From CHIPS to Ships: The Next Step in the U.S.-ROK Alliance

The Chinese Naval fleet has become the world’s largest, threatening the U.S. maritime dominance and unrestricted freedom of navigation in East Asia and the South China Sea. Although the U.S. Navy wants to build 381 ships by FY2042, public shipyards have their hands full. Delays in ship production and industrial inefficiencies have ramped up costs. Yet reforms to shore up the shipbuilding ecosystem remain insufficient. Amid this backdrop, President-elect Trump said in a post-election phone call with President Yoon that the United States seeks cooperation with South Korea, namely in the Maintenance, Repair and Overhaul (MRO).

The U.S. Naval military-industrial base needs a SHIPS Initiative with shipbuilders from close allies—namely South Korea—just as the American manufacturing base is being bolstered by South Korean firms participating in the CHIPS Act (Creating Helpful Incentives to Produce Semiconductors for America). In contrast, bilateral naval cooperation can be accomplished through deregulation supplemented with tax and supply-side incentives rather than through massive cash subsidies. Such constructive cooperation would have to surmount political hurdles in the United States. Still, industrial collaboration would avoid adding to unsustainable federal budgetary spending on subsidies—already interest payments on government debt exceed defense expenditures.

How South Korean Companies Can Help

South Korea can make world-class ships for the U.S. Navy. The Norway, Philippines, and Peru navies have relied on South Korea to manufacture their next-generation naval vessels. South Korean shipyards have already collaborated with the U.S. Navy to overhaul support ships and with U.S. private shipyards to design state-of-the-art U.S. commercial vessels. They have used high-tech production processes to churn out high-quality vessels on time without cost overruns. This is exactly the capability the U.S. Navy needs, and Secretary of the Navy Carlos Del Toro was blown away on his visits to South Korean shipyards.

South Korean firms’ capabilities in localizing production and transferring technology will improve U.S. shipyard productivity and create new local jobs. Paula Zorensky, vice president of the Shipbuilders Council of America, said that American shipyards “are willing to work with our fellow Korean shipbuilders and allied shipyards to improve our processes and increase efficiencies.” HD Hyundai Heavy Industries, the University of Michigan, and Seoul National University signed a memorandum of understanding in July 2024 to establish a shipbuilding design and engineering exchange program to train the U.S. workforce. 

Getting Around the Jones Act

The U.S. Navy is prohibited from outsourcing the construction of naval vessels to foreign shipyards under 10 USC 7309 and 10 USC 8679 (the Byrnes-Tollefson Amendment). The laws allow the president to issue a waiver to lift such prohibitions if he determines it is in the national security interest of the United States to do so. So conceivably, President Trump could issue a waiver, and Congress could amend such laws to allow the construction of naval vessels in shipyards in countries like South Korea, with which the United States has a mutual defense treaty.

The Merchant Marine Act of 1920, known as the Jones Act, requires all shipping between U.S. ports to be conducted by U.S.-built, owned, and crewed ships. The Military Cargo Preference Act extends this requirement to military cargo destined for foreign ports. These laws have the effect of jacking up the price of shipping between the American mainland, U.S. territories, and foreign ports by forcing the U.S. military to rely on a small number of Jones Act-compliant carriers to move cargo. However, repealing these acts will be politically difficult, as such action would expose American shipbuilders to superior foreign competition. 

Proposing a work-around, Senator Todd Young (R-IN), Rep. Trent Kelly (R-MS), Senator Mark Kelly (D-AZ), and Rep. John Garamendi (D-CA) introduced the bipartisan and bicameral “Shipbuilding and Harbor Infrastructure for Prosperity and Security for America Act of 2024” (SHIPS Act) in December. The draft of the bill opens opportunities for South Korean firms. Vessels constructed in foreign shipyards can be incorporated into the U.S. strategic merchant fleet as “interim vessels” through 2029. Deregulation would free U.S. and South Korean firms to develop economies of scale and deliver ship orders on time.

Finally, the Trump administration could approve South Korean firms’ acquisitions of U.S. shipyards. In what Secretary Del Toro lauded as a “game-changing milestone in [the U.S.] new Maritime Statecraft,” Hanwha Group agreed in June 2024 to acquire Philly Shipyard from its Norwegian parent company, Aker ASA, for $100 million. The acquisition received approval from the Committee on Foreign Investment in the U.S. (CFIUS) in September and was completed in December 2024. 

From CHIPS to SHIPS 

Former Chairman of the House Armed Services Committee Rep. Mac Thornberry noted the U.S. needs geographic diversity in its defense suppliers to provide better competition and sources of innovation. The advancement of U.S. security and prosperity will be far cheaper and more effective if Washington can tap into synergies with its global network of allies and partners.

However, long-term economic and geostrategic interests do not always prevail over domestic political considerations. The most recent example is that the Biden administration rejected Nippon Steel’s purchase of U.S. Steel on January 3, citing national security concerns despite no clear and direct defense rationale.

The South Korea-U.S. business relationship has blossomed into a vibrant two-way investment partnership spanning joint ventures on COVID-19 vaccines and electric vehicle batteries. Trusted and competitive foreign shipbuilders, such as those in South Korea, have also demonstrated their global comparative advantage. It’s time for the U.S. to more deeply tap into its capabilities and move into a new, robust military-industrial cooperation paradigm.

Thomas Byrne is the President and CEO of the Korea Society. Previously, he was the Asia-Pacific Regional Sovereign Risk Manager for Moody’s Investors Service. 

Joseph Lim is a graduate student at the Georgetown University School of Foreign Service.

Image: Panwasin Seemala / Shutterstock.com.