South Korea’s Role in Reviving the U.S. Navy

The U.S. Navy has a serious problem, as the United States cannot build enough navy ships to meet its national security goals. At the same time, China has become the largest shipbuilder in the world, and now, the Chinese Navy has more ships than the U.S. Navy. This gap will only grow further in the near future, which is a considerable challenge for Washington.

Thus, the Pentagon has turned to South Korea and Japan to help boost the U.S. shipbuilding and repair capacities, as these two allies have the second and third largest maritime industries after China. South Korean companies have taken the lead by acquiring a U.S. shipyard and receiving the first contracts to overhaul U.S. Navy ships. If South Korean companies can build upon this momentum, South Korea might become a key actor in reviving the U.S. Navy. This will not only help South Korean shipbuilders to make a profit, but it will also deepen US-ROK security ties and improve both nations’ security.

The Decline of U.S. Shipbuilding

The United States used to be among the largest shipbuilders in terms of both civilian and military vessels. However, since World War 2, the U.S. civilian shipbuilding capacity has gradually shrunk. The U.S. built only 5% of the world’s tonnage in the 1970s and merely 0.2% today. Although the United States still builds the most sophisticated military vessels, Washington has lost its broader civilian shipbuilding ecosystem, which has had an enormous negative impact on its naval shipbuilding programs. Among others, the U.S. builds its navy ships slowly and expensively and has mainly lost its capacity to innovate as the maritime expertise and infrastructure in the U.S. is dilapidated.

One of the results of these processes was that the new classes of U.S. Navy ships developed after the Cold War were failures. These ships cost significantly more and became much less capable than planned. For instance, only three Zumwalt class stealth destroyers will be built instead of the 32 initially planned, as each cost an enormous amount of money ($7 billion) – more than a Nimitz-class aircraft carrier, which they should protect. On top of that, its primary weapon, the railgun, was cancelled in 2021 due to functionality issues. The Littoral Combat Ship and the Ford-class aircraft carriers have also seen similar cost overruns, technological failures and reduced numbers of ships built.

The U.S. Navy has issues not only with improving the quality of its fleet but also with increasing the quantity of its ships. While the U.S. Navy had 600 battle force ships (combatant, combat logistic and support vessels) at the end of the Cold War, now it has around 290-300. For the last decade, the U.S. Navy has wanted to achieve a 355 ships-force level, but the existing few American shipbuilding companies have always been behind schedule in delivering the new ships and often have had cost overruns. Thus, the United States frequently needed to decommission older ships faster than it was capable of replacing them with new ones. As a result, it did not get closer to its goal of 355 ships. Furthermore, the lack of civilian shipbuilding capacity also negatively impacted the maintenance and repair of existing navy vessels, creating a significant backlog that has negatively affected the U.S. Navy’s readiness.

The China Challenge

While Washington’s shipbuilding capacity has sharply declined, China’s shipbuilding industry has become the largest globally, producing half of all civilian ships worldwide. The quality of the Chinese ships has also improved rapidly. Furthermore, Beijing uses this huge shipbuilding capacity and extensive expertise to build up its Navy. Thus, regarding the number of battle force ships, the People Liberation Army (PLA) Navy – the Chinese Navy – overtook the U.S. Navy around 2020. The Chinese fleet is expected to grow to 395 front-line ships next year and to 435 ships by 2030. At the same time, the number of U.S. Navy ships will not change or will slightly decline from its current 290-300 ships-force level.

Although the U.S. Navy has fewer vessels, its ships are technologically still superior compared to Chinese military vessels. For instance, the U.S. ships are larger and have bigger firepower. However, if we do not count the U.S. aircraft carriers – which utilities are not clear in a potential conflict between China and the United States – the PLA Navy will surpass the U.S. Navy in terms of aggregate displacement of cruisers, destroyers, and frigates in less than a decade. Furthermore, the PLA Navy is expected to surpass the U.S. Navy in terms of firepower by 2027 as well.

Washington also has global responsibilities, including those in Europe, the Middle East, and the Indo-Pacific, while China has been focusing only on its neighbourhood. This gives Beijing an advantage as its naval forces are concentrated in one region. Additionally, the PLA Navy ships can be supported and maintained faster as they are much closer to China’s shipbuilding infrastructure than the U.S. Navy vessels to their own bases when they operate in the Indo-Pacific. Moreover, as China has a huge shipbuilding infrastructure, it would be able to repair damaged ships quickly. At the same time, the United States would struggle to do this with its currently failing civilian and military shipyards.

The U.S. Navy understands the China challenge and wants to increase its fleet size to 384 manned and 134 large unmanned and underwater vessels by 2054. However, whether the current U.S. maritime industry can achieve this goal is questionable.

South Korea’s Role in Reviving the U.S. Navy

For Washington, one of the ways to revive the U.S. Navy is to turn to allies with significant maritime industries: South Korea and Japan. South Korea produces 25% of the civilian ships globally, while Japan builds about 15%. Thus, not surprisingly, U.S. Secretary of the Navy Carlos Del Toro visited South Korea and Japan in February 2024 and encouraged their shipbuilding companies to invest in the United States.

The Wall Street Journal reported that South Korea builds state-of-the-art Aegis destroyers for $600 million in 18 months, while the U.S. does this for $1.6 billion in 28 months. Washington hopes that this South Korean efficiency in shipbuilding can be brought to the U.S. However, by law, the U.S. Navy cannot buy its ships from overseas countries, but it can repair existing military vessels abroad. Hanwha quickly moved to be able to build ships in the United States and repair U.S. Navy ships in South Korea as well.

First, Hanwha has been seeking to buy the Philly Shipyard in Philadelphia and has made a $100 million offer in the Summer 2024, which the current Norwegian owner accepted. If the regulatory process of Hanwha’s Philly Shipyard acquisition is successful, Hanwha will be able to build ships for the Navy in the United States. In this case, Hanwha is expected to compete with other U.S.-based shipyards to rebuild the Ready Reserve Fleet, a group of auxiliary ships that the U.S. Navy and other government agencies use for non-combat tasks. If these endeavours are successful, Hanwha might invest more in the U.S. shipbuilding infrastructure and compete for more complex naval shipbuilding projects. U.S. Secretary of the Navy Del Toro highlighted that “knowing how they will change the competitive U.S. shipbuilding landscape, I could not be more excited to welcome Hanwha as the first Korean shipbuilder to come to American shores—and I am certain they will not be the last.”

Second, in August 2024, Hanwha became the first South Korean shipbuilding company to win a maintenance, repair, and overhaul (MRO) contract from the U.S. Navy. As a result, Hanwha Ocean started to overhaul the USNS Wally Schirra, a 40,000-ton U.S. Navy dry cargo and ammunition ship in South Korea. The expectation is that Hyundai will also participate in MRO projects for the U.S. Navy soon, as this year, it also secured the right to compete for U.S. Navy MRO projects.

Hanwha’s Philly shipyard acquisition and first MRO contract with the U.S. Navy can be seen as pilot projects. If they are successful, more opportunities will arise for South Korean companies. MRO contracts seem more straightforward, as the work can be done in South Korea, where the efficiencies generated by the broader shipbuilding ecosystem can be utilized.

At the same time, building new ships for the U.S. Navy in the United States has more risks. The United States lacks an extensive maritime sector, including a large pool of trained workforce, logistical chains, expertise, and state-of-the-art maritime infrastructure that makes South Korean shipbuilding companies efficient at home. Furthermore, regulations in the United States are much more complex and complicated, usually increasing costs and lead times of building ships. So, even if Hanwha invests heavily in the Philly Shipyard – which has a significant deficit and inefficient operation – to improve its shipbuilding infrastructure and introduces more efficient processes, modern design tools and automation, it is unlikely that it will be able to produce ships as cheaply as in South Korea.

However, it is not necessarily a problem, and Hanwha does not need to replicate everything in the U.S., which is probably impossible anyway. If Hanwha can demonstrate that it can build ships in Philadelphia more efficiently compared to other U.S. shipyards, it will already be a win for South Korea and the U.S. Navy. This way, the U.S. Navy can receive ships faster and make efficiency savings, which can be invested in other capabilities. Furthermore, the maintenance works of U.S. Navy ships in South Korean shipyards will also free up U.S. capacities, helping to decrease the maintenance backlog of the U.S. Navy.

South Korea’s involvement in building U.S. Navy ships in the United States and maintaining U.S. military vessels in South Korea can directly enhance both U.S. and South Korean national security. In the short term, the U.S. Navy will benefit from increased availability of ships, and in the medium term, it could accelerate the growth of its fleet. This can help Washington maintain its global maritime dominance. A strong U.S. Navy is also crucial for South Korean national security, as it helps deter North Korean aggression, and a larger U.S. Navy enables Washington to meet its global security commitments. For example, if the U.S. Navy was tied up in a major conflict elsewhere, currently, it is unclear if Washington would have enough naval capacity to meaningfully contribute to maintaining the peace in the Korean peninsula. In this regard, South Korean shipbuilders can make a difference in improving the U.S. Navy’s readiness and capabilities, ensuring that Washington has the extra capacity to deal with several conflicts simultaneously. This could deepen U.S.-South Korean security cooperation and elevate Seoul’s standing in Washington’s strategic calculus.