The Plan to Get America Building Big Ships Again

The US is a dominant force in a number of important industries, but it's been lagging behind in one crucial area: shipbuilding. Today, there are about 80 US-flagged ships involved in global trade, compared to more than 5,500 China-flagged vessels. The worry is that the US has been falling behind in this important component of international commerce, and that the country's entire economy could be at risk of being choked off. The SHIPS for America Act is a rare bipartisan proposal that aims to address these concerns by getting America to build commercial vessels again. But how exactly do you go about reviving an industry that's been all but moribund for decades? We speak to Senator Mark Kelly, a Democrat from Arizona, and Senator Todd Young, a Republican from Indiana, co-sponsors of the bill, about their plan. Read More:US Lawmakers Seek to Bolster Shipbuilding at HomeThe Shipping Industry Is Getting a Slew of New Vessels—Right as Demand CoolsOdd Lots is coming to Washington, DC! Get your tickets here. See omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 0:59Speaker 01

  But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:39Tracy Alloway?

  Hey there, Odd Lots listeners. It's Tracy Alloway.

• 1:42Joe Weisenthal?

  And Joe Weisenthal.

• 1:43Tracy Alloway?

  We are very excited to announce that Odd Lots is going to Washington.

• 1:48Joe Weisenthal?

  That's right. For the first time, we are going to do a live public Odd Lots recording in our nation's Capitol. That's going to be March 12th in Washington DC at the Miracle Theater. And guests will be announced in the coming days, but in the meantime, you can find a ticket link at Bloomberg.com/oddlots.

• 2:10Speaker 04

  Bloomberg Audio Studios. Podcasts, radio, news.

• 2:26Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Jill Weisenthal.

• 2:31Tracy Alloway?

  And I'm Tracy Alloway.

• 2:32Joe Weisenthal?

  Tracy, let's get back on the supply chains, shipping and industrial policy beat.

• 2:38Tracy Alloway?

  I love it. I've been waiting for us to get back on that. Although, actually, okay, so I'm excited about this for two reasons. One is I enjoy talking about supply chains and talking about how goods are actually transported. And I think I've told you before, I actually wanted to be a commodities reporter because like, there's this element of romanticism to shipping actual things, moving actual stuff around the world. But then, secondly, the reason I'm excited for this conversation is because this is a rare example or instance of something that has bipartisan support.

• 3:13Joe Weisenthal?

  Yes, that's right. And so, obviously, during the last administration, we saw all these things, there was the CHIPS Act, there was the Inflation Reduction Act, which primarily focused on energy, a lot of alternative energy. There's been some question, obviously, with the changing of the guard in DC, are we going to see some more like activist efforts to shore up certain aspects of the US industrial capacity? There's a lot of anxiety about that right now, but you know, it's obviously an open question where that's going to go. But one of the things that has come up in some of our conversations that we haven't dived too deep into it is American maritime capacity specifically. And it comes up when

• 3:54Joe Weisenthal?

  we reference the Jones Act, and it comes up when we talk about port automation, and we've talked a little bit about icebreakers and things like that, and how sort of atrophied US capacity has become. And so then, there's this question, like, you know, A, what can we do about it? And B, how urgent is there a reason to rebuild this capacity?

• 4:14Tracy Alloway?

  I was kind of wondering how long it would take for us to bring up the Jones Act in this conversation, and the answer is about one or two minutes. But I think this is, it's a really interesting topic from an Outlots perspective. We have done shipping episodes in the past, and obviously, everyone learned during the pandemic that shipping costs are really important. But also, I'm just interested in this discussion from a sort of policy design perspective. How do you go about actually designing something like this that, at first glance, seems absolutely sprawling and complicated and touching on all these different things?

• 4:48Joe Weisenthal?

  Well, I'm excited to say we really do have the two perfect guests for this conversation. We're going to be speaking with Republican Senator Todd Young from Indiana and Democratic Senator Mark Kelly from Arizona. Senator Kelly is a trained Merchant Marine. I see a class of 86, the Merchant Marine Academy. So, like I said, truly the perfect guests, Senators Kelly and Young. Thank you so much for coming on Outlots.

• 5:17Speaker 05

  Thanks for having us.

• 5:18Speaker 06

  Yeah, thank you, Joe and Tracy, for having us on.

• 5:21Joe Weisenthal?

  Why don't we just start, why don't you describe, one of you or both of you, describe the existing state of America's maritime capacity? And just like, why it's something that we need to, in your views, address?

• 5:36Speaker 06

  Hey, Joe, this is Mark Kelly. You know, just to start, I would say, big picture, the state of our maritime industry is really, really poor. I was in a brief just yesterday with the Admiral, the four-star Admiral, Admiral Papparo, who's the head of Indo-PACOM, and we're talking about the Western Pacific. And he was talking about the Military Sealift Command and how it is in bad shape materially and also from a workforce perspective. But when you consider where we were and where we are today. So, when I graduated from the US Merchant Marine Academy in 1986, as you mentioned, made about 400 US-flagged ocean-going vessels.

• 6:20Speaker 06

  And that was down, by the way, from thousands after World War II. Today, that number has fallen to 80. So, 80 US-flagged vessels in international commerce flying the US flag. China, you know, our peer or near-peer adversary, has 5,500.

• 6:42Speaker 06

  And most of the cargo that comes to the United States can come on Chinese ships. So if you remember what happened in 2021, 2022 with supply chains and bottleneck at seaports, especially on the West Coast. I mean, if China wants to do that similar effect to us, they can, on any day, President Xi could say, hey, no, no Chinese ships take cargo to the United States anymore. And it would essentially shut down our economy. So this is a problem. It's a national security problem. We got to fix it.

• 7:16Tracy Alloway?

  So how did this happen? I mean, 80 US flagged vessels versus 5,500 out of China is a pretty stunning statistic. What are the things that went into making, I guess, the US less competitive when it comes to shipbuilding?

• 7:33Speaker 06

  Todd, I don't know if you want to take that, or I could kind of, yeah.

• 7:36Speaker 05

  I'll speak at a high level. I mean, what we have seen over the years is China, in a number of different sectors of the economy, they've subsidized their activities in furtherance of national security and domestic job creation and to master certain technologies and crafts so that they can leverage those for geopolitical purposes and also for commercial purposes to put other industries and other countries out of business. So examples, one example would be semiconductors. And it's not just the Chinese.

• 8:18Speaker 05

  Many other Asian nations understood back, you could point to the 1980s. They understood that having some measure of control and expertise over semiconductor technologies was important to their growth and also important to their military, using these technologies, embedding them in different military platforms.

• 8:43Speaker 05

  And so they invested in them. We instead, we have a more efficient economic model that doesn't lead to the sort of over-investment and waste by our capital markets and others that the Chinese do. We also don't look at economic exchanges historically through a military lens. Well, the disadvantage of that is when other countries are subsidizing their businesses, in this case shipbuilding, and we're not subsidizing, they will undercut us on price and, given enough practice, sometimes undercut us on quality. So we have gotten out of the business, in the case of semiconductors, of making them, and over time, we became

• 9:27Speaker 05

  vulnerable to interruptions in the supply chain. The interruption that we might experience in shipbuilding, our maritime industry that Mark just alluded to, is one we're trying to prevent. We don't want a situation, whether it's a pandemic or a military conflict, in which we are dependent on our chief adversary, China, to move materiel and personnel to other places. And on a day-to-day basis, as our government leaders are making foreign policy, we don't want to be coerced into making certain decisions by the mere threat of Chinese interruption of our economy. So that's why, at the highest level, this is

• 10:10Speaker 05

  very important and why some sort of government intervention is needed, because this, in the end, is an economic security issue and also a national security issue.

• 10:20Speaker 06

  And Tracy, you know, to add on to that, just a little, in the 1980s, we used to do this differently, and before. There was some more government involvement. We got out of that, kind of left the maritime industry totally on its own, and it just decayed over decades, over the last 40 years. And, you know, the other concern here about, you know, it's not only the number of ships, but, you know, the Chinese ships, the ocean-going, their ocean-going vessels, 5,500. Or so that they have requirements put on them by the PLA Navy.

• 11:00Speaker 06

  So these ships are, you know, well equipped and configured to be what they need if they were in a conflict with us. Now, we rely on the military sea lift command for our initial capacity to move combat equipment and troops, in some cases, troops overseas. But those numbers are rather limited. And the reason why you want a large maritime fleet is not only, you know, peacetime to move, you know, cargo and it's healthy for our economy and it also helps US shipbuilding. But the other reason is in time of conflict, we might have to rely on this capacity of

• 11:44Speaker 06

  ocean-going merchant vessels to get combat power across the Pacific or Atlantic.

• 11:49Speaker 05

  Sorry, I was just going to build on Mark's point and emphasize the capacity that Mark just alluded to is what we're essentially trying to do is we're trying to train more mariners, build more ships, and then create more yard space in our existing yards and perhaps some older yards that need to be refurbished, create more yard space that can support additional military shipbuilding and repair during a wartime situation.

• 12:35Speaker 00

  What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 12:50Speaker 07

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service institutional clients.

• 12:59Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese Merica Ripple says.

• 13:07Speaker 08

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 13:26Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 13:37Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices,

• 14:20Speaker 01

  but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 14:59Joe Weisenthal?

  It's interesting, you know, we're having this bipartisan conversation and you laid it out, the sort of tension very well, which is that sort of American economic philosophy has been optimized for efficiency and profit. And obviously, we're extraordinarily wealthy as a country, probably in large part of that. But A, there's the geopolitical risks that emerge with losing, basically, the ability to build stuff. And you mentioned semiconductors and ships, and there's a lot of this. And so, A, you know, you run the risk, it's overseas, and then over time, perhaps they don't even need the subsidies anymore because they just have years and years and years of practice, getting better and better at it. Do you see

• 15:39Joe Weisenthal?

  this sort of framework, this sort of lens with which to view economic policy is fundamentally changing in DC? Because we're trying to sort of understand, you know, how much momentum and continuity there will be for just this general notion of what people call industrial policy.

• 15:58Speaker 05

  I do. I believe a lot of minds have been changed and policymakers penchant for embracing these sorts of policies has fundamentally changed. Mark was helpful to me as we tried to push through the CHIPS and Science Act, dealing with the semiconductor challenges. And I think through that exercise, many of us had to make some, what were challenging arguments to colleagues about why we needed to bake in a national security premium to the price of certain products, knowing that if we didn't make them here, have the capacity to make them here in the future, there would be national security consequences to that.

• 16:43Speaker 05

  And we've done that on so many other technology areas in the past. The only difference now is that we have an adversary that does not really look at any commercial transactions through a purely commercial lens. There's always a geopolitical or military overlay to it. So we have to extend the longstanding philosophy to other areas of our economy in order to protect our people. So if we continue to make the the arguments, I think more people in Washington will embrace what most people across America already intuitively understand, which is, yes, I remember during the global pandemic when I tried to go to Walmart and buy a consumer electronic and

• 17:28Speaker 05

  the shelves were half empty. They understood why that was and why it's hard to run a modern economy with without more resiliency and a little more just in case instead of just in time.

• 17:42Tracy Alloway?

  So one of the things that comes up quite a lot on this show is the importance of institutional knowledge. So, you know, you can have people in DC agree that the US should build, you know, more big and complicated things, whether those are semiconductors or ships. But you actually need people who know how to do that. And if we haven't been building these things for decades, then there probably aren't that many people around who have practical knowledge or experience of how to do this. And in fact, I don't think there's any major shipbuilder that is actually headquartered in the US, although there are some subsidiaries. How do you actually go about building up institutional knowledge for shipbuilding?

• 18:23Speaker 06

  Tracy, so one of my classmates from the US Merchant Marine Academy in 1986 is a woman named Jennifer Boykin. She's the president of Newport News Shipbuilding. And before I was in this job, I remember going down there to visit her and talking about some of the workforce issues. She builds aircraft carriers and Virginia-class submarines. You know, one of the preeminent shipbuilders in the world when you consider just the capability of these vessels. A US aircraft carrier, the Ford-class aircraft carrier, the Virginia-class attack submarines are, you know, there's nothing better. So we can build really, really

• 19:03Speaker 06

  good and capable ships. But one of the challenges, you know, the chief faces is what you're talking about is the workforce, you know, constantly trying to find people that will do these jobs and do them well and have the skills. Now, they train a lot of their own people, welders and pipe fitters, electricians.

• 19:23Speaker 06

  But they often run into challenges in finding people to go into these jobs. When they need people that are trained already, that ecosystem of shipbuilders doesn't really exist anymore in the United States. So part of the benefit of this, and in the legislation itself, is a strategy to provide help for training programs, so to build the workforce. You can think of this as kind of a three-legged stool. One of them being the shipyards, one of them being the US-flagged vessels, and the third being the workforce.

• 20:05Speaker 06

  And by supporting the schools like the US Merchant Marine Academy and the state maritime academies, and also the schools that train the unlicensed mariners, but then also programs to help shipyards find pipe fitters and train them, and welders, and electricians, and all those trades, will then grow this entire ecosystem so there's extra capacity of a workforce that existing shipbuilders that build naval combatants can rely on. And then that extends not only to the workforce, but to the companies that build the parts, pumps and pipes.

• 20:49Speaker 06

  If you grow that, there's a more competitive economic environment, there's more availability. In some cases now, when they're buying a pump or pipes, they might have only one or two vendors that they can rely on. So the idea here is by building the US Merchant Marine and the shipbuilding workforce, we're also going to help our naval shipbuilding.

• 21:17Joe Weisenthal?

  Well, this is actually just a good moment. Why don't you describe what, give us the outline of the Ships for America Act? How much do you want to spend? What do you, what does it hope to achieve? What would the US industry look like if all successfully implemented?

• 21:31Speaker 06

  Well, it's a 300-page piece of legislation. It touches every aspect or nearly every aspect of the maritime industry. I guess we'll all just start kind of in a random place here. Provide for a maritime security advisor within the White House, who would lead an interagency maritime security board to make some whole of government strategic decisions on how to implement a national maritime strategy. It also establishes a maritime security trust fund that would reinvest duties and fees that are paid by the maritime industry into maritime security programs and infrastructure programs with the goal here

• 22:16Speaker 06

  of having 250 ocean-going merchant vessels in 10 years. We would create a strategic commercial fleet program. We would change or establish a rulemaking committee on commercial maritime regulations and standards. And then we would do things like requiring government-funded cargo to move on US-flagged vessels and requiring a portion of the cargo imported from China to go on US-flagged vessels, starting at a later time. There's tax credits, there's Title 11 federal ship financing, there's shipbuilding financial incentive programs in the legislation. There's also a part of this that's about manufacturing and innovation

• 23:01Speaker 06

  and coming up with the next generation of ships and ship energy systems. And I could go on.

• 23:09Tracy Alloway?

  Yeah, the bill in its official format is actually 344 pages long, and I will confess, I did not read all of it.

• 23:17Joe Weisenthal?

  Did you upload it to ChatGPT?

• 23:18Tracy Alloway?

  I did not. That's a good idea, actually.

• 23:20Joe Weisenthal?

  Yeah, I did.

• 23:21Tracy Alloway?

  One of the things I was wondering is, you know, this is kind of a devil's advocate question, but a lot of the act, as you just outlined, is about creating incentives to build ships through things like tax credits or providing some subsidies for construction or training. Why can't the US government just fund ships directly? If ships are so important for national security and trade, why even try to leave it to private capital to build?

• 23:51Speaker 06

  Well, that's a good question. I mean, I guess that's what China does, right? They build them, you know, they put them out there on the oceans. They really belong to the Chinese government in a way. You know, we are a democracy. We're a capitalist society. We believe in private markets and private ownership, and we believe in, you know, to some extent, maybe helping companies, but eventually getting them to the point where they're on their own, they're profitable, they're creating good-paying jobs. These are jobs often that you can raise a family on that do not require a four-year degree. So these are, you know, great, you know, jobs that are, you know, provide an

• 24:34Speaker 06

  economic benefit, not just to the people who work them, but to our country, and they help us grow the economy. I don't think the government operating its own, you know, fleet vessels to move commercial cargo, you know, makes a ton of sense because this is, this is an important part of our economy. It's deteriorated over the years, but you know, what you're suggesting would be really like a, you know, wholesale pivot to government-owned industry.

• 25:04Joe Weisenthal?

  Let me ask you another question. You know, we've done a lot on industrial policy in the past, and one of the... Preconditions or, you know, industrial policy can fail easily and you can have cronyism and you can have companies overbilling the government for mediocre products. And this is just one of the pitfalls of any time there's a lot of public money going to something. But one way that this gets addressed historically in some markets is this idea of the domestic champion has to be competitive on the global market. And so if you're a car company or a chip company in China or something like, you know, you don't have any guaranteed buyers

• 25:48Joe Weisenthal?

  overseas because the chipmaker is still competing with Texas Instruments or BYD is still competing with Tesla. What are the mechanisms that you have in place or that you envision to still have that sort of market discipline, so to speak, so that yes, there is this public money going, but there is still this element that, yeah, we want the ships to be really good and competitive and competitively priced and to sort of win, so to speak, so that we know we're getting value from the spending?

• 26:19Speaker 05

  Well, yeah, let me take that. And frankly, this builds off of the previous question. First, I've learned a lot and frankly, thought a fair amount about industrial policy in recent years through the CHIPS Act. And from a purely economic standpoint, there would be no difference when it comes to direct payments, to grantee companies that are charged with building ships on behalf of both our commercial industry and for future national security reasons.

• 26:56Speaker 05

  But administratively, you can cut down on any concerns over cronyism or waste by having a neutral arbiter. And, you know, despite some anomalies over time, our IRS is a pretty neutral arbiter.

• 27:15Speaker 05

  So when you are funding this shipbuilding initiative through the tax code, it does provide a neutral arbiter. Sometimes the downside to that approach is that you end up funding through the tax code more enterprises and certain enterprises that you wouldn't otherwise fund. So there are trade offs when you make decisions about how you administer your industrial policy. That would be point one. Point two about establishing market discipline is very important. If you look at semiconductors, that market is incredibly distributed and ramified all across the world.

• 27:55Speaker 05

  We will see for any given semiconductor, it going across international borders dozens and dozens of times before it becomes, you know, assembled component. In the case of ships, of course, you're going to have components going in and out of the country some, but it's less distributed and it will be the job in the main of our diplomats and of our private enterprises to sell our ships into other markets. We need to open up other markets through trade policy, something I'm also an advocate of and will continue to argue for. In part, and this is a rarely mentioned dimension of trade policy, but one of the reasons we

• 28:39Speaker 05

  want to trade with the rest of the world is to enforce a certain efficiency and discipline on our own economy.

• 28:45Joe Weisenthal?

  Yeah.

• 28:46Speaker 05

  So that we will see a deployment of resources efficiently and we can grow faster and all become more wealthy. So, I mean, that's how this will be accomplished. But what we have right now is we have a more concentrated shipbuilding industry in particular countries because they see not only the commercial, but also the national security upside to excelling in shipbuilding. And it will take some work from our government to open up foreign markets for our ships down the road. So we're not there yet. We can't wait for that, however. I mean, we own 3% of the global commercial fleet right now.

• 29:28Speaker 05

  China owns roughly one-fifth of the world's fleet. And they will, through their bulk carriers... Move a far larger proportion of American goods into the United States. So they've got us at the end of a barrel, frankly. And there is some urgency to us beginning this exercise now, especially in light of many of our national security community's predictions about Chinese misbehavior vis a vis Taiwan or South China Sea, which will require a maritime response from the United States.

• 30:09Speaker 05

  And at this point in time, we just cannot move enough material and enough of our soldiers, sailors and airmen to win a fight. And that ought to send a shiver down the spine of most Americans.

• 30:24Tracy Alloway?

  Since you brought up the broader trade landscape, would you expect retaliation from China for this act? I think it's fair to say at the moment, the relationship between the US and China is pretty frayed, given the ongoing trade war. And one of the things this act proposes is creating a commercial cargo preference so that in 15 years, 10% of all cargo that's imported into the US from China will need to be imported on US flagged vessels. And I imagine that China might not like that, right? We talked earlier about how they've been supporting their own domestic shipbuilding industry, so clearly this is important to them.

• 31:05Tracy Alloway?

  Could they potentially respond in kind with their own restrictions?

• 31:10Speaker 06

  Well, they could always do that, Tracy, but when you think about 10% is pretty modest. You know, we're building our capacity. We're going to require, you know, certain cargo to be carried on US flagged ships under, you know, this act, but we can't be making. Industrial policy decisions based on what we think the response from China is going to be. You know, if they respond, we'll figure out a way forward and figure out how do we, you know, counter a response if it's unfair. But right now, when you, you know, just consider the capacity that China has in this industry,

• 31:52Speaker 06

  5,500 ocean-going merchant vessels, and we have 80. We've got to turn this around, like semiconductors. We didn't get into the, you know, details of why, you know, the semiconductor industry is so important, but the best semiconductors are made in Taiwan. A company called TSMC, and if we lose access to those, this is part of the discussion we had today with, or yesterday with Admiral Papparo. If we lose access to semiconductor chips from Taiwan, we could very quickly lose 5% to 10% of our GDP. Unemployment could go up 10% in the United States rather rapidly. So that's one of the reasons we wanted to ensure, you know, this capability.

• 32:35Speaker 06

  And, you know, Todd was the author of the bill that I worked on with him. So, yeah, I, I, I think it's always possible we could see a response from the Chinese, but that doesn't, you know, mean we shouldn't do this.

• 32:49Speaker 05

  Yeah, Tracy, we have to assume that the Chinese will, you know, be upset. But what they aim to do, and it's an intelligent thing to do, is by threatening a response, because our economies remain interwoven, by threatening a response, they want to deter us from making our own economy more resilient. And as long as we remain vulnerable to their provocative threats and activities, then our policymakers will have to think about the economic cost, and sometimes even military costs they'll impose on, on our country. We have to get ourselves out of this predicament.

• 33:34Speaker 05

  And why not do so by being consistent with something we've told the Chinese and the rest of the world for generations, which is the United States of America will be, you know, the world's best friend and at times your best enemy. But all we ask to ensure we remain friends is a measure of reciprocity. It's a fundamental trading principle and the Chinese favor their own commercial vessels. The Chinese offer extensive subsidies, not only for their shipbuilding industry, but across the board for industries they regard as strategic.

• 34:14Speaker 05

  So we're following through with a longstanding philosophy and a key here is that when we make these sorts of actions, we do so in coordination with partners and allies. In this case, in the last administration, the Secretary of the Navy and the administration were able to unlock a significant investment, which I understand may be forthcoming, in our Philadelphia naval shipyard from South Korea. So that's an illustration of how if we start to get some buy-in from other economies and businesses and countries to our own shipbuilding exercise, because they too have a vested

• 34:55Speaker 05

  interest in our economic and military strength, we can mitigate any blowback from China.

• 35:01Joe Weisenthal?

  You sort of anticipated my next question because one way that you can sort of balance the goals for efficiency and dynamic market economies alongside the national security concerns is working with allies and countries that we trust and countries in similar positions and et cetera. In your law, in your proposed bill, what is the role for foreign companies either building directly here or, you know, US investment elsewhere but among friends, so to speak, in revitalizing this capacity? How are our allies treated?

• 35:39Speaker 06

  Well, you know, we want our allies to work with us here in the United States. You know, there are foreign shipbuilders that could build capacity here in shipyards and be our partners. You know, that's built into the legislation. So this could benefit. Our allies, and that's one of our strategic strengths is we actually have allies. China doesn't have that. So when we develop this sort of policy, it's important that we keep our allies in mind. And this legislation does that.

• 36:32Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 37:14Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 37:55Tracy Alloway?

  One of the other things I'm sure people will be curious about is the ultimate impact on cargo costs. And as you mentioned, during the pandemic, we all experienced the frustration of not being able to buy toilet paper or electronic goods or whatever because of empty shelves. And with this act, on the one hand, you're trying to expand capacity with additional ships, which would presumably bring costs down. But on the other hand, there are people out there, I'm thinking specifically of Lars Jensen, a shipping expert, who argue that the act as currently designed would increase shipping costs for US importers and exporters. And yeah, as we learned during the pandemic, the cost of transporting goods

• 38:38Tracy Alloway?

  is pretty important to broader inflation. It feeds into almost everything, at least when it comes to goods. How do you sort of balance, I guess, the additional costs of transitioning to this new system versus ultimately trying to bring down prices?

• 38:55Speaker 05

  Well, let me address that. From an economic standpoint, what you want to establish is certainty in your economy and at the consumer level and the business level. You don't want big spikes and then valleys in prices. That does not lend itself to stability or confidence in the markets. It makes it very difficult at the household level to plan your expenditures. We, I think, all experienced a measure of that during the pandemic, where some things were shooting up and then other things were on discount and it became kind of an alternative

• 39:34Speaker 05

  universe. And the way we aim to address prices, and you alluded to it, Tracy, was by making sure we have more control under a key uncertainty in the value chain, and that value chain is the shipping of your products across an ocean.

• 39:52Speaker 05

  And that's at the export and import level. And so we have control over that. Does that in the near term, prior to a crisis, lead to marginal premium on certain products? It could. It could lead to a marginal increase. But net-net, you're not going to be experiencing those highs and lows. And most importantly, you will not experience the incredible cost of losing sovereignty, losing the ability to make your own economic policies because of economic coercion, a key

• 40:33Speaker 05

  tactic of the Chinese Communist Party, or to be able to defend your way of life through military force because you can't move the men and women to where they need to go in the material and difficult circumstances. So, you know, as with other construction efforts, you know, we build military jets here, for example. There wasn't a robust enough consumer market in the United States to build fighter jets. So we asked the taxpayers to front some investments so we have the capacity to build it for our military. There's a dimension of that here as well.

• 41:15Joe Weisenthal?

  I mean, I think this is a really important point. It gets to this very sort of deep tension. Everyone likes the idea of spare capacity, especially in the moment like a March 2020 or a pandemic or a theoretical war. On the other hand, you know, in times of peace or in times of health when there isn't a pandemic, you know, it is a cost and it's very hard to quantify or sort of perhaps intuit the price that you're paying for this sort of, you know, potential black swan event. Just real quickly, because we didn't touch on this. How much are you envisioning this would cost to get to your goals? How much would be actually allocated? And what are the funding mechanisms?

• 41:58Joe Weisenthal?

  I think you mentioned some sort of a trust fund, but just talk us through the dollars aspect.

• 42:04Speaker 06

  Well, this bill is paid for. I mean, it's paid for within fees that are generated within our maritime industry. So there's not a significant amount of like direct funding. I don't think we have a score on it yet. Okay. Tax credits are paid for by, you know, fees that, you know, shipping companies, you know, will be paying as they bring cargo into the United States, tonnage fees and other, you know, programs like that. So in some ways, I'd say it's different than the CHIPS and Science Act in that regard and how these things are paid for.

• 42:39Tracy Alloway?

  How confident are you of pushing this proposal through? Because, you know, on the one hand, it has bipartisan support and there are a lot of things you can say that about nowadays. But on the other hand, a lot of the focus of the new administration seems to be on dismantling various things or making things more efficient versus actually building new stuff.

• 43:02Speaker 05

  Well, I can, as a Republican, I can tell you that President Trump likes to build things. He likes beautiful things. He likes to create jobs, manufacturing jobs. He especially likes the opportunity to create more manufacturing jobs in the industrial Midwest, a place that loves President Trump. And there will be components of these ships, if not additional shipyards, brought to bear on this national and economic security challenge. And he's enlisted the help already in his national security team of key individuals who are

• 43:46Speaker 05

  fully supportive of this effort, one being a friend of Mark Kelly's, Mike Walz, who is now the National Security Advisor. He's bought into this vision in the past as a member of Congress. Another is Jerry Hendricks, who Mark also knows, happens to be from my state. Jerry is a supply chain expert with particular expertise in shipbuilding and spent a career in the Navy and he's bought into this sort of vision. So we have some key allies and surrogates who can help us make the case. It's never easy during times like these when we Republicans, I think, are rightly focused.

• 44:29Speaker 05

  On fiscal responsibility, which I don't want to suggest Mark doesn't care about either. He does, but we are warm to making our military more effective and this is an important way to do so.

• 44:43Speaker 06

  And Tracy, I think there's going to be a tremendous amount of enthusiasm for this legislation. It's the kind of thing that works on both sides of the aisle. You know, we all realize that China is an adversary. President Xi, the Chinese president, has said things that are rather aggressive in the past. We've got to rebuild this industry. We are a maritime nation. We've got water on both sides. You know, the Chinese have this vision of being a worldwide naval and maritime power. They're building more naval ships than we are every single year. They're building more submarines. We've got to get this back on track and this legislation is going to be a part of the thing that we need

• 45:26Speaker 06

  to do, a big part actually, to turn this, well, since I'm a Navy guy, to turn this like aircraft carrier around. Take some time. It's a big part of this. But unfortunately, I've got to go. So I want to wrap this up here with you. I appreciate your interest in this. You know, Todd and I have been working on this for some time. Todd mentioned Mike Waltz originally when this started. It was because we had a common interest in this topic. He's now the president's national security advisor. So we know, at least in his office, there's a lot of interest in getting this done. So I'm incredibly excited about getting this across the finish line. We're going to reintroduce this soon in this

• 46:07Speaker 06

  Congress and then Todd and I in the Senate and Rep. Representative Kelly in the House and Representative Garimandi, we're all going to work together to get more cosponsors to go through the process of getting this across the finish line.

• 46:21Joe Weisenthal?

  Senators Mark Kelly and Todd Young, thank you so much for coming on Odd Lots. That was fantastic.

• 46:26Speaker 05

  Thanks for having us.

• 46:28Speaker 06

  Enjoyed it.

• 46:41Joe Weisenthal?

  Tracy, A, I really enjoyed that conversation. B, you're gonna make fun of me because of how boomer I'm getting. Like when like, when-

• 46:48Tracy Alloway?

  You just wanna build the big ships.

• 46:49Joe Weisenthal?

  Yeah, like Senator Kelly starts talking about Virginia-class submarines and stuff like that. I get the hair on my arm picks up, you know? I get excited about stuff like that.

• 46:57Tracy Alloway?

  They are cool things. You know what? I was rewatching Pretty Woman the other day.

• 47:01Joe Weisenthal?

  Yeah.

• 47:01Tracy Alloway?

  And, and I realized I had an epiphany. It's actually, it's all about shipbuilding.

• 47:06Joe Weisenthal?

  Yeah.

• 47:06Tracy Alloway?

  Right? That one guy wants to build ships and Richard Gere ultimately has a come-to-Jesus moment and decides to build them with him rather than dismantling the company. So, you know, shipbuilding is part of the American dream.

• 47:20Joe Weisenthal?

  I mean, it literally, it literally is. And, you know, I, I actually really liked this conversation for many reasons. But one, it's sort of like gets down to some core economic philosophical questions. And I remember, I think it was spring of last year, we did that conversation with Christian Parenti about Alexander Hamilton's treaty or treatise on manufactures. And this idea that, I think there's two things. A, that a country that can't build things is a country whose sovereignty is really in doubt, I think, is a really just like core idea. And it's interesting to hear them articulate this. And then this idea that, yeah, the US economy is largely governed, so to speak, by the profit

• 48:03Joe Weisenthal?

  principle and maximum efficiency. And it's cheaper to ship goods on foreign-owned ships, particularly if foreign governments are subsidizing those ships, which means it's a de facto subsidy to American consumers. But then the idea of, okay, well, if that ultimately, long-term, puts us in a position where our sovereignty is threatened, it's not just ships, it's obviously things like semiconductors and really many other things, then you have to think about what is the price you're going to pay for avoiding some tail risk, which is really hard to measure down the road.

• 48:38Tracy Alloway?

  There is certainly a tension there.

• 48:40Joe Weisenthal?

  Yeah.

• 48:41Tracy Alloway?

  The other thing I would say is, it's interesting to me how much this lines up with very traditional Keynesian economics, right? In, in the sense that Keynes argued that- There's a role for government to smooth economic cycles.

• 48:55Joe Weisenthal?

  Yes.

• 48:55Tracy Alloway?

  And we're talking about an extremely cyclical industry that's famous for boom bust periods.

• 49:03Joe Weisenthal?

  Yeah.

• 49:03Tracy Alloway?

  And so, you know, coming at it from that perspective, the idea of the government being a sort of like, smooth the cycle actor makes some sense.

• 49:12Joe Weisenthal?

  Well, this is interesting. I was, I've been, you know, trying to read more about defense history and about defense procurement. And this is one of the arguments that the big defense giants have always made in the past, which is, you know, you can't just have their argument, and I find it, there's some logic behind it. You know, you can't just have big orders come in during war and then all the orders go away, you know, after the war is over and then, you know, everyone gets a different job and the factories are dismantled and stuff. Because then you, you know, you lose that institutional memory that you're talking about.

• 49:46Tracy Alloway?

  This is how the Jones Act happened. So after the First World War, we had a surplus of ships. And so everyone was like, well, we'll just restrict it to US owned ships and everything will be fine. And then, you know, fast forward like 100 years and we don't have that surplus anymore.

• 50:03Joe Weisenthal?

  This is a really good topic for us. We should do more on this.

• 50:06Tracy Alloway?

  Do you like how I brought it full circle?

• 50:07Joe Weisenthal?

  Yes.

• 50:08Tracy Alloway?

  To the Jones Act.

• 50:09Joe Weisenthal?

  Well done.

• 50:09Tracy Alloway?

  Yeah, thank you.

• 50:10Joe Weisenthal?

  And one day, we're gonna do a Jones Act episode.

• 50:12Tracy Alloway?

  We will.

• 50:12Joe Weisenthal?

  The long recurring joke that we've never done a Jones Act episode.

• 50:17Tracy Alloway?

  All right. Shall we leave it there?

• 50:18Joe Weisenthal?

  Let's leave it there.

• 50:19Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 50:25Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guests, Indiana Senator Todd Young. He's at Sen Todd Young. Follow Senator Mark Kelly at Sen Mark Kelly. Follow our producers, Kermit Rodriguez at Kermit Armin, Dashell Bennett at Dashbot, and Kell Brooks at Kell Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have transcripts, a blog, and a newsletter. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 50:55Tracy Alloway?

  And if you enjoy listening to Odd Lots, if you, like Joe, get goosebumps when we talk about building big ships, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 51:49Speaker 09

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