May 08, 2025

How the Trade War Could Blow the Navy off Course

By: CDR Michael Borja

The United States is plotting the course to revitalize its shipbuilding industry. The proposed SHIPS for America Act and an executive order entitled “Restoring America’s Maritime Dominance” seek to improve the United States’ ability to counter China’s increasing maritime power. Motivating this effort is a possible conflict with China, which is shaping the Navy’s near-term readiness goals as well as its long-term modernization plans. Separately, there are strong domestic desires to re-shore manufacturing jobs back to the United States, a goal which is being pursued through broad tariffs that have triggered a global trade war. As the nation executes these strategies, the externalities associated with the trade war will create economic headwinds that may blow the Navy’s modernization plans off course. Therefore, Navy stakeholders must work with key decision-makers on U.S. economic and trade policies to ensure the Navy maintains its heading through changing circumstances.

The Economic Headwinds

The United States is applying historic tariffs against allied, rival, and neutral countries alike to achieve economic and national security goals. In one prominent instance, the United States imposed tariffs on aluminum and steel from Canada and Mexico to revitalize U.S. domestic production of those commodities and to counter drug trafficking. Observers assess the tariffs will not only increase costs for U.S. manufacturers writ large, but will also raise costs for Navy and commercial stakeholders that comprise the Maritime Industrial Base (MIB). High input costs—notably steel and labor—have been historical constraints for the MIB.

The combined effect of tariff-induced inflation and policies biased towards legacy designs may ultimately hurt the Navy’s long-term modernization.

Prior to the tariffs, the United States courted foreign investments to improve MIB infrastructure and productivity. But if commodity prices rise significantly, foreign firms may balk at the higher investment costs. A reduction in overall trade due to the trade war could depress demand for U.S.-flagged merchant ships and reduce revenue for a proposed Maritime Trust Fund to finance MIB development. Such a scenario would deprive the Navy of the additional infrastructure it needs to grow and maintain its fleet.

Higher commodity prices may also hurt defense startups supporting the Navy. U.S. law restricts defense firm profits, and enduring the infamous “valley of death” is a major hurdle for newer firms. Some companies are building the infrastructure to produce autonomous systems for the Navy’s new unmanned surface vessel squadrons. But higher costs will increase friction for these innovative firms, dissuade the creation of new ones, and inhibit the growth and deployment of the Navy’s nascent unmanned capabilities.

Read the full article at the Center for Maritime Strategy.

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