Bipartisan Interest at Select Committee in Chinese Ship Fee

A union request that the government impose a fee on Chinese-made vessels docking at U.S. ports via a Section 301 action confronting subsidization in China's shipbuilding sector (see 2404170029) was mentioned favorably by Democrats and Republicans at a House Select Committee on China hearing that covered Chinese efforts in that sector, semiconductors and drones.

The Section 301 petition mentioned a hypothetical $1 million fee for a 20,000 twenty-foot equivalent units cargo ship, and said the port fee should be higher on larger and heavier ships, should be higher for newer ships, and the fee should increase at regular intervals to convince China to discontinue its interventions (see 2404250043).

World Shipping Council CEO Joe Kramek said at the 301 investigation hearing that would add $350 to each 40-foot container each time a ship stopped in a U.S. port, and many ships call on more than one port; if it made four port calls on the West Coast, that would add about 25% to current shipping container costs.

Select Committee member Ro Khanna, D-Calif., said the committee should unanimously demand that the Office of the U.S. Trade Representative impose a fee on Chinese-made ships. He said a $1 million fee would be less than $50 a container. "Americans may have to pay a few cents more for their jeans or their shirts so we can have American ships! Guess who’s opposed to it? The Chamber of Commerce."

Earlier in the June 26 hearing, Rep. Dan Newhouse, R-Wash., told Alliance for American Manufacturing President Scott Paul that the statistics he provided about the decline of American commercial shipbuilding and the rise of China were very concerning. "We will definitely be looking at how we can be helpful there," he said, referring to the Section 301 investigation.

Rep. Andy Barr, R-Ky., one of the more conservative members of the House, told Khanna he is open to his arguments about levying a fee on Chinese ships. "I think what the Chamber of Commerce may be concerned about is this kind of protectionist policy could be used beyond China."

Khanna had complained that South Korea and Japan also subsidize their shipbuilding sectors, and Barr said he doesn't think it would be right to counter those subsidies.

Committee Chairman John Moolenaar, R-Mich., said in his opening statement that China uses "a combination of illegal subsidies, hardball tactics, IP theft, and forced labor, the party gains a stranglehold over the world’s most important supply chains," and added that nowhere is that more costly to the U.S. than in shipbuilding. He says that China sells its products at predatory prices to drive out the competition, then leverages the new dependencies on Chinese goods to advance its interests.

"That playbook has now been exposed and it’s up to us in Congress to counter it," Moolenaar said.

After the hearing, he said, "I can't commit to what the committee will do on that" Section 301 investigation on shipbuilding, "but, with bipartisan interest expressed during the hearing, that'll be a good start for discussion about it."

Tariffs were mentioned as a measure to counter Chinese intervention in the drone space. Ranking member Raja Krishnamoorthi, D-Ill., noted that Chinese drones are 90% of the consumer market, and that Skydio, whose founder and CEO was one of the witnesses at the hearing, exited that market last year. Skydio still sells drones to the U.S. and Ukrainian militaries, to businesses such as utilities, and to police departments. Krishnamoorthi said a DJI drone costs about $300, while the Skydio equivalent costs more than $1,000.

Newhouse asked Skydio CEO Adam Bry what is preventing more affordable drones from being made in the U.S., and Bry said the single biggest factor is the lack of scale, and the more drones Skydio can make, the better its cost structure will be.

To that end, Bry asked Congress to provide funding to the Pentagon to ramp up its purchases, both for Ukraine and for its own soldiers. And even when the U.S. has sold drones to Ukraine, he said, it's tended to be larger, weapon-carrying drones. He said there's a lot of talk about how we need small, smart autonomous systems, he said, but "very little" of the supplies for Ukraine's effort to defend itself from the Russian invaders has gone to supply drones.

In his opening remarks, he said Ukrainians don't take any military action without putting a drone in the air -- and that while Skydio has delivered more than 1,000 drones to the war effort, Ukraine has bought 100,000 Chinese drones.

"They have to hack them to stop them from giving their positions to Russian adversaries," he said.

"In the early days of the war, Chinese drones were plentiful. DJI and Autel publicized their strong opposition to Ukraine’s use of their products, but Ukraine and its supporters managed to buy huge stocks from global resellers. Things are changing. In September 2023, China issued novel export controls on small drones. Based on first-hand accounts, those controls have started to take effect, making it much more difficult and expensive for Ukraine to replenish Chinese systems."

Bry said the latest version of his company's drone is more resistant to Russian electronic warfare, and Ukraine wants thousands of them.

He also endorsed New York Republican Rep. Elise Stefanik's bill that would hike tariffs on Chinese drones by 30% initially, increasing 5% a year (see 2405170010), and use the revenue to fund drone purchases by public safety agencies. Those drones could be either U.S. made or made in ally countries.

On semiconductors, Tufts University Professor Chris Miller told the committee that China is not currently a major supplier to the U.S. even of foundational (or legacy) chips, but it's dramatically expanding its fabricating of these chips, and, given the level of subsidies, it could make it not profitable for firms in Europe, Japan, Taiwan or the U.S. to produce in that segment. He said firms are "already scaling back investment" as a result, which "makes the case for acting today to address this risk."

He said action could include bans on chips made by certain companies, restriction of the use of Chinese components in critical systems, and tariffs, and he recommends a mix of all three approaches.

"There’ve been steps taken on each of those fronts, but I think there’s more to be done," he said.

However, he later cautioned that since American manufacturers buy Chinese-made foundational chips, "We need to be careful when we take strict measures not to do so too rapidly," because that would make it hard for U.S. factories that use those chips to continue manufacturing. Any change should be phased in, he advised.