Will Trump Be Capricious... Chosun Defense Industry's 3 Companies Still Unstable [Yang Nakgyu's Defence Club]

Increase in Defense Sales Driven by Trump Administration's Willingness to Cooperate
Need to Amend Laws Hindering Overseas Shipbuilding and Maintenance

The domestic shipbuilding industry in South Korea remains on edge over the U.S. market. Although President Donald Trump has expressed his intention to cooperate with ally South Korea to restore the United States' former status as a leader in the global shipbuilding industry, the onset of a tariff war has made the outlook uncertain.

Yonhap News

According to the domestic shipbuilding industry on the 3rd, Hanwha Ocean secured the MRO (Maintenance, Repair, and Overhaul) projects for two U.S. Navy vessels last year. Following the military support ship Wally Schirra, they took on the repair project for the fleet replenishment oiler USNS YUKON assigned to the 7th Fleet. This marked a turning point for Hanwha Ocean, which returned to profitability after four years. Sales increased by 45.5% to 10.776 trillion KRW. Operating profit reached 237.9 billion KRW, with more than half of the annual operating profit?169 billion KRW?earned in the fourth quarter alone. HD Hyundai Heavy Industries also showed similar results. Last year's operating profit rose 408% year-on-year to 1.4341 trillion KRW. Sales increased by 19.9% to 25.5386 trillion KRW. HD Hyundai Heavy Industries' operating profit last year increased by 294.8% year-on-year to 705.2 billion KRW. It is the first time in 13 years since 2011 that the three major shipbuilders simultaneously recorded profits.

The U.S. Naval Vessel Market Estimated at 20 Trillion KRW Annually

Most analyses suggest that domestic shipbuilding sales will increase further this year. This is largely due to the positive impact of President Donald Trump expressing his willingness to cooperate with the Korean shipbuilding industry twice since his election. The U.S. Navy's vessel MRO market is estimated to be worth 20 trillion KRW annually. The operational lifespan of submarines and vessels can be up to 40 years, requiring periodic maintenance, repair, and overhaul. When a submarine is delivered, it generates decades of MRO demand. The domestic shipbuilding industry is building trust in the U.S. Navy MRO market and is working to expand its presence. According to market information analysis firm Bizwit, the global naval vessel MRO market is expected to grow from approximately 56.6 billion USD in 2020 to 70.5 billion USD by 2030.

Hanwha Ocean Aims to Handle 5-6 MRO Projects This Year

Hanwha Ocean is confident it can handle 5 to 6 MRO projects this year. If additional orders increase, it is considering collaboration with small and medium-sized shipyards. Last year, Hanwha Systems invested about 100 million USD to acquire 100% of the shares of Philly Shipyard in the U.S., opening up possibilities for local business expansion. Medium-sized shipbuilder HJ Heavy Industries is also preparing to enter the business. At the end of last year, it secured a contract from the Defense Acquisition Program Administration for the performance improvement and system development of 18 guided missile fast attack crafts for the Navy, enhancing its naval vessel MRO capabilities.

Some experts caution that the benefits from the Trump administration cannot yet be guaranteed. President Trump signed an executive order imposing tariffs on imports from Canada, Mexico, and China. The legal basis is the International Emergency Economic Powers Act (IEEPA). Enacted in 1977, this law grants the president special powers to impose economic controls that override existing agreements during national emergencies such as war. President Trump used this law to wage a tariff war. It is unprecedented to apply a law typically used to sanction hostile countries to impose tariffs on allied nations.

Need to Amend Domestic Protectionist Laws like the Jones Act

There are concerns that President Trump could change his stance by invoking U.S. domestic laws. The U.S. has laws to prevent foreign involvement in the construction or MRO of naval vessels. The so-called "Jones Act," officially known as The Merchant Marine Act, is a representative law that monopolizes shipbuilding within the country. Additionally, there are the Burns-Toledano Act, the Defense Federal Acquisition Regulation, the National Defense Authorization Act (NDAA), and the Buy American Act (BAA). For the domestic shipbuilding industry to maintain a fleet of 355 vessels between 2028 and 2030, these laws would need to be repealed or amended. Even if Korean and Japanese shipbuilders acquire U.S. shipbuilding companies and actively participate in naval vessel construction, securing orders could still be practically difficult.

Professor Kim Jong-ha of Hannam University's Graduate School of Defense Strategy said, "With the U.S.'s current construction capacity, maintaining 380 vessels by 2030 is difficult, so the help of the domestic shipbuilding industry is urgently needed," adding, "The Trump administration should amend laws like the Jones Act to allow U.S. vessels to be built in Korea."

Professor Jang Won-jun of Jeonbuk National University said, "South Korea should promptly establish a consultative body with the U.S. government for cooperation in the naval shipbuilding industry and prepare a mid- to long-term strategy."