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Subsidies and Misplaced Shipbuilding Nostalgia

2 September 2021

Summary

Reading some of the commentary, one could be forgiven for believing that the United States was a major commercial shipbuilding force in the post‐​World War II era until it was brought low by the end of a particular subsidy in the early 1980s. Known as construction differential subsidies (CDS), they were meant to encourage domestic shipbuilding by bridging the difference in price between constructing ships in the United States and abroad (up to a maximum of 50 percent). With these subsidies in place, some argue, the country’s shipyards were in a vibrant state. The Brookings Institution’s Aaron Klein, for example, has credited these subsidies with helping to deliver 75 ships per year in the mid-1970s—a far cry from the 3 built per year in recent decades—while the Lexington Institute’s Loren Thompson claims their elimination led the United States to quickly go from “the biggest commercial shipbuilder in the world to no longer producing any vessels for international trade.” Earlier this year defense analyst Jerry Hendrix described the subsidies as a recognition by the federal government that a “robust and resilient shipbuilding sector was a critical component of a comprehensive national security strategy.” But as data from U.S. Maritime Administration annual reports make clear, the sector during this era—at least on the commercial side—was something less than robust (and claimed deliveries of 75 ships per year simply erroneous). Even with these industry handouts in place the United States still languished in shipbuilding mediocrity.

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