The recent passage of a bill by the U.S. House Armed Services Committee prohibiting the overseas construction of Navy combat ships has deepened concerns within the domestic shipbuilding industry. This development threatens to derail efforts to enter the U.S. naval market through the Korea-U.S. Shipbuilding Cooperation Make American Shipbuilding Great Again (MASGA) project.
The industry is experiencing increased turmoil as the U.S. political stance, which until recently sought to procure warships by leveraging allied nations, has reversed course. However, some observers suggest that cooperation will continue in some form, considering the U.S. need for allies to expand its naval power and the political nature of this committee decision made ahead of the November midterm elections.
U.S. Flip-Flops on Overseas Ship Construction to Woo Voters; K-Shipbuilding Industry on High Alert
According to industry sources on Wednesday, the U.S. House Armed Services Committee recently approved an amendment to the National Defense Authorization Act (NDAA) for fiscal year 2027, proposed by Democratic Congressman Jared Golden, with 44 votes in favor and 12 against. The amendment includes a provision prohibiting the use of Navy funds for contracts to purchase combat ships built at foreign shipyards.
Congressman Golden stated that U.S. military spending should contribute to American job creation, asserting that it’s unacceptable to build ships using foreign labor on foreign soil. The NDAA, an annual bill authorizing Department of Defense expenditures, becomes law after passing both the House and Senate and receiving the President’s signature.
The Trump administration had been exploring options to utilize shipyards in South Korea, Japan, and other allied nations to revitalize U.S. shipbuilding competitiveness and strengthen naval power. Notable examples include the Naval Readiness Assurance Act and the Coast Guard Readiness Assurance Act, proposed early in Donald Trump’s second term.
These bills aimed to allow the construction of U.S. Navy vessels and Coast Guard ships, or the manufacturing of parts, at shipyards in allied nations with mutual defense treaties. The intent was to modify the Vance-Tollefson Act, which restricts vessel construction to U.S. shipyards only.
The South Korean shipbuilding sector had been anticipating potential direct or indirect entry into the U.S. naval market through such regulatory easing. However, with the House committee’s approval of the overseas construction ban clause, the industry now faces concerns about potential collaboration setbacks.
While surprised, the South Korean shipbuilding industry is adopting a cautious wait-and-see approach. An industry insider commented that it needs to monitor how this plays out in the full House and Senate. It seems to be a politically sensitive issue in the U.S., with conflicting opinions.
Short-term Focus on Local Construction, Eventual Expansion of Cooperation
If the overseas ship construction ban becomes official policy, domestic shipbuilders are likely to accelerate their local presence and seek alternative strategies. Hanwha Ocean is considering acquiring additional local shipyards following its purchase of the Philly Shipyard.
The company is also working to enable naval vessel construction at the Philly Shipyard, which primarily focuses on commercial ships. HD Hyundai continues to explore local investment opportunities, including shipyard acquisitions, in partnership with U.S. private equity firm Cerberus Capital.
Industry concerns could deepen if discussions about the overseas construction ban extend beyond naval vessels to the commercial shipping sector. Currently, the Jones Act mandates that vessels operating within the U.S. must be manufactured domestically and owned and operated by Americans.
Last year, the Commercial Shipping Ally Partnership Act was introduced in the House, proposing exceptions to the Jones Act for allied nations. However, this proposal could also shift due to job creation and other factors, keeping the industry on high alert.
Conversely, some argue that despite the U.S. government’s plans for massive naval expansion, infrastructure limitations may ultimately necessitate reliance on domestic shipbuilding capabilities. This perspective gains traction considering the political sensitivity surrounding job issues ahead of the November midterm elections.
Yang Seung-yoon, an analyst at Eugene Investment & Securities, stated that cooperation is likely to begin with South Korea and Japan investing in U.S. shipbuilding and employing Americans to construct vessels locally. While expectations for U.S. naval shipbuilding within the sector may face short-term adjustments, the fundamental need for the U.S. to collaborate with shipbuilding powerhouses remains unchanged.
