U.S. Proposes Port Fees on Chinese-Built Ships and Operators to Counter China’s Shipping Dominance

Highlights

• The U.S. Trade Representative (USTR) has proposed new fees on vessels operated by Chinese ship operators or built in China calling on U.S. ports as a means to counter China’s dominance in the maritime sector and bolster U.S. shipping interests.
• The new proposal includes a $1 million per U.S. port call fee on Chinese vessel operators and a $1.5 million fee per U.S. port call for Chinese-built vessels. A service fee would be instituted on each U.S. port call by vessel operators, regardless of their nationality or vessel flag, with vessels on order from Chinese shipyards.
• The proposal also includes the potential phase-in of “commercial cargo preference,” under which a percentage of all U.S. ocean exports will be required to be carried in U.S.-flag vessels, starting at one percent and stepping up to 15 percent within seven years.
• This proposal is part of a broader trend by the Trump Administration to reinvigorate U.S. shipbuilding capabilities and grow the U.S.-flag fleet and U.S. maritime industry while reducing China’s influence in the maritime, logistics and shipbuilding sectors. It has spurred both praise and panic and drawn criticism across several industries, with affected stakeholders afforded a period for comments and a public hearing in March 2025.

The U.S. Trade Representative (USTR) made a determination on Jan. 20, 2025, that China’s¹ targeting of the maritime, logistics and shipbuilding sectors for dominance is unreasonable and burdens or restricts U.S. commerce and is therefore “actionable” under Section 301 of the Trade Act of 1974 (Section 301).

Pursuant to this determination, on Jan. 21, 2025, the USTR proposed taking action in a “Request for comments and notice of public hearing” by imposing new port charges up to $1 million per U.S. port call for Chinese-operated vessels and up to $1.5 million per port call for Chinese-built vessels. These actions align with the new administration’s recent efforts to spur U.S. shipbuilding and support competitiveness with vessel registries, among other reasons. The public comment period for the proposed actions ends March 24, 2025.

USTR Determination Against China’s Targeting of Maritime Sectors

On April 17, 2024, following a petition filed by five national labor unions, the USTR initiated an investigation into the acts, policies and practices of China to dominate the maritime, logistics and shipbuilding sector. In a subsequent report and determination, the USTR concluded that China’s acts, policies and practices were actionable under Section 301 because they were both unreasonable and imposed a burden or restriction on U.S. commerce.

In support of the conclusion that China acted unreasonably, the USTR cited the displacement of foreign firms, deprivation of market-oriented businesses and their workers of commercial opportunities, and the decline of competition and creation of dependencies on China – all of which, the USTR concluded, increase risk and reduce supply chain resilience.

In support of the conclusion that China’s actions impose a burden or restriction on U.S. commerce, the USTR cited the undercutting of business opportunities for and investments in the U.S. maritime, logistics and shipbuilding sectors, restrictions on competition and choice, creation of economic security risks from dependence and vulnerabilities in sectors critical to the functioning of the U.S. economy, and the undermining of supply chain resilience.

The determination and proposed actions are the latest move in complex trade battles between the U.S. and China. (See Holland & Knight’s previous alerts, “An Overview of IEEPA Duties on Canada, Mexico and China,” Feb. 4, 2025, and “China’s Retaliatory Measures in Response to Trump Tariffs,” Feb. 4, 2025.)

The proposal also rides a building wave by the Trump Administration and policymakers to rally support for the U.S. shipbuilding sector and U.S.-flag registry. The SHIPS for America Act, which was introduced in the 118th Congress and is expected to be reintroduced to the current Congress, imposes similar cargo preference for U.S. imports and exports and proposes solutions to bolster the U.S. shipbuilding sector. Additionally, in a recent interview, U.S. Department of Commerce Secretary Howard Lutnick questioned the tax liabilities of foreign-flag cruise ships that call on America’s ports, seemingly targeting the cruise ship industry’s utilization of the Internal Revenue Code Section 883 tax exemption. The latest proposals from the USTR reiterate a pervasive focus on U.S. maritime capabilities and support for greater use of U.S.-flag vessels in various trades.

Proposed Actions Pursuant to Determination Against China

The actions proposed by the USTR are essentially twofold: an increase in fees on services at U.S. ports and a mandated preference for U.S.-flagged and -built ships to carry exports.

“Fees on Services”: Increased Charges on Chinese Calls at U.S. Ports

The proposed service fees on Chinese Maritime Transport Operators for U.S. port calls are as follows:

• Vessel Operators. A Chinese vessel operator will be subject to a fee for international maritime transport services provided. This fee may be charged at either 1) a rate of up to $1 million per entrance of any vessel operated by the company into a U.S. port or 2) a rate of up to $1,000 per net ton of the vessel’s capacity per entrance into a U.S. port.
• Chinese-Built Vessels. Operators of Chinese-built vessels that call on a U.S. port will 1) pay a fee at each U.S. port call of up to $1.5 million, 2) on a sliding scale based on the percentage of Chinese-built vessels in that operator’s fleet or 3) pay an additional fee of up to $1 million per vessel entrance to a U.S. port if their fleet comprises more than 25 percent Chinese-built vessels. Such fees are payable regardless of the vessel’s flag or that the vessel’s operator is not a Chinese national or Chinese-controlled.
• Chinese Shipyards. An additional fee could be assessed against “Maritime Transport Operators” of any nationality based on the percentage of vessels ordered from Chinese shipyards under either 1) a sliding scale of per entrance charges based on the percentage of vessels to be ordered by Chinese shipyards over the next 24 months or 2) a fee of up to $1 million per vessel entrance to a U.S. port if 25 percent or more of the total number of vessels ordered by that operator are ordered by Chinese shipyards over the next 24 months.

The USTR proposal includes the possibility of refunding, on a calendar year basis, additional fees on maritime transport services charged to an operator for U.S.-flagged vessels calling at U.S. ports, up to $1 million per entry when an operator provides international maritime transport services.

“Restrictions on Services to Promote the Transport of U.S. Goods on U.S. Vessels”: Commercial Cargo Preference

The proposed action also includes a seven-year schedule of increasing cargo preferences for export of “all U.S. goods, such as capital goods, consumer goods, agricultural products, and chemical, petroleum or gas products” to be moved on U.S.-flagged vessels, regardless of destination. The schedule proposes a rapid increase in exports shipped aboard U.S. built vessels, from 1 percent of all U.S. exports effective immediately upon adoption of the proposal to at least 15 percent of all U.S. exports by year 7.

Current U.S. cargo preference laws apply only apply to U.S. government owed or government-financed cargoes. The U.S. has never implemented a commercial cargo reservation scheme. The last effort was the energy Transportation Security Act of 1974, which would have reserved a portion of U.S. oil imports to U.S.-flag vessels. The bill was pocket vetoed by President Gerald Ford.

Concerns Over Ambiguity in the Proposed Actions

There are concerns regarding the USTR’s proposed actions due to insufficient clarity in key definitions. Without the necessary precision in the regulatory language, stakeholders in the maritime industry have found it challenging to understand the full impact of the proposed actions on their businesses, and the lack of precision in regulatory language may well give rise to unintended, unfortunate consequences that hamper achieving laudable policy objectives.

For example, the term “Chinese Maritime Operator” is used throughout the proposal but is not defined, much less the critical term “operator.” This also raises age-old “control” issues common in the maritime industry where complex international holding company structures and voting agreements may obscure exactly who and what nationality the controlling persons of an entity are, especially in the case of publicly held companies. This crucial oversight raises questions over whether a ship owned or operated by a U.S. company but flagged under the Hong Kong ship registry, or built in a third country in a local yard that has some elements of Chinese ownership or control nevertheless would be subject to the proposed charges. It remains uncertain whether affiliates domiciled in Hong Kong can be classified as Chinese companies. Additionally, whether “Chinese Shipyards” or “Chinese Built Vessels” could include those in the Port of Piraeus, as testimony by U.S. policymakers have seemed willing to equate Chinese company investment in shipping infrastructure with effective Chinese control or in cases in which a Chinese shipyard is under foreign ownership or control. The proposal also does not address how fees would apply in circumstances in which another shipyard outside of China, such as South Korea, uses hull or machinery components made in China to build vessels.

Additionally, it is unclear whether a ship that is both Chinese-built and operated by a Chinese company could be subject to double charges for each U.S. port call. The proposal does not make clear whether Chinese-built container vessels that operate on scheduled liner routes would be subject to a fee at the first U.S. port or at each U.S. port visit on the voyage. The USTR also fails to address circumstances in which a U.S. entity owns or operates a U.S.-flag vessel built in China and the resulting unintended consequences that would punish U.S. interests or allies that have purchased ships from Chinese shipyards, which could undermine Friendship, Commerce, and Navigation treaties that may guarantee “national treatment.”

Further, vessels built in China may have U.S. or other non-Chinese flag and may have owners and operators with no Chinese affiliation. Similarly, vessels not built in China may have Chinese lease financing by Chinese lessors provided to operators with no other Chinese connection and vessels not flagged in China. Notably, the proposal does not include a transition period. Historically, provisions would include a clause such as “any vessel built in a Chinese shipyard and delivered” after a certain date, allowing those who previously purchased such vessels to adjust operations, dispose of their Chinese-built vessels and avoid violations.

There is also the question of how the cargo preference provisions would be implemented. Current cargo preference laws assure the U.S.-flag carrier will be paid “fair and reasonable rates for U.S.-flag commercial vessels,” which sometimes causes the rates for such ships to be several multiples of then-current competitive rates. The immediate question may be how the U.S. shipbuilding industry, which, with few exceptions, does not have facilities designed for efficient production of large containerships, would be able to build sufficient tonnage to meet the USTR’s proposed 15 percent cargo preference reservation within seven years, even with massive federal subsidies.

While the proposal appears to be a well-intentioned effort to spur U.S. shipbuilding in line with related goals of the Trump Administration, industry stakeholders should take note that there are numerous known, and doubtless unknown, unknowns. What is clear is that the increased costs of the charges and cargo preferences could ultimately be borne by the consumer as retailers could end up shouldering the costs of any fees, passed on by all others in the logistics chain. Additionally, the recently implemented port fees on Chinese-operated or -built vessels may make the U.S. financially unviable for certain operators and require transshipment. The increased cost of shipping to U.S. ports or transporting U.S. goods on U.S.-flagged vessels could render it impractical to engage in import or export activities with U.S. markets entirely. As a result, cargo might be redirected to ports in Mexico and Canada before being transshipped to their final destinations within the U.S. as a means to avoid potential penalties.

Existing Law

Several statutes administered by the Federal Maritime Commission (FMC) already provide remedies similar to those in the USTR proposal. Under Section 9 of the Shipping Act of 1984, 46 U.S. Code §§40701 – 40706, the FMC may impose sanctions including limitations on predatory ratemaking and other practices by any ocean common carrier directly or indirectly controlled by a foreign government.

Under 46 U.S. Code §§42101 – 42109, if the FMC finds a carrier is engaging in practices similar to those defined in the USTR proposal, it may bar such operator from operating in U.S. trades o calling at U.S. ports, or may impose a fine up to $1 million per port call, or “…take any other action the Commission finds necessary and appropriate to adjust or meet any condition unfavorable to shipping in the foreign trade of the United States.” And under the Shipping Act, 46 U.S. Code 42301 – 42307, if the FMC finds any “laws, rules, regulations, policies or practices of a foreign government, or any practices of a foreign carrier or other person providing maritime or maritime-related services in a foreign country, result in the existence of conditions that 1) adversely affect the operations of United States carriers in United States ocean borne trade…,” the FMC may also bar the carrier from calling U.S. ports or impose fines up to $1 million per port call.

It is not clear why these Shipping Act provisions – already in effect and applied and administered for many decades – should not be utilized now for the purposes of the USTR’s proposal.

Conclusions and Takeaways

This proposal lacks detailed information but may be intended as a strategic move to benefit future trade negotiations and seems well intentioned in its efforts to bolster U.S. shipbuilding. Regardless, the proposal has generated uncertainty that could have significant implications for contractual agreements, including the allocation of costs between owners, operators, technical managers and charterers, as well as responsibilities under a respective charterparty. The industry concern seems palpable as the USTR’s proposed $1 million plus fees per entrance to a U.S. port on Chinese-built and -operated ships represent a significant escalation in the ongoing trade tensions between the U.S. and China. These measures are aimed at countering China’s dominance in the maritime sector and bolstering U.S. maritime capabilities. However, the ambiguity in the proposed actions has raised concerns within the industry. Stakeholders are advised to closely monitor the developments and participate in the public comment period, which concludes on March 24, 2025.

Notes

¹ References to “China” or “Chinese” mean the People’s Republic of China (PRC) and not the Republic of China, Taiwan.

Shipping firms pull back from Hong Kong to skirt US-China risks

By Greg Torode and Jonathan Saul

• Shipowners cite fears of potential sanctions, commandeering of vessels in military crisis
• Moves come amid US scrutiny of role of China’s merchant fleet in conflict
• HK govt says normal for shipping firms to review operations based on geopolitics, trade

HONG KONG/LONDON, March 6 (Reuters) – Some shipping companies are discreetly moving operations out of Hong Kong and taking vessels off its flag registry. Others are making contingency plans to do so.

Behind these low-profile moves, six shipping executives said, lie concerns that their ships could be commandeered by Chinese authorities or hit with U.S. sanctions in a conflict between Beijing and Washington.

Beijing’s emphasis on the role of Hong Kong in serving Chinese security interests and growing U.S. scrutiny of the importance of China’s commercial fleet in a possible military clash, such as over Taiwan, are causing unease across the industry, the people told Reuters.

The U.S. Trade Representative’s office last month proposed levying steep U.S. port fees on Chinese shipping companies and others that operate Chinese-built vessels, to counter China’s “targeted dominance” of shipbuilding and maritime logistics.

Washington in September warned American businesses about growing risks of operating in Hong Kong, where the U.S. already applies sanctions against officials involved in a security crackdown.

Hong Kong for more than a century has been a hub for shipowners and the brokers, financiers, underwriters and lawyers supporting them. Its maritime and port industry accounted for 4.2% of GDP in 2022, official data show.

The city’s flag is the eighth most-flown by ships worldwide, according to VesselsValue, a subsidiary of maritime data group Veson Nautical.

Reuters interviews with two dozen people, including shipping executives, insurers and lawyers familiar with Hong Kong, revealed growing concern that commercial maritime operations could be ensnared by forces beyond their control in a U.S.-China military clash.

Many pointed to China’s intensified focus on national security objectives; trade frictions; and the broad powers of Hong Kong’s leader, who is accountable to Beijing, to seize control of shipping in an emergency.

“We don’t want to be in a position where China comes knocking, wanting our ships, and the U.S. is targeting us on the other side,” said one executive, who like others was granted anonymity to discuss a sensitive issue.

The concerns of shipowners and their actions to curb exposure to Hong Kong have not been previously reported. The perceptions of risk have grown in recent years, coinciding with a tightening security climate in the Chinese-ruled city and tensions between the world’s two largest economies.

TURNING TIDE

Commercial ships must be registered, or flagged, with a particular country or jurisdiction to comply with safety and environmental rules.

Despite an influx of Chinese-operated ships onto Hong Kong’s registry, the number of oceangoing vessels flagged in the city fell more than 8% to 2,366 in January from 2,580 four years earlier, according to independent analysis by VesselsValue. Government data show a similar drop.

Among the ships that left Hong Kong’s registry, 74 re-flagged to Singapore and Marshall Islands in 2023 and 2024, chiefly dry-bulk carriers designed to transport commodities such as coal, iron ore and grain. Some 15 tankers and seven container ships separately left the Hong Kong registry for those flags, according to VesselsValue.

The outflow of ships since 2021 marks a reversal for Hong Kong’s registry, which official data show grew roughly 400% in two decades following 1997.

In response to Reuters questions, Hong Kong’s government said it was natural for shipping companies to review operations given changing geopolitical and trade circumstances, and normal for the number of ships on registries to fluctuate in the short term.

Hong Kong would “continue to excel as a prominent international shipping centre”, a spokesperson said, outlining a range of incentives for shipowners, including profits tax breaks and green subsidies.

Neither the laws governing the registry nor emergency provisions empowered Hong Kong’s leader to commandeer ships to serve in a Chinese merchant fleet, the spokesperson said.

The spokesperson declined to elaborate when asked about industry players’ concerns over how colonial-era emergency powers might be applied during a U.S.-China conflict. The provisions allow the city’s leader to make “any regulations whatsoever”, including taking control of vessels and property.

China’s defence and commerce ministries didn’t respond to questions about the role of a merchant fleet in Beijing’s warfighting plans, the potential involvement of Hong Kong-flagged vessels, and the worries of commercial shipowners.

The U.S. Treasury and Pentagon declined to comment about potential sanctions, shipping executives’ concerns, and the role of Hong Kong-registered vessels in a Chinese merchant fleet.

Lawyers and executives say ships can be re-flagged for various reasons through sale, charter or redeployment to different routes.

Basil Karatzas, U.S.-based consultant with Karatzas Marine Advisors & Co, said Singapore had become the preferred domicile for companies with lesser exposure to Chinese shipping and cargo trade, because it offered many efficiencies, including its legal system, but less risk than Hong Kong.

Singapore’s Maritime and Port Authority said decisions about domiciles and flagging were based on commercial considerations. It had not observed any “significant change” in the number of Hong Kong-based shipping companies relocating operations or re-flagging vessels to Singapore.

MERCHANT FLEET

Hong Kong’s shipping registry is widely regarded for its safety and regulatory standards, executives and lawyers say, allowing its ships to pass easily through foreign ports. Hong Kong’s flag is now flown by many of China’s state-owned international vessels.

In a conflict, these tankers, bulk carriers and large container vessels would form the backbone of a merchant fleet serving the People’s Liberation Army to supply China’s oil, food and industrial needs, according to four security analysts and PLA military studies.

By contrast, the U.S. has a small commercial shipbuilding industry and far fewer ships under its flag.

While China’s state-owned fleet is growing in size, it would be a target for the U.S. in a military clash, and Beijing would likely require other vessels to ensure supplies given its vast needs and reliance on international sea lanes, three analysts said.

Strategic maritime operations have surfaced on President Donald Trump’s radar. In his inauguration speech in January, Trump threatened to “take back” the Panama Canal, which he said had fallen under Chinese control.

He did not give specifics, but Trump’s remarks focused attention on two Panama ports operated by a subsidiary of Hong Kong conglomerate CK Hutchison Holdings (0001.HK), opens new tab. The group, which didn’t respond to questions about Trump’s comments, agreed this week to sell a majority stake in the subsidiary to a consortium of investors led by BlackRock (BLK.N), opens new tab, giving U.S. interests control over the ports.

Trump told Congress on Tuesday that his administration will create an office of shipbuilding in the White House and offer new tax incentives for the sector.

A U.S. congressional study in November 2023 stated that “cargo ships typically transport 90% of the military equipment needed in overseas wars”. It noted that Chinese shipyards had 1,794 large oceangoing ships on order in 2022, compared with five in the U.S.

Merchant vessels were vital in Britain’s long-range mission to retake the Falkland Islands from Argentina in 1982. And UK-flagged commercial ships operating out of Hong Kong – many owned by local firms dependent on or controlled by China – supplied communist Hanoi during the Vietnam War, frustrating the U.S., declassified CIA documents show.

The need for a strong Chinese merchant fleet to help build China’s maritime power was outlined by President Xi Jinping in a Politburo study session in 2013.

Over the last decade, Chinese government and military documents and studies have highlighted the dual-use military value of China’s merchant ships.

Regulations enacted in 2015 required Chinese builders of five types of commercial vessels – including tankers, container ships and bulk carriers – to ensure they could serve military needs, according to state media.

Since then, the state-owned COSCO line has grown significantly.

Public COSCO documents show China is placing political commissars – officers who ensure Communist Party goals are ultimately served – on nominally civilian ships.

In January, the U.S. blacklisted COSCO subsidiaries for what it said were links to the Chinese military.

COSCO did not respond to questions about its deployment of commissars, the U.S. restrictions and what role the company’s ships, including Hong Kong-flagged ones, might play in a wartime scenario.

‘REALLY DE-RISKED’

Hong Kong remains an important base for shipowners, despite the geopolitical challenges. But some are quietly hedging their bets.

One company founded in Hong Kong in 2014, London-listed Taylor Maritime (TMI.L), opens new tab, now has a smaller presence in Hong Kong after making several strategic moves over the past few years.

Since 2021, it has kept its ships flagged in the Marshall Islands and Singapore. Its offices are in London, Guernsey, Singapore, Hong Kong and Durban.

The firm “really de-risked Hong Kong”, said a person familiar with the matter, citing investors’ concerns about a Chinese invasion of Taiwan and the Communist Party’s increasing control of Hong Kong.

A Taylor Maritime spokesperson said that initially, the company moved its Asia-based commercial teams to Singapore from Hong Kong to be closer to clients.

With its acquisition of shipping company Grindrod, which had its Asia office in Singapore, Taylor Maritime expanded its operation there and relocated some functions from Hong Kong, to the point where Singapore became its primary Asia hub, the spokesperson added.

Hong Kong-listed Pacific Basin Shipping (2343.HK), opens new tab has traditionally flagged its 110-strong fleet of bulk carriers in Hong Kong but is drafting contingency plans to register them elsewhere as it gauges potential risks, said two people familiar with the matter.

A Pacific Basin spokesperson said the company was constantly evaluating geopolitical risks but that its fleet was still flying the Hong Kong flag, “which at least for now outweigh(s) the challenges”.

“Being in Hong Kong positions us close to China’s 40% share of global dry bulk import/export activity and close to Asia’s strong economic and industrial growth regions,” the spokesperson said.

Angad Banga, chairman of the Hong Kong Shipowners Association, said shipping firms adjusted contingency plans based on risk assessments in a complex geopolitical environment but he had not encountered concerns about the commandeering of vessels.

“While some may be reviewing operational strategies, we as an organisation do not to see any widespread exodus or loss of confidence in Hong Kong,” Banga told Reuters, adding that the city remained attractive for maritime commerce.

Yet some industry figures described a broad unease about Hong Kong that was affecting their planning.

Three lawyers said that until recent years, contracts hammered out for the growing number of ships built in China and financed by Chinese banks typically stipulated that they must fly the Hong Kong flag.

But over the last two years, some have included a caveat demanded by owners to provide flexibility: a few other prominent flags are listed as options alongside Hong Kong, the lawyers said. Reuters could not independently verify the changes.

Beyond China’s military modernisation and its refusal to renounce the use of force to seize Taiwan, Beijing officials have stressed the importance of Hong Kong in fulfilling national security priorities.

Three executives and two lawyers told Reuters that sweeping security legislation, first imposed on Hong Kong in July 2020 and strengthened in March 2024, had added to the dangers.

The lawyers said any move by Hong Kong’s leader to commandeer vessels in an emergency might prove difficult in practice, as locally registered ships often plied routes far from Hong Kong. But such long-standing powers now had to be viewed through a national security lens, they said.

Some shipowners wouldn’t object to an official request to turn over their vessels, either out of patriotism or the potential to profit from a crisis, one lawyer said.

But “it is better not to be in a position where you might even be asked”, said another veteran lawyer.

“It was not an issue just a few years ago, in what is clearly a redrawn national security map.”

Reporting by Greg Torode and Jonathan Saul; additional reporting by Andrea Shalal and Idrees Ali in Washington, and the Beijing, Shanghai and Hong Kong newsrooms; editing by David Crawshaw