Is the U.S. Shipbuilding Capacity in Crisis?

Today’s Low Industrial Output May Not Signal Strategic Weakness

The annual tonnage produced by U.S. commercial shipbuilders has reached its lowest level in over 100 years. U.S. shipyards did not produce a single oceangoing hull for over half of the previous decade, despite the Jones Act being in place to prop up American shipbuilders. The lack of American ship production both hinders American international commerce and leaves it weak defensively. That defensive vulnerability is especially worrying because the year is 1935, and America is only a few years away from entering World War II.

Thankfully for the allies, when World War II increased the demand for American commercial and military ships, American ship-builders kept up. America’s peak ship-building production in World War II was 70 times higher than the 1930’s average and almost 90% of global ship-building.

The U.S. now produces 0.2% of the world's cargo tonnage, while approximately 90% is produced in China, Korea, and Japan. America ceased to be a significant contributor to global cargo ship production long ago.

Although U.S. shipbuilding is greatly diminished today, it is not the national security concern many would lead us to believe. America’s rapid expansion of ship production during World War II serves as a reminder of what allowed America to increase its ship production historically. Orders surged from the US government and other allied nations for commercial ships. Companies converted capital and entered the ship building business to meet the orders; Henry Kaiser built a shipyard in Richmond and got it operational in 78 days.

The U.S. Maritime Commision spurred on competition between private firms, encouraged innovation and disseminated information about new production techniques, and did not impede production with regulation. Government policy aligned with the aim speed and efficiency in merchant ship production.

Their approach had downsides: the push for speed meant some ships fell to pieces, and working conditions were atrocious, with workers going blind from welding being one of the most common injuries that workers suffered. But the U.S. produced the vast majority of the world's cargo ship tonnage in a time when the allies desperately needed cargo ships.

We are told that shipbuilding is critical for national defense. If that is truly the case, and that the sovereignty of America is seriously threatened otherwise, then the government’s policies around shipbuilding need a serious overhaul.

The industrial power needed to support America’s war effort in World Wars I and II were dormant prior to those wars. It was only when war had arrived on America’s doorstep that she devoted her industrial capacity to the war efforts.

After Pearl Harbor, Japanese Admiral Isoroku Yamamoto is said to have written in his diary: “I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve.” His words, if they can be attributed to him, proved prophetic. America outproduced its enemies to make victory certain. America built 5,500 ships, 300,000 military planes, and 86, 000 tanks.

America is still that sleeping giant. Overall U.S. industrial production has increased 8.56 times since World War II, although industrial production growth has dropped off since 2008. Industrial capacity has been growing while the U.S. industrial capacity utilization has steadily declined since the 1970’s, meaning unused American industrial capacity has grown dramatically over the last 50 years.

Efforts to further subsidize domestic shipbuilding are misplaced. American ship production is extraordinarily expensive and generally inefficient. Throwing tax dollars at shipbuilders during peacetime will do little to improve domestic shipbuilding capacity, and will put further strain on an already overloaded budget.

Gross federal government debt is currently 119% of GDP, which is equal to the peak gross federal debt share of GDP that resulted from World War II. In 1940, gross federal debt was only 49% of GDP. The federal government had enough sense to sufficiently restrain spending during peacetime so it had room to borrow during wartime. Now, America has the debt to GDP ratio of a wartime economy while being at peace and recently saw the credit rating of its debt get downgraded. If America wants to be able to build up her fleet during a wartime, the government should focus on fiscal responsibility, so that if the time comes, it can once more wake the sleeping giant.

Dr. Caleb Petitt is a research associate at the Independent Institute in Oakland, CA