew in other, lower-cost nations. Other domestic industries expanded and thrived, driving a new wave of economic growth in the 1990s. With the end of the Cold War, and the thriving nature of the globalized world economy, it seemed that what had once been an act of intellectual purity, the pursuit of a policy whereby nations best suited to build certain products should come to dominate those sectors of the marketplace, was becoming an achieved reality. But that vision, much like Fukuyama’s “end of history” statement, was but a dream.

Today the United States finds itself amid yet another era of great-power competition, with not one but two rising, centrally controlled authoritarian states. It is a competition that, owing to the geography involved and the nature of the global economic system, will take place largely in the global air and maritime domains. No one, as the oft stated phrase goes, is looking to get involved in a land war in Asia. Recognizing this, the United States must come to grips with the fact that it is going into this competition from a position of weakness due to the atrophying of its defense industrial base over the past four decades, especially the shipbuilding and ship-repair industrial base. During World War II, the United States had over 50 shipyards, public and private, that could either build or repair ships in excess of 500 feet in length. Today it has fewer than 20. This is largely because when the United States chose to withdraw subsidy support from its shipyards, nations in Europe and Asia did not. Recognizing the vacuum that the U.S. created, Asian and European nations chose to increase national subsidies to gain market share. Today the world’s top three shipbuilding nations in terms of gross tonnage are China, South Korea, and Japan. China has 19 modern shipbuilding yards pumping out commercial and naval ships at an incredible rate. One of China’s shipyards is so large that its capacity surpasses that of all U.S. shipbuilders combined.

If the United States is to compete and win the current great-power competition, it must, for the same reasons argued by proponents of the Chips Act, “onshore” its shipbuilding and ship-repair capacity at scale once again. This will require a Ships Act that would direct government funds to modernize the nation’s existing shipyards while also directing the building of more construction and repair yards. Care should be taken to ensure that shipyards are revitalized and built where the nation needs them. These efforts should focus on the regions of competition, the Pacific and the Arctic, as well as provide strategic industrial depth away from our vulnerable coasts, along the great river systems and in the Great Lakes, as was the case during World War II. As a nation we cannot be dependent on foreign-built ships to carry commercial cargos both to and from U.S. ports. In times of war these ships can and will stop supporting our needs. We also cannot be dependent on foreign manufacturers for critical components that are necessary to build the few naval and commercial ships built in the United States each year. These too can be choked off in wartime, leaving our nation vulnerable. These are huge strategic vulnerabilities. The nation should pursue a Ships Act industrial policy that adds resiliency and redundancy to this critical aspect of our defense industrial base.

The nation in a moment of hubris believed that freedom had triumphed over communism and authoritarianism and then pursued a purist economic path that has left it industrially vulnerable. History and the evils of war have returned with a vengeance. We can no longer follow the path of intellectual economic idealism that has led us to the present position of industrial isolation. Subsidies and government-led industrial policy must be part of our future. The conservatism of Milton Friedman must be married to the pragmatism of Dwight Eisenhower. The nation must pursue a realistic approach to its defense and economic strategies, emphasizing the sea and the competition thereon. The Chips Act was the right first step. A Ships Act should be next on the list.