[Yang Nakgyu's Defence Club] 'MASGA Card' in Tariff Talks... Japan as a Variable

K-Shipbuilding Card Proposed Ahead of South Korea-US Tariff Negotiation Deadline
US Likely to Compare with Japan's Government-Supported Shipbuilding Industry

The government's proposed K-shipbuilding negotiation card, presented ahead of the South Korea-US tariff negotiation deadline on August 1, is drawing attention regarding its potential effectiveness. There are also observations that, as the United States has already included shipbuilding cooperation in its tariff negotiations with Japan, South Korea may not be the only option.

According to a government official on July 29, the government has proposed to the United States a shipbuilding cooperation project worth tens of trillions of won, named "Make American Shipbuilding Great Again" (MASGA). The MASGA project includes a package of large-scale local investments in the US by domestic shipbuilders, as well as financial support such as loans and guarantees to back these investments.

A key variable in the government's K-shipbuilding negotiation card is Japan. Japan maintained its position as the world’s number one shipbuilding nation for a significant period until the 1990s. However, due to competition from China and South Korea, Japan's shipbuilding industry declined after the 2000s and has not managed to stage a comeback for over 20 years. Before the 1980s, Japanese shipbuilders possessed 138 docks (shipbuilding facilities). Through restructuring, this number was reduced to 46, but there are now plans to increase it again.

The Japanese government is also making this a matter of national importance. Recently, Japan designated "shipbuilding industry revitalization" as a core industrial policy and decided to invest approximately 9.45 trillion won by 2030. If this investment is realized, Japan’s shipbuilding capacity will double, and its global share of shipbuilding could reach 20%. The government is also considering establishing a national shipyard to be operated by private companies. On June 20, Nihon Keizai Shimbun reported that Japan plans to include ship hulls as specific critical materials under the Economic Security Promotion Act and to establish a facility investment fund worth 1 trillion yen (about 9.4 trillion won).

Japanese companies are also expanding into the US market. Imabari Shipbuilding, Japan’s largest shipbuilder, is considering acquiring Japan Marine United (JMU), the second largest. Imabari Shipbuilding is expected to focus on merchant ships, while JMU will handle military vessels. If Japan increases its domestic and overseas shipyard facilities, it is only a matter of time before the country regains its reputation from the 1960s, when it built half of the world’s ships. Last year, the total asset value of Japanese ships was $231.381 billion (about 314.9 trillion won), making it the world’s second-largest fleet after China ($255.236 billion).

If Japanese shipbuilding facilities are expanded, it is expected that they will continue to secure large US Navy vessel orders. Centered around the strategic Yokosuka Naval Base, where the US 7th Fleet is stationed, Japan could take charge of maintenance, repair, and overhaul (MRO) for US aircraft carriers, destroyers, submarines, and more. Last year, Japan completed MRO work for the US Navy’s Nimitz-class aircraft carrier USS Ronald Reagan, as well as the Aegis destroyers USS Milius and USS Benfold. As a result, there are concerns that Japan will monopolize the high-profit, high-value-added MRO for large vessels, leaving only the remaining orders for domestic (Korean) companies.

Kim Hosung, Chairman of the Korea Defense Industry Association, said, “Since the previous Donald Trump administration, the US has emphasized defense industry cooperation with South Korea, but the recent move to expand parallel cooperation with Japan seems to be fostering a competitive structure between the two countries. By having multiple MRO partners, the US Navy can expand its options and expect cost savings, so the real beneficiary is likely to be the United States.”

However, the local shipbuilding capabilities the US desires are more advanced in South Korea than in Japan. In December last year, Hanwha Ocean acquired Philly Shipyard, located in Philadelphia. Philly Shipyard is the only shipyard on the US East Coast capable of building merchant ships. Hanwha Ocean is also pursuing the acquisition of Austal. Austal is one of the US Navy’s four core suppliers, with 80% of its sales generated through Austal USA, located in Mobile, Alabama. The 500,000-square-meter Mobile shipyard specializes in building warships for the Navy and the US Coast Guard (USCG). If Hanwha Ocean succeeds in acquiring Austal, South Korea will secure the capability to build both merchant ships and warships locally in the US.

HD Hyundai Heavy Industries is also seeking to acquire a US shipyard. Huntington Ingalls operates Ingalls Shipbuilding, the largest surface ship shipyard in the US, located in Mississippi. This shipyard builds two-thirds of the Aegis destroyers recently ordered by the US Navy, as well as all large amphibious and patrol vessels.

Kim Jongha, Dean of the Graduate School of Defense Strategy at Hannam University, said, “If the profitability of Korean shipbuilders is guaranteed, an increase in defense cost sharing should also be considered. Securing orders for the planned construction of surface ships and submarines by year could yield significant profits.”