Ship War: China's MCF Strategy Is Pushing Trump To Revive Commercial Shipbuilding In The US

Just ten days after the United States declared war on Germany on April 6, 1917, a bold national effort began. The US Shipping Board established the Emergency Fleet Corporation (EFC), tasked with dramatically expanding the country’s merchant fleet to support the war effort and outbuild the threat posed by German U-boats.

It was an enormous logistical undertaking. In just 19 months, the EFC delivered 470 ships, an industrial surge so intense it became the largest American operation of the war. By the time the program ended in 1922, it had completed 2,312 vessels, transforming the US merchant marine into one of the world’s largest and most modern.

Edward N. Hurley, the man at the helm of this effort, later reflected on the scale of the gamble: “I am convinced,” he wrote, “that the country never has realised to what extent the war was won at home… by taking the most desperate chances conceivable.”

This wasn’t a one-time anomaly. Across history, naval powers have recognised that dominance at sea requires more than warships alone. A strong merchant marine, civilian vessels built at home, owned by nationals, and manned by national crews, has always been essential, ready to transform into a wartime force when conflict looms.

During World War II, the US Merchant Marine became the largest civilian navy ever, vital for logistics in both the Atlantic and Pacific. Over 9,000 of its 243,000 mariners died, a higher casualty rate than any regular military branch.

During the Allied invasion of Nazi-occupied France in World War II, about 200 of the 7,000 vessels that landed on the beaches of Normandy were American merchant ships, playing a crucial but often overlooked role. In the decades that followed, the US merchant marine continued to play a critical role in American military operations, helping sustain war effort in Korea and Vietnam.

Today, China embodies this tradition by integrating its vast fishing fleet into its maritime ambitions, using these civilian vessels as an extension of state power to assert control, gather intelligence, and reinforce its presence in contested waters.

Rise Across The Pacific

For the United States, replicating the industrial triumph of 1917-1922 would be a formidable challenge today, if not nearly impossible.

Between World War I and World War II, and continuing afterward, US shipbuilding was sustained by a series of government subsidies.

The Merchant Marine Act of 1920, known as the “Jones Act,” reserved domestic waterways for US-flagged vessels to protect shipbuilding during a postwar demand collapse. The Merchant Marine Act of 1928 encouraged the construction of ocean-going ships by offering subsidies through mail transportation contracts, similar to how the US government supported early aerospace development.

In 1936, the Merchant Marine Act, called the “Magna Carta of American Shipping,” further boosted the industry for national defence purposes. It introduced two key subsidies: a construction differential subsidy covering up to 50 per cent of the cost gap with foreign competitors, and an operating differential subsidy to support US-flag operators against foreign competition.

But in 1981, the Reagan administration terminated the federal subsidy program that had offset the cost difference between US and foreign shipbuilding, which accelerated the decline of US shipbuilding.

Meanwhile, shipbuilding industries had also begun to rise on the other side of the Pacific, first in Japan in the 1960s, followed by South Korea in the 1980s, and then China in the 2000s.

In the two decades since then, the global market shifted dramatically. In the early 2000s, South Korea and Japan, key US allies, held 74 per cent of the market, while China accounted for just 5 per cent. By 2024, China’s share had soared to 53 per cent, surpassing the combined 42 per cent of South Korea and Japan.

Today, the US represents less than 1 per cent of global shipbuilding activity, only 0.1 per cent of global tonnage to be precise.

China’s shipbuilding sector has undergone a dramatic metamorphosis, evolving from a fragmented, low-tech industry into a consolidated, state-backed industrial powerhouse at the centre of the global maritime supply chain.

In 2024, China’s largest state-owned shipbuilder, China State Shipbuilding Corporation (CSSC), built more commercial ships by tonnage than the entire US shipbuilding industry built since the end of World War II in 1945.

The capacity to achieve this feat was built meticulously on the back of state subsidies, much like in the US in the past, but with Chinese characteristics: less transparency, sprawling layers of state-owned conglomerates, and most importantly, a fusion of commercial ambition with geopolitical intent.

At the heart of this transformation lies China’s Military-Civil Fusion (MCF) strategy, a policy that seamlessly blends civilian and military industries to create a shipbuilding juggernaut. By channeling commercial revenues into naval expansion, MCF has turned China’s shipyards into a dual-use powerhouse, producing freighters and warships with the same tools, while foreign buyers and investors unwittingly fuel China's naval buildup.

MCF is designed to eliminate barriers between China’s commercial and defence sectors, ensuring that civilian industries directly support national security goals.

In shipbuilding, this strategy has transformed CSSC into a global leader, its yards churning out both container ships for global trade and advanced warships for the People’s Liberation Army Navy (PLAN). The genius of MCF lies in its ability to leverage shared resources, shipyard infrastructure, materials, skilled labor, and technology, to serve dual purposes.

By producing commercial and military vessels in the same facilities, CSSC spreads fixed costs across both sectors, making naval expansion more efficient and affordable. Every bulk carrier or tanker built generates revenue that subsidises the next destroyer or frigate, creating a self-reinforcing cycle that amplifies China’s maritime ambitions.

An outsized portion of China’s commercial shipbuilding activity takes place in shipyards that are embedded within its defence industrial infrastructure. A closer look at the numbers reveals how this industrial overlap fuels Beijing’s naval buildup.

In a recent report, the Center for Strategic and International Studies (CSIS) examined 307 active Chinese shipyards operating between 2019 and 2024, categorising them into four tiers based on their links to military projects.

China’s Tier-1 shipyards, 12 in total, all owned by the state-run CSSC, form the backbone of the country’s naval shipbuilding program. These yards, the CSIS report notes, are "responsible for constructing virtually all of China’s modern naval fleet."

Despite making up a small fraction of China’s 300-plus active shipyards, they account for more than 17 per cent of China's national annual commercial output by tonnage. The vessels produced at these shipyards are, on average, nearly twice the size of those built elsewhere in China, highlighting their central role in both military and commercial maritime construction.

Much of this output, the report says, is concentrated in four key shipbuilding powerhouses: Dalian, Guangzhou, Jiangnan, and Hudong-Zhonghua.

These sites rank among the most productive shipyards globally. From 2019 to 2023, they collectively launched at least 39 warships, representing over 550,000 tons of displacement, surpassing the total tonnage of the UK’s entire Royal Navy. The warships produced include some of the PLAN’s most advanced surface combatants.

In tandem with their naval output, these same four shipyards also generated a staggering 19 million gross tons of commercial shipping over the same five-year span. This commercial volume is on par with the annual output of South Korea, the world’s second-largest shipbuilding nation.

Another 23 CSSC yards in Tier-2, closely linked to military projects, produce 23 per cent of commercial tonnage, or 37.5 million gross tons.

Together, the shipyards in Tier-1 and Tier-2, just 15 per cent of the total, account for 40 per cent of China’s commercial shipbuilding by tonnage.

This concentration is no accident. It’s a deliberate outcome of MCF, which prioritises state-controlled yards with military connections. Commercial revenues from these yards, billions of dollars annually, directly offset the costs of naval production, allowing CSSC to scale up the PLAN’s fleet at a cost lower than it would otherwise incur.

The role of foreign buyers is a critical and troubling part of this story. Their investments not only provide significant financial support but also facilitate the transfer of technology, much of which ultimately contributes to the advancement of PLAN naval platforms.

For instance, roughly 15 percent of the active fleet operated by Evergreen Marine Corporation, Taiwan’s largest shipping company and one of the world’s leading container carriers, was built at Tier-1 Chinese shipyards, with more vessels still on order. This highlights a striking contradiction in Taiwan’s strategic position.

Evergreen has invested heavily in expanding and modernising its fleet over the last decade, with a large number of those orders going to major Chinese shipbuilders such as Hudong-Zhonghua and Jiangnan, the same facilities that are constructing advanced warships for the People’s Liberation Army Navy, including amphibious assault ships that could be used in a future cross-Strait conflict.

For every commercial vessel sold, the shared production lines, using the same cranes, welding tools, and expertise, reduce the marginal cost of constructing a warship. This cross-subsidisation is MCF’s secret weapon, turning global trade into a financial engine for the PLAN’s growth.

Foreign technology further fuels this cycle. Suppliers from US-allied nations, eager to access China’s vast market, share dual-use technologies through joint ventures, licensing agreements, and direct sales. Marine propulsion systems, critical for both merchant ships and warships, are a prime example. These transfers have helped Chinese shipbuilders overcome technical barriers, enhancing the PLAN’s ability to field advanced vessels.

Engines from German firm MTU and French-origin SEMT Pielstick have, for instance, been manufactured under license in China since the early 2000s. Between 2001 and 2022, over 528 of these licensed engines were built in China and power the Type 055 cruisers, Type 052D destroyers, Type 054/A frigates, and Type 039 submarines of the PLAN.

The opacity of China’s shipbuilding network obscures these connections, leaving foreign firms unaware that their technology may end up powering a naval fleet that threatens their own nations’ interests. By providing both revenue and know-how, foreign players are unwittingly complicit in MCF’s success.

Through its MCF strategy, China has positioned its commercial shipbuilders to outperform global competitors. The shipbuilding sector is inherently unstable and is subject to sharp cycles of growth and contraction linked to global trade trends.

After the 2007–08 financial collapse, for instance, many shipyards worldwide experienced deep slumps or shuttered operations altogether. In contrast, Chinese shipyards remained resilient, buoyed by government-funded naval projects that acted as a financial cushion during economic slowdowns, a strategy that continues to support the industry today.

In 2020, the US government added 25 subsidiaries of CSSC to a list that prevents US companies and individuals from supplying them with sensitive American technology, citing national security concerns. Then, in 2021, the company was placed on another list that prohibits US persons and entities from engaging in certain financial transactions with it due to its ties to China’s military industry.

Trump's bid to revive US shipbuilding

With growing optimism about a US shipbuilding revival, an old myth is gaining ground again, that the US once dominated the global commercial shipbuilding market by gross tonnage. This belief often stems from conflating America's unmatched wartime military shipbuilding with peacetime commercial competitiveness.

In truth, the US was never the global commercial shipbuilding leader that Japan (1960s to 80s), South Korea (1990s to 2010s), and China (2010s to present) have been.

Even in the 1970s, years before the Reagan administration ended federal subsidies, US shipyards produced only about 5 per cent of the world’s commercial tonnage.

America’s shipbuilding prominence was primarily a wartime phenomenon.

During both World Wars, the US successfully mobilised massive industrial capacity to meet urgent needs. Yet even at the height of World War II, American shipbuilding lagged behind in efficiency. Although the US dramatically reduced the labour required to build a Liberty ship—from 1.1 million to 486,000 man-hours—British yards could build similar ships with just 336,000 man-hours. Even with wartime mobilisation, only the most advanced US facilities came close to matching British productivity.

Commercial shipbuilding has long followed a predictable pattern. It gravitates toward nations with lower labour costs. Leadership passed from Britain to Japan, then to South Korea, and now to China. The US, in contrast, has never been able to capitalise on low-cost labour. Even in the early 19th century, American wages exceeded those in Britain, a gap that persisted well into the 20th century.

While it is theoretically possible to offset high wages with greater productivity, low-wage countries have consistently managed to boost productivity as they scale, making the competition even tougher for high-cost producers.

Given these structural realities, it’s likely that those advocating a US shipbuilding revival are motivated by goals that go beyond mere commercial competitiveness.

The real driving force appears to be national security, not the pursuit of reclaiming a lost commercial dominance that, in truth, never existed.

A national security imperative

The decline of US shipbuilding capacity has created a glaring vulnerability in its military readiness. A diminished industrial base has hampered its ability to rapidly build or repair warships and merchant vessels critical for fighting a prolonged war.

One of the most pressing concerns is sealift—the ability to transport troops, equipment, and supplies across vast distances. In any future conflict, particularly one in the Pacific involving China, sealift would serve as the logistical backbone of US military operations. Dependence on foreign-built or foreign-operated ships, some from adversaries like China, would be a serious risk for the US Navy. Without a robust domestic shipbuilding industry, this vital logistical capacity could be severely compromised during wartime.

Arguably the greatest challenge the US Navy faces in preparing for a potential conflict with China is rebuilding the capacity to construct, maintain, and repair its fleet.

Limited shipyard capacity prevents even routine upkeep, leaving the US Navy unable to properly sustain its existing fleet of warships.

Currently, the US has only four public shipyards with a combined total of 18 dry docks. These government-owned facilities are responsible for performing depot-level maintenance. A 2022 Government Accountability Office report found that between fiscal years 2015 and 2019, maintenance delays were so severe that the Navy effectively lost the use of more than half an aircraft carrier and three submarines annually.

“In light of ongoing shipyard challenges to keep up with regular maintenance demand, battle damage repairs may further exacerbate these challenges,” the report said.

One way to gauge the inadequacy of current facilities is by looking at submarine maintenance. While 17 dry docks can service the US Navy's older Los Angeles-class submarines, only 12 are capable of accommodating their replacement, the Virginia-class. Of those, just seven can handle the newest Block V Virginia-class submarines.

China, by contrast, has developed a formidable shipbuilding base, with 20 major shipyards producing both commercial and military vessels, supported by 140 dry docks for rapid construction and repairs. This infrastructure gives China an edge. In the event of war, it could expand its fleet and complete battle damage repairs far more quickly than the US. In a potential conflict with the US, this disparity could prove decisive.

To sustain shipbuilding infrastructure capable of meeting current maintenance and overhaul demands, as well as handling a wartime surge, the US shipbuilding industry would need substantial commercial orders to support its workforce, modernisation, and the industrial capacity it will create for this purpose.

It is this goal that the US seeks to achieve through its push to revive domestic commercial shipbuilding. In effect, the effort is aimed at creating an industrial base that can be leveraged in the event of war, just as it was during World War I and World War II.

This connection has been recognised for some time. For example, in a 2023 speech at Harvard Kennedy School, then Secretary of the Navy Carlos Del Toro stated, “History proves that, in the long run, there has never been a great naval power that wasn’t also a maritime power, a commercial shipbuilding and global shipping power.”

The expansion of commercial shipbuilding capacity would also support the US Navy’s efforts to grow its fleet as the PLAN, with China's colossal maritime industrial base underpinning its rapid naval expansion, scales to 425 ships by 2030. This capacity will be critical to meet the US Navy’s goal of 381 ships in its 2024 30-year shipbuilding plan.

History shows that the US has repeatedly rebuilt its naval power by rallying around a major threat. Since the late 19th century, the US has seen five major shipbuilding surges outside wartime: the “New Navy” of the 1880s before the Spanish-American War, the “Big Navy” push through 1914, the pre-World War II buildup, the 1960s modernisation of World War II ships, and the 1980s drive for a 600-ship navy to counter the Soviet Union.

Each of these surges, Lieutenant Commander Frederick Cichon of the US Navy writes, relied on four key drivers: a pressing threat that justified action, a clear strategy for the number of ships needed, strong government support through laws and funding, and a dynamic private sector.

It is the pressing threat, today embodied by China's colossal commercial shipbuilding empire, that unites the other three elements, and this is exactly what Trump appears to be using to revive US shipbuilding.