Seoul (AFP) – Asia’s fourth largest economy, South Korea, is facing gruelling tariffs imposed by US President Donald Trump. However, its shipbuilding industry could prove to be a useful bargaining chip. Already affected by sector levies on steel and car exports, Seoul is laser-focused on negotiations regarding a 25 percent country-specific tariff that has been suspended until July 8. AFP takes a look at what’s going on:
– **Why shipbuilding?**
In the 1970s, South Korea’s military leader, President Park Chung-hee, accelerated the country’s heavy industry by designating sectors such as steel and shipbuilding as “strategically important” and rolling out state subsidies. During this time, POSCO was founded, now one of the world’s largest steel producers, and the conglomerate Hyundai built its shipyard in southeastern Ulsan, which began to grow rapidly. European rivals struggled to keep pace; for instance, Sweden’s Kockums Shipyard filed for bankruptcy in 1987, leading to a symbolic shift in global shipbuilding power when Hyundai acquired its 140-meter (460-foot) Goliath crane for one dollar. This crane now towers over southern Ulsan.
In the 1990s and 2000s, South Korean shipbuilders such as Hyundai Heavy Industries and Samsung Heavy Industries ramped up investment in research and development, backed by generous government subsidies. The country secured a competitive edge in high-value-added vessels, including LNG carriers, very large crude carriers, and offshore platforms. Today, South Korea ranks as the world’s second-largest shipbuilding nation, trailing only behind China.
– **Is it important?**
South Korea’s exports hit a record high in 2024, with analysts pointing to shipbuilding as one of the key drivers. The sector accounted for nearly four percent of total exports and grew by almost 20 percent from the previous year, reaching $25.6 billion. Shipbuilding directly employs around 120,000 workers, which is roughly one percent of the country’s total workforce, with indirect employment significantly higher in industrial hubs like Ulsan. Industry data shows that so far this year, new orders have exceeded 13 trillion won ($9.4 billion). In March, Hanwha Ocean secured a landmark $1.6 billion contract to build LNG carriers for Taiwan’s Evergreen Marine, which is one of the largest single orders in the sector this year.
– **Why is it a ‘bargaining chip’?**
Trump has shown “significant interest in South Korea-US shipbuilding cooperation,” said South Korea’s Trade, Industry, and Energy Minister Ahn Duk-geun in April. Similar to the Europeans, the US shipbuilding industry has lagged behind South Korea and China. As a result, the sector is viewed as a “highly important bargaining chip in trade negotiations,” he added. At an APEC finance ministers’ meeting in South Korea in May, US Trade Representative Jamieson Greer met with Chung Ki-sun, vice chairman of HD Hyundai, the country’s largest shipbuilder, before meeting with Seoul’s top officials. “South Korea’s shipbuilding and defence industries see a window of opportunity,” said Kim Dae-jong, a professor at Sejong University.
– **How does it help the US?**
Greer also met with the CEO of Hanwha Ocean, the first non-American company authorized to carry out dry-dock maintenance on a US Navy vessel. This move, signaled last September, was significant as it indicated that Washington views South Korea, where it already has 28,000 US troops stationed, as a strategic defence hub. With growing concerns about China’s expanding naval fleet and potential conflict in the Taiwan Strait, the US has begun looking for reliable overseas shipyards to support its operations in the Asia-Pacific region. The global market for ship maintenance, repair, and overhaul is projected to exceed $60 billion annually, according to industry estimates.
– **Any problems?**
Despite multi-billion-dollar contracts, data suggests that South Korea’s shipbuilding industry is losing ground in the global race. China dominates the market, and South Korea’s market share has dropped, according to industry data. Additionally, the rising demand for eco-friendly vessels necessitates an overhaul of regulations to support the development of next-generation eco-friendly vessels, as noted by Rhee Shin-hyung, a professor at Seoul National University.
Moreover, South Korea’s declining demographics are making staffing challenging. In Geoje, home to Samsung Heavy Industries, the number of residents in their 20s and 30s has nearly halved in recent years. Orders are down for 2025, suggesting that “the shipbuilding boom may end sooner than the market anticipated,” warned Rhee. Global ship orders between January and April fell by almost half the volume recorded during the same period last year. While shipbuilders have been enjoying a “supercycle,” the peak is expected to be lower and the boom shorter-lived compared to the past, according to Nam Chul, vice president at HD Hyundai Heavy Industries.
© 2024 AFP
