The crane snag is just one example of how hard it is to shift U.S. supply chains away from China. After decades of industrialization, Chinese factories account for nearly one-third of global manufacturing value added, far ahead of the United States, which is No. 2, with 17 percent. Shanghai Zhenhua Heavy Industries Co. (ZPMC), a state-owned Chinese company, provides nearly 80 percent of the large port cranes that move shipping containers from vessels onto U.S. docks.
“The U.S. not only doesn’t have [the] assembly of cranes. It doesn’t have a crane ecosystem. It doesn’t have a capital goods ecosystem. That’s why it’s difficult,” said Chris Rogers, head of supply chain research for S&P Global Market Intelligence.
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Biden’s tariff plan revives an idea that port operators thought they already had defeated. In 2018 and 2019, President Donald Trump proposed import taxes on both the giant ship-to-shore cranes and smaller wheeled models that move cargo on the docks. But he abandoned those levies amid port authorities’ complaints.
This year, Trump has vowed to hit all imported Chinese goods with a colossal 60 percent tariff, if he is returned to the White House in November.
The Biden administration has made supply chain “resilience” a key objective, aiming to reduce the nation’s dependence upon any single source of strategic items. Amid mounting friction between Washington and Beijing, trimming U.S. reliance upon China for products like the port cranes is especially important for national security, according to administration officials.
The United States today buys a smaller share of its overall imports directly from China than it did five years ago, before the pandemic and Trump’s trade war shook up global trade. Products made in China last year accounted for less than 14 percent of the foreign goods Americans imported, down from 21 percent in 2018, according to the Census Bureau.
But those figures overstate the decline in China’s supply role.
In many cases, Chinese companies responded to higher U.S. tariffs by establishing factories in countries such as Vietnam and Mexico and shipping goods to U.S. customers from there.
Even when the United States does buy from non-Chinese manufacturers in other countries, it remains exposed to China via all the Chinese parts inside those products. Companies in places like Canada or Thailand often depend upon Chinese factories for important pieces of their products.
Chinese parts are especially widespread in car and truck manufacturing: The United States has a “hidden exposure” to China four times greater than the amount of its direct imports of Chinese goods suggests, according to research published last fall by the Brookings Institution.
That unrecognized dependence on China is also large in machinery, electrical equipment, electronics and clothes, according to the study by economists Richard Baldwin, Rebecca Freeman and Angelos Theodorakopoulos.
China’s control over the production of intermediate goods is so great that Baldwin refers to it as “the OPEC of industrial inputs,” in a reference to the oil production cartel that influences global oil prices.
In February, the White House announced that PACECO, a California-based subsidiary of Mitsui E&S, a Japanese corporation, would return ship-to-shore crane manufacturing to the United States for the first time in 30 years.
But more than four months later, the company’s plans remain a mystery. In April, during a state visit by Japanese Prime Minister Fumio Kishida, the White House said that PACECO would work with Brookfield, an investment firm, to return “final assembly” of the cranes to the United States.
In response to a request for an update, both companies declined to comment last week.
“Diversification doesn’t happen overnight. It is a process that takes time,” said one White House official, who spoke on the condition of anonymity to discuss administration thinking. “The goal is not to raise the domestic cost of inputs. The goal is to de-risk and diversify.”
U.S. supply chains grew dependent on China over decades of globalization. Biden has taken several steps to diversify key product and material sourcing, though it will take years for them to bear fruit.
In the broadest use of such industrial policies in decades, the federal government is spending $39 billion to subsidize construction of several semiconductor fabrication facilities and billions of dollars more to promote development of renewable energy.
Many economists worry that such efforts will result in higher costs, government waste and corporate cronyism. But administration officials and their supporters say that the rise of China and the lessons of the pandemic’s supply chain disruptions demonstrate the need for a new approach.
“In the face of China as an economic and political and national security threat, we have to rethink some strategies. And regardless of the product and regardless of the country, we don’t want to be beholden to a monopoly supplier. That’s a bad strategy,” said Elisabeth Reynolds, a former White House National Economic Council manufacturing specialist who is now at the Massachusetts Institute of Technology.
National security considerations also underscore the push to re-shore port crane manufacturing. In February, the president issued an executive order directing the Coast Guard to police potential cybersecurity risks involved in using the ZPMC cranes.
Onboard electronics that allow for remote software updates might also enable China to interfere with essential civilian and military port operations during a crisis, according to the House committees on homeland security and the Chinese Communist Party.
The ship-to-shore cranes at the center of the current re-shoring and tariff debate are massive. Towering roughly 15 stories above the docks, their long arms can reach out almost 70 yards to pluck a shipping container from an oceangoing vessel below and transfer it to land.
Ports typically demand cranes that are customized for their individual needs, including height, width and even the salinity of the local air, said Cary Davis, president of the American Association of Port Authorities (AAPA). ZPMC’s large production volumes gives it the flexibility to fill such bespoke orders at affordable prices.
As a state-owned company, ZPMC benefits from “tens of millions of dollars” in Chinese government subsidies, which help keep prices below those of its rivals, according to a joint investigation by the two House panels released in March.
Kone of Finland and Liebherr of Germany also offer ship-to-shore cranes in the United States. But their products are significantly more expensive than the Chinese models and would remain pricier even after the tariffs take effect, according to AAPA.
At a time when the administration has earmarked $20 billion to modernize the nation’s ports, the tariffs could discourage facilities from buying the newer, more efficient cranes needed to complete the job, the industry groups said.
In May, the administration announced tariffs on a host of strategic products produced in China, including the port cranes. A 25 percent tax on Chinese cranes would protect U.S. companies from the “unfair trade practices” that had led to excessive concentration in the crane market, the administration said.
But the ports that buy these giant cranes are squawking. In a June 28 letter, AAPA pleaded for the administration to delay the tariffs. Otherwise, they said, ports will be hit with surprise bills totaling tens of millions of dollars for Chinese cranes they already have ordered.
In Norfolk, the Port of Virginia is awaiting delivery of 12 new ZMPC cranes. Biden’s tariffs would add more than $40 million to the $161.5 million price tag, the association said.
Likewise, the Port of New Orleans faces a $52 million tariff tab for 10 new cranes it ordered for a container terminal scheduled to open in 2028.
The industry group has appealed to U.S. Trade Representative Katherine Tai to delay the proposed tariffs for at least two years past the Aug. 1 scheduled start or until a domestic producer exists.
Her office is considering the request, along with similar pleas by other industries affected by the China tariffs, and is expected to make a decision in the coming weeks.
“We really hope that the government reverses course on this,” said Davis, the AAPA president.
