Rebuilding American sea power

Now, of course, we would not be talking about the Indo-Pacific region without discussing sea power

the state of the might of the great American fleet, as well as sustaining the industrial base

So please welcome to the stage Cynthia Cook, Senior Fellow for the Center for the Industrial Base at CSIS

Brent Sadler is the Senior Research Fellow at the Allison Center for National Security at the Heritage Foundation

And Pentagon correspondent Carla Babb will guide the conversation. You're right in the center

Well, good afternoon, everybody. We are going to talk about the state of shipbuilding and the Navy sprit

And I think it's fair to say that shipbuilding is struggling right now

Let's start off, Brent, can you just tell us what you're seeing here in the U.S.

What are you hearing from allies? and what are the dangers of falling behind in shipbuilding

Great question. And thanks for the chance to talk about perhaps one of my biggest passion projects

since I left the Navy in 2020. That is trying to revive America's maritime industrial base

So where we are right now in the grand plan, which is quite frankly a bipartisan and a national effort

There's a lot of public support for this reindustrialization. It's the attracting of foreign capital to then also try to incentivize and attract even more American capital into this very atrophied, languishing sector

And that's kind of one of the first ingredients that's starting. You saw that with Harunwa in the Philadelphia shipyard

There's a lot of speculation that's going on. Three years ago, shipyards could have been bought into steel

That's not the case anymore as capital is starting to search for investments

And that's good as you try to grow out the industrial base and also to build out the workforce

So we're at that phase now. And with the president's very explicit and consistent, I guess, sustained attention to this national endeavor, it's also having another synergistic effect

You're getting also a lot more activity and planning into new shipyards as well as the brownstone-type shipyards

Navy, on the other hand, is going to take a little longer time. You have shipyards in the..

Oh, sorry. I think I must have turned off the microphone. The Navy is going to take a little longer because it's an exquisite design and requirements

You have nuclear-powered ships. It's not going to be easy to get new capacity for that, and that's going to take time

But you've got the Maritime Action Plan, which is coming out from the executive order from April for regaining America's maritime dominance

The end of the year, by November 16th, is this action plan

We should see before then some maritime prosperity zones to also incentivize

Those decisions hopefully are still going forward. And again, when it comes to building Navy, that's where we need to get more ships in the water

And we're going to be led to, I think, exploring new ways of fabrication

We're not at that yet. But you can hear some of it with the unmanned ships

And there's a lot of new entrants into that sector. Saronic gets a lot of attention

Andrel's another one. these are all you know the first step is come in with a smaller medium-sized unmanned vessel

but eventually they can progress in a crawl walk run up in the the chain of larger warships so

there's a lot of things going on we're in the first step of this attract capital and make the

investments hopefully before the end of the year we see some ground broken on new uh new yards or

expansion of existing. Five billion dollars is going into Hanwha or from Hanwha into Philly

I think there's more coming. Okay, and you sound a little optimistic, but what are you hearing? You

just were on a trip. What are you hearing from allies? Are they concerned with our levels

Have they expressed any sort of doubt in our partnerships with them? Yeah, so if you saw my

article yesterday in the Washington Times, there is a deep concern. While I'm an incurable optimist

And again, if you look over in the lifetime, this is a very unique amount of interest

You've got Congress, you've got the president, and you have allies. And so I already mentioned South Korea, that's Hanwha

Of course, you've got Hyundai and you've got Samsung also that are entering into it

And then you've got, of course, the Italians, Fincantieri, the Australians, Austal, all very much engaged

We can talk AUKUS because that's a part of this whole thing as well

So the allies and the partners and even some of the foreign shipping companies and Maersk, CGM, CMA, as well as MSC, and even looking at the Greek families that run a lot of the LNG carriers, they all need a signal that this is going to be sustained

And this is where what's missing is getting the actual executors. So this is the maritime administrator

Hopefully in a week or two, that'll be resolved. But we need to get Steve Carmel in his job and actually driving and executing the president's plan

Over in the Pentagon, we've got, of course, the Secretary of the Navy

But his lead shipbuilder, of course, Jason Potter is an old friend of mine, is actually there working

But the RDA, the Assistant Secretary, is not named yet. So he needs a shipbuilder

So we need a few key players, and we need that signal to be consistent because we're at the risk of losing the momentum that's been building over the last couple of years

And I want to talk about that momentum in my next couple of questions

But first, you know, Cynthia, what are you seeing? I mean, you've written that we're in a state of emergency right now

Kind of lay that down for all of our audience. So, first of all, thank you all for inviting me to participate in this panel

And thank you all for staying throughout this point of the day

I would say that you've saved the best for last, except it's dangerous to say that when you're following a senator

So thank you for first saying and for being here just the same

I will say that let me first follow on with something that Brent said about the sustained energy that he's seen for the past couple of years and the growing energy

The challenges in U.S. shipbuilding are by no means new. They've certainly been this has been a concern for as long as I've been working on defense industrial issues

So 25, 30 years. What is different today is the level of senior leader, executive level interest in ensuring that the United States has the shipbuilding industry that it needs to compete and to prevail

President Trump has a sustained interest on this in his public statements

He does seem to focus on what's really important about keeping the U.S. shipbuilding industry healthy

So that, I think, offers an opportunity for the right kind of investment in shipbuilding because it's not a simple challenge

It can't be solved with just one tweak. We need the Navy, we need the U.S. executive branch and the Navy on board with a focus on making the kinds of investments, the consistent investments and longer term multi-year contracts with shipbuilders

We need Congress to support that. We need a clear understanding of what the challenges are

For example, it's not the challenges in shipbuilding are not only at the prime contractor level

They also throughout the supply chain since COVID and since the Russia war in Ukraine has revealed challenges in the U supply chain We have a new focus on the importance you know not just the first layer level but all the way down

So that's another issue. The workforce challenge, it's not that shipyards can't recruit workers

but the shipbuilding work is physical, it's hard, it's outside in an air-conditioned facility

So what kind of new techniques can be used to attract and maintain a shipbuilding workforce

And the number of times we hear that shipyards can't compete in terms of pay because people can, you know

get just a couple of dollars more working at a convenience store down the street makes me think

well, gosh, what kind of policies can we have to make sure that shipyard workers are paid a wage that makes them want to stay there

And that will again take, you know, that's not just something that the shipyards can solve on their own without support from the Navy and Congress to allow the cost growth that that would represent

But really, a lot of this is dependent on multi-year, longer term contracts to the shipbuilders so that they have the incentives to invest in upgrades to the shipyards

So I am seeing a clear understanding of the importance of shipbuilding and the importance of solving the challenge across on many levels

And why is it a challenge? Well, the U.S. is an increasingly dangerous world

We, at one point, were a leader in shipbuilding, but now we're really not even on the map

China is the world's largest shipbuilder, followed by the South Korea and Japan

I was going to add Mitsubishi and Japanese companies to your list. Fincantieri, of course, and there's shipbuilders around the world

And when I have been to visit them, they're all eager to invest in the United States

And certainly there's market reasons for it. They're trying to grow their own sales

They're trying to connect with the U.S. defense industrial base. But there is real interest and not a drop of cynicism about the U.S. as a partner

Well, you mentioned investment and you mentioned maintaining an interest. I mean, we have a Navy budget that has been presented

We have the reconciliation bill for fiscal year 26. Grade that for me

I think there were three ships in one. I think there were 16 ships in the other. I mean, was that sufficient

What were the pros and cons of that? Good but not good enough is the best way I would characterize it

While it's good, it's about a 21 percent increase in the shipbuilding budget if you look at the reconciliation in the president's proposed budget for next fiscal year

Good. But we're paying down 30 years of neglect and in some cases bad decisions

So it's still going to take a lot of time to recover from, and that also means a lot of money and a lot of capital investment to reopen public shipyards for nuclear maintenance

That is not cheap endeavor. So 21 percent increase. Great. 19 new ships

sounds good. And if it's executed, that might get us back on track to the plan back in 2016

when President Trump in his first term and Congress codified in law that the goal would

be 355 ships. So I always like going back and looking at what the plan was and where we are

today. So yes, I'm sorry. Well, I like the importance of investments in the defense

industrial base as a nonpartisan issue. Just if you look at the last eight years, President Trump

had some reports on supply chain emergencies. President Biden's administration looked at some

of the same things. This has to be a nonpartisan issue that's sustained across administrations

I think the concern is that even when you get a large investment, the sustainment is not there. Just because one passes this year, there's absolutely no guarantee

that that same amount of investment in shipbuilding is going to occur in the next budget

So how do you counter that? So one, you have a, you know, it didn't happen necessarily organically

but the Ships for America Act was bicameral, bipartisan from the beginning

And the effort really began about a year and a half before in a project called Revolution in Shipping

And the idea was to very carefully construct the approach such that it didn't turn into a bipartisan kind of bickering

But the other key thing is you have to have a president that's very energized

With President Trump, you've got that. So you've got a president, the executive, and you've got Congress, Democrats, and Republicans because of world events, quite frankly

And there's a series of them that go back to 2021, make it very clear that we are far too vulnerable in our maritime

So there's a consensus. And so now executing in the details is where we have to be careful going forward that we don't lose that bipartisan and also executive branch and legislative branch working together on this

The Ships for America Act, it's not perfect. But I think getting that back out and being debated and voted on this year would be a great milestone as well as getting the rest of the team in place

What do you see as the delay so far? On the legislation, it is. So another thing that I've tried to address, because I get a lot of these questions about, well, we can just pull off a part of this that's just on incentivizing investment in shipyards from the merchant mariners part

And then we can also just, where's the naval shipbuilding? The reality is it's all connected

And if you start pulling this very complex by necessity legislation into its pieces, it's going to fall apart

And this is why past attempts, the last serious attempt at this was when Nixon was president

That's how long ago we've got before we've had this type of energy and consensus on this industrial sector

So keeping it on track is key. It has to be complex

And to get to your question, why is it taking so long? You've got numerous committees that this has to work through

And there is a lot of equities that are at risk here

that are, and I mean, I can go through the whole list of them, but navigating that or

threading that needle has been done very artful by many people up on the Hill, Democrat, Republican

House and Senate, as well as folks like my institution, Heritage Foundation, Brookings

and others. It's really been a very broad coalition, all like-minded on the necessity

for our national defense to get the sector back on track. And a reminder to find Robert if you guys have questions in the audience

I want to follow up, Cynthia, with what you had said about not being able to sustain the shipbuilders themselves, having issues with shipbuilding

The investment there, we should note that about half the cost of a ship is labor

So if you want to increase wages, then the government is going to have to, the Navy is going to have to pay more for the ship

So how do you square that with the consistencies of inflation going up so that the costs are already going up

How do you ensure that the shipbuilders are being paid enough as you're thinking of budgets, you know, two, three, four years in advance sometimes on some of these ships

You put your finger on a real challenge, which is that there are so many competing

priorities including unmanned naval systems which we need and more soon In terms of the labor force the retirement of senior shipyard workers I don want to say old but they been at it for a long time has led to what is referred to as a green labor force

There's less average years of experience than there used to be. And that means that the work takes longer and there's more rework

So hopefully the investment in greater wages could yield a more expert workforce and that growth over time

That's not guaranteed, but we have to look at what these investments will yield

which is perhaps first time, less rework for a shipbuilding. So that's part of it

But again, if we really think that the level of Chinese shipbuilding is a concern, just assuming that the way we've done things in the past will get us to where we need to be in terms of shipbuilding capability and capacity is just not going to work

So one thing that the history will make clear is that if the United States is directly involved in a conflict, a lot of the challenges that we've been discussing go right out the window

Suddenly there's more money, there's more workers. We'll have what we need in a conflict

But how do we hopefully we avoid that and how do we build our capacity now so that it is much easier to increase capacity and ships if we if we do need them

And so shipbuilding cooperation is one solution to that. And that's something that that we could talk more on if you're interested

Let's talk about that. So we want to stay in the United States wants to stay ahead that if there were a conflict, we could be able to escalate the industry

We saw with Russia, when Russia invaded Ukraine, defense industry and the Army realized that they did not have industrial investments and the capacity there or the stockpiles to support Ukraine in this

And so they had a plan and they executed a plan. We have not seen that on shipbuilding

It seems like plans get started, but there is no follow through

Right. So what's going on here? This is for either of you. And how do you get out of that rut and actually stick to a plan in terms of shipbuilding

So on the accountability side of it, there's lots of tools that are there that have not been brought back from the bin of history

And that comes with underperforming or mismanaged enterprises. When we get closer to 2027, the consequences of having underperforming or mismanagement in the defense industrial base and not being able to produce munitions, unmanned vessels and ordered warships is going to become it's going to be a direct correlation to national security threat and perhaps even open conflict

The biggest danger is with China, who is less and less deterred by what force we can put to the field now

The other thing about, so on the budget side, you know, a big, beautiful block by would have been a great opportunity in the reconciliation

I hear there may be more. So, again, what I've called the Naval Act, modern Naval Act, is one way what you do is you lock in a large purchase of stable design ships

So these are the destroyers, the Virginia Glasses. These are the, they're already. The amphibs

And absolutely the amphibs and the aircraft carriers. But what you do is you do a block by economies of scale, and inside of that are included the capital investments in workforce and also infrastructure to grow the capacity

And the idea is you just – the Navy and Congress just buy the ships

The cost includes the capital investments a part of it and get Congress and the Navy out of managing the waterfront, let better engineering practices prevail, and let better business practices prevail

There's another interesting avenue in this is to also look at changing the incentive structures because it's private business

And so public business, then we have to change the way that things are incentivized

And one way of doing that is a distributed profit taxation. And the idea is zero tax if you reinvest in your infrastructure or in your workforce with zero

That's in the SHIPS Act. It is one of the discussions. Hopefully it can be in there

It's something that we are pushing for at Heritage Foundation because it's worked in Estonia

And again, the last administration, and I think you're starting to hear similar criticisms of the shipbuilding industry, is that there's not enough reinvesting into capacity

And so that's not really the business's fault. It's Congress and the government should try to take a hard look at changing the incentive structures

I agree. These are private or publicly held but private companies. And so their owners are Wall Street. So they're doing what Wall Street rewards

Let me follow on one thing that Brent said, which in terms of multi-year contracts, is that it's not just about the shipbuilders investing in infrastructure at their shipyards and management practice and so on and so forth

It's also about the whole supply chain because the shipbuilders can turn to their suppliers who can in turn turn to their suppliers and say, hey, you know, previously we were ordering one of these at a time

But now we see there's a 10 a 10 item buy. We'd like to get 10 items or 10 ship buy

We'd like to get 10 items. You know, can you give us a price break on that? So there's opportunities for cost savings that also redound to the supply chain if there are multi year buys

One piece on that is advanced procurement, where because we are so close to 2027 as a window danger with China, the prime shipbuilders definitely get a lot of money and a lot of orders go to them

But increasingly, separate from a specific hull, we're going to have to start doing advanced procurement of some of the key components, like the fire control system, some of the large forged equipment or parts, as well as some of the other components

So that we have a startpile, so that as the shipyards are ready to get to that point in construction, you've already got it

So that's also a way to directly go to the second, third, fourth tier in the supply chain and put orders directly in there to grow that industrial base

And what are the single points of failures? Where are there companies that are the only supplier of a particular component

And how can we make sure those companies don't go out of business? There's so many of them in shipbuilding

They are the only one in many instances that build this particular piece for, you know, name the ship

It's all over the United States shipbuilding industrial. It's a huge problem, and no one's really talking about how to solve that

And we heard in March when the president announced the building office at the White House, there were hopes that this would be one of the first things that could be tackled

And as we were discussing yesterday, we really haven't seen much from that office yet

I know you mentioned the administrator that has not been named yet

But the office itself has now moved to OMB. most of the people from that office had left

What is causing this delay? I mean, what are you seeing here

So my read on the reformation of the NSC or downsizing, however you want to characterize it

and that included the movement or the shuttering of the shipbuilding office

that had been in the NSC. The reality is the shipbuilding endeavor transcends national security and the economics So it really couldn fit in the NEC or the NSC So in my mind this was inevitable

The folks that are on there, they were the first office. They are still engaged by and large

Two of them are over in OMB. So the effort lives on. And Office of Management and Budget, you can't get anything done without money

And so setting the priorities in finance and the budget from the White House, I think

makes good sense when they're going to shift to execution. So I'm less worried about policy

formulation. I'm less worried about discovery at this stage because the folks know where the warts

are and they know what's under the rocks. The issue is execution. And that's why, for me

the momentum needs to be picked up again by getting basically the executors, the maritime

administrator, the research development acquisition, assistant secretary over at Navy in place. And if

Commerce is going to be active on this. There was some efforts of standing up a similar type of office

This is the time before the end of the year to get that in place. I would say that you make a good point about doing an ysis of what are the bottlenecks in the production

But it's also a catalog of the ship, the waterfront capacity in the United States, too, and what's needed for investment

That's in the executive order. And I would hope that we would still see in the Maritime Action Plan due in November, mid-November, a little bit more detail, a bit more scale on what is actually planned

But again, until those people are in place, Maritime Administrator, RDA, it's going to be a little hard to expect

And my hope is that President Trump's personal interest in shipbuilding does keep the executive branch focused on it

That's because that's what it needs. I want to end on China, but before I do, since you mentioned the cooperation, Cynthia, with other nations, that has been looked at by the Navy as a solution to potentially fixing a lot of issues

There's pushback from industry saying that the more you reach out to Japan or Korea, the less business we're going to have and we could go under

So kind of pro and con that, where do you see that? Where do you fall in that argument

that? So I think the starting point kind of drives where one's perspective might be on that. So if

you see there's a potential for a national shipbuilding emergency, that gives a different

perspective than, well, we're at a steady state, things are fine. So I tend to fall a little bit

more into the first bucket. So really, what is the full solution space here? There are legal limits

to some of the avenues for cooperation. You know, the U.S. can't buy foreign warships or even modular

construction. But if we take the, put the laws aside for a second and look at what each of these

offers, you can sort of take the perspective of what's the outcome I want and how do I get there

Well, if you think you need a lot of ships fast, buying foreign ships is a way to get there

Or having modular constructions where part of the ships are built in foreign shipyards and then assembled in the United States

So these will help accelerate shipbuilding. If you're worried about contested logistics in the case of a fight, well, you probably want to do more maintenance overseas

So right now there's limits on doing maintenance of home ported ships overseas

So that's one of the things to consider looking at. But also exploring work with foreign industry to see who is interested in what they can do in maintaining Navy ships

Because if we are in a conflict and it's in the Indo-Pacific, getting ships from there back to home ports to be prepared could take weeks

and puts the ships at risk because of the contestancy. Yeah, they're in China's backyard at that point

Yeah, exactly. So again, if you're looking at this as an if-then

then that kind of opens your aperture to what you might want to do. I want to ask one last thing, though

is that if your concern is U.S. shipbuilding capability and capacity, than allies buying U.S. shipyards, as Hanwell Ocean did with Philly

or allies investing in U.S. shipbuilders to improve their practices, like H.G. Hyundai is doing, they have a partnership with Huntington Ingalls Industry

That is a way of building U.S. shipbuilding capability and capacity. So cooperation with allies, what you do depends on the outcome that you need

I'm going to end on one last question because we are the last panel, so we can go over a little bit

I want to talk about China. You mentioned the concern that China has said that it wants to take Taiwan by force necessary by 2027

It's stated that it would like to consider that or be ready for that. That is our near-peer competitor, our pacing challenge

They have more ships than we do right now. And we have, the United States has more tonnage and firepower

but how long is that going to last and how would we fare if we had to go to war with China in the next couple of years

So the 2027 is, I think, a consensus now because you've had two administrations

and you've had cabinet-level personnel that have seen behind the curtain of secrecy

and they all come to the same conclusion. And it was no secret, if you read in the Chinese press for many years

that they were accelerating their plans to 2027. doesn't mean there will be a war, but they will have the capability, the capacity to fight a war on their terms

Would it be successful, though? What do you think? There's nothing certain in war

The most risky endeavor that's in human existence is choosing to go to conflict

Just ask Putin. He thought he'd be done in three days against Zelensky

So lots of risk, and the key thing is to continue to agitate risk and put too many questions in Beijing's mind

And so we still can deter China or regain that deterrence, but all indications are that they are not

You can just look at what they did just a few weeks ago in the South China Sea to the Filipinos

or the Filipinos were able to actually trick them into hitting their own Coast Guard cutter. It was clear that the Chinese were willing to kill Filipino sailors in that incident

That was the intent, was to basically ram that patrol vessel. And they would learn a lot from how we respond to that

So we're being tested every day. How we respond operationally is one thing. But for the discussion here on shipbuilding, setting the conditions for growing our industrial base to be able to rapidly expand, either building unmanned vessels very quickly, which is probably the only way we can get firepower to sea in this near term

But the Chinese are counting that. As a good engineer, they're looking at the military-to-military force balance

And if we don't have the ability to sustain it with fewer ships and all our eggs in those fewer baskets, those eggs being missiles and strike platforms like fighter aircraft

the strategic or a tactical loss of a ship becomes a strategic loss in the war

And so we have to be careful about that. So we need to have more ships at the sea, and the Chinese are going to look at that

and they're going to unbalance success if we're serious about waging a long war

If we're not, then I think conflict becomes much more likely and deterrence is impossible

Well, we're going to have to leave it there. That's a lot to think about. But thank you, Brent Sadler with the Heritage Foundation

Cynthia Cook with CSIS. Thank you so much for speaking with us. Thanks a lot

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