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US Navy Secretary Carlos Del Toro has wrapped up a whirlwind tour of Japanese and South Korean shipyards seeking expertise and investment from the Asian allies to help reinvigorate America’s idle and stagnating shipbuilding industry, once again confirming: success leaves clues. So, what can Australia learn?
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At the Tehran Conference in 1943, Soviet dictator Josef Stalin mused that the Second World War would be won by “British intelligence, American steel and Soviet/Russian blood”, foreshadowing the emergence of the United States as the world’s great emerging industrial power.
By this point, America was already well on its way to supplying its European allies with manpower and the much-needed materiel overmatch and quality needed to turn the tide in their struggle against Hitler’s Reich, while concurrently fighting imperial Japan across the vast expanse of the Pacific.
In the aftermath of the Second World War, the United States solidified its position as the world’s pre-eminent industrial power, simultaneously financing and supplying the reconstruction of war-torn Europe and Japan while transitioning to a “peacetime” economy driven by the voracious demand of jubilant servicemen and women and their growing families.
However, through the late 1960s and into the 1970s, the steam was beginning to run out of the American economy, driven in large part by oil crises and the beginning of fiat currency in the United States and the broader Western world following the decoupling of the US dollar from the gold standard.
By the beginning of the 1980s, America was heading towards recession, with much of its formerly mighty industrial base becoming hollowed out in favour of cheaper, more productive, and efficient manufacturing alternatives, ironically, in Japan and South Korea.
While Reagan’s election in 1980 saw a reinvigoration of America’s economy, it did also precede the further hollowing out of America’s industrial base that accelerated in the aftermath of the Cold War and the era of globalisation.
Today, many are familiar with vision of America’s hollowed out industrial base across what has become known as the “Rust Belt” and has drawn many comparisons to similar areas across Australia as the nations have transitioned to “knowledge-based economies”.
Now however, the re-emergence of great power competition and the potential for direct conflict whether in Europe or in the Indo-Pacific, even in a limited capacity between the world’s great powers, has left these hollowed out, “knowledge economies” at a distinct disadvantage.
That is not to diminish the importance of knowledge in the contemporary economic makeup, quite the contrary, particularly in this new era of hybrid warfare and the emergence of “grey zone” competition, but as Ukraine has shown, kinetic slugging matches aren’t disappearing anytime soon.
The United States has increasingly recognised that it is now at a distinct disadvantage to its primary tactical and strategic competitor in the People’s Republic of China, which has been the undisputed major beneficiary of the world’s globalisation initiatives of the 1990s and early-2000s.
Shipbuilding is one of the major areas where the United States and its allies, including Australia, are seriously lagging behind China, Russia, and other revisionist powers seeking to challenge and supplant the post-Second World War order.
However, not all of our partners have waived goodbye to their manufacturing capabilities, rather some, like South Korea and Japan, through a combination of “homeland economics” and similar policy mechanisms, regulatory and tax incentives, have built and sustained globally competitive, advanced manufacturing sectors.
Recognising this, US Navy Secretary Carlos Del Toro is seeking to leverage the success of Japanese and South Korean shipbuilders to reinvigorate America’s ailing and idle shipyards to help revive America’s shipyard capability to the benefit of both the US Navy and the broader US economy.
Rebuilding a lost capability
In recent weeks, Secertary Del Toro has sought to leverage the relationship between the United States, Japan, and South Korea to discuss opportunities for Japan’s Mitsubishi Heavy Industries (MHI), Namura Shipbuilding, and Sasebo Heavy Industries, and South Korea’s HD Hyundai and Hanwha, respectively, to help rebuild America’s shipbuilding capacity.
This comes as America struggles to build the naval surface ships and submarines for the US Navy’s own operational requirements, let alone for broader programs like AUKUS which will see Australia acquire Virginia Class nuclear submarines from the US Navy.
Currently, America only has seven private shipyards capable of delivering the vessels required while the US previously had 13 public naval shipyards, but nine of them are currently inactive, thus presenting a unique opportunity for America to revitalise the vast number of otherwise idle shipyards that dot the nation’s coasts.
US ambassador to Japan, Rahm Emanuel, highlighted this point when speaking to the Nikkei Asia following Secretary Del Toro’s east Asia visit, saying, “There’s a closed plant in Philadelphia. There’s a closed Navy shipyard in Long Beach. And there are a couple of others. We wanted to see if Mitsubishi and other Japanese companies would be interested in potentially investing and reopening one of those shipyards and being part of building Navy, commercial and Coast Guard ships.”
Secretary Del Toro reinforced this sentiment and the idea that “success leaves clues” by stating, “As I saw firsthand during my shipyard visits in Korea this week, Hanwha and Hyundai set the global industry standard. I could not be more excited at the prospect of these companies bringing their expertise, their technology, and their cutting-edge best practices to American shores.
"As world-class leaders in the global shipbuilding business, they are poised to energise the US shipbuilding marketplace with fresh competition, renowned innovation, and unrivalled industrial capacity,” Secretary Del Toro said of the South Korean shipbuilders.
This approach has its foundations in Secretary Del Toro’s calls for a novel approach to maritime statecraft set out in a speech to the Harvard Kennedy School in September 2023, where he laid the foundation for this approach saying, “[the US maritime industry] is ripe with opportunity to partner with a greater number of shipbuilders here in the US and with our closest allies overseas, including Japan and South Korea”.
Building on this, in the same speech, Secretary Del Toro announced his objective to “attract the most advanced shipbuilders in the world to open US-owned subsidiaries and invest in commercial shipyards here in the US, modernising and expanding our shipbuilding industrial capacity and creating a healthier, more competitive shipbuilding workforce”.
Importantly, Secretary Del Toro isn’t solely focused on building naval shipbuilding capability, recognising that even the US Navy’s order books aren’t enough to keep a multitude of competing shipyards working, thus he is also looking to build scale by leveraging commercial shipbuilding demand.
Secretary Del Toro highlighted this, explaining, “in addition to our currently active shipyards, there are numerous former shipyard sites around the country which are largely intact and dormant. These are ripe for redevelopment as dual-use construction facilities for both warships, like AEGIS destroyers, as well as high value chain commercial vessels, such as the ammonia gas carriers that will enable the global transition from fossil fuels to green energy sources like hydrogen”.
Going further, Secretary Del Toro detailed the broader focus on building economies of scale and leveraging economic and industrial policy mechanisms and incentivisation to drive co-investment and modernisation, saying, “Investment in dual-use shipyards in the United States will create good paying, blue collar and new-collar American jobs building the advanced ships that will protect and power the economy of tomorrow.”
Yet Australia seems to be dragging its feet when it comes to taking such a bold approach both for Defence (despite some standout cases) and our broader industrial base.
Success leaves clues
I have said it many times, but it is clear that “success leaves clues”, and by embracing and understanding that principle, we can fully embrace the opportunities available to us now.
Where we come unstuck is a fear of “industry policy” as a concept and the need to more effectively and consistently leverage incentives and actually hold business to account when they fail to meet their obligations under an agreement.
Indeed, the very name industry policy conjures up images of heavily subsidised, unproductive, uncompetitive industries (think Australia’s car industry or even segments of the textiles industry) that rightfully go the way of the dodo.
However, this new era of great power competition requires some tried and true and novel approaches to deliver economic diversity, competitiveness, and national security, particularly if we are to actively learn the lessons of the COVID-19 pandemic which revealed just how vulnerable we truly are to supply chain constraints.
Highlighting this is Arthur Herman, Senior Fellow at the Hudson Institute and author of Freedom’s Forge: How American Business Produced Victory in World War II. In a piece for American Affairs Journal, titled, America needs an Industrial Policy, he explained, “What is industrial policy? Usually it’s a term referring to a program of economic reforms that give the government extraordinary authority, as well as fiscal and regulatory powers, to change a country’s industrial structure or – less ambitiously – promote a targeted sector of the economy.
“According to economists Howard Pack and Kamal Saggi, it refers to ‘any type of selective intervention or government policy that attempts to alter the structure of production toward sectors that are expected to offer better prospects for economic growth than would occur in the absence of such intervention’. The goal is to correct what are identified as market failures in sectors where the normal workings of supply and demand, and market competition, aren’t able to achieve certain economic or other national goals,” Herman expanded.
This “definition” provides the broad conceptualisation of industry policy as it has historically been implemented. However the unique nature, complexity, and national implications of industry policy requires a thorough understanding of industry policy and its central characteristics if we’re to embrace both the tried and true and the novel to deliver a globally competitive industrial base for Australia.
Herman cited three central pillars of industrial policy that differentiate it from other forms of macroeconomic policy, namely:
- A primary focus on the manufacturing sector and/or infrastructure and “infant industries” that are seen as “crucial” for future economic growth, prosperity, and competitiveness in the global economy.
- Industry policy often implies direct interventions in a nation’s trade policy, leveraging “tariffs, quotas, and other restrictions on imports from foreign competitors”, along with controlling the flow of certain materials and goods to purchasers abroad, and finally, even going to the extreme of providing direct subsidies or price incentives for exports.
- A reliance on industrial policy is usually more typical of “mixed economies”, where the role of government in economic and business affairs is considered “normal and accepted”.
However, ultimately, much of the contemporary debate and conversation as it stands, devolves into accusations and a debate between the camps of “picking winners” versus “creating the environment” for competitive industry to be established and thrive.
Avoiding this reductive dichotomy will prove essential if we’re going to both avoid the mistakes of our past and begin taking advantage of the opportunities presented by the voracious economic demands of the Indo-Pacific.
It is equally important to understand that in peacetime, markets are the best and most effective form of directing capital, maximising innovation and outcomes for both companies and consumers seeking to enjoy the post-Cold War quality of globalised, consumerist life we all know and love.
However, in the era of great power competition, markets don’t create security, something highlighted by Herman, who stated, again in the American context, yet equally relevant for Australia, “More recently, however, politicians, academics, and the public are realising that these assumptions aren’t working – especially in the face of the growing threat from China. There’s an increasing awareness that the United States needs to readjust its economic strategy in a fundamental way.”
The importance of this only becomes more apparent when viewed through the lens of intense geopolitical competition that now colours the relationship between China and much of the developed world, particularly as domestic manufacturing bases have been hollowed out in the US, the UK, and Australia and exponentially exploded in China.
Herman highlighted this uncomfortable reality of economic dependence, stating, “Americans have finally awakened to what some of us have been arguing for more than a decade: China is not merely an economic competitor, as Japan was in the 1970s and ’80s, but a major threat to US global leadership. China’s longstanding pattern of serial cyber theft, IP theft, and predatory trade practices; its militarising of the South China Sea; its ‘anti-access, area denial’ maritime strategy aimed at the US Navy; and its massive One Belt One Road initiative are all linked together in China’s national strategy, of which its comprehensive industrial policy is a natural – and increasingly effective – part.”
Herman, citing the US Senate’s small business and entrepreneurship committee, reinforced this, stating, “Properly aligned with national priorities, markets in trade and finance can drive tremendous economic progress. Left to their own devices, expanding for expansion’s sake, however, they provide market actors the framework to endlessly seek out new efficiencies, regardless of whether such efficiencies are in the national interest, or in some cases even in the interests of the firm’s own product value.”
As previously stated, responding to these challenges necessitates a return to both the tried-and-true methods that served to build our historic industrial competitiveness and embracing the novel to secure the opportunities now arrayed before us.
Luckily for us, Herman has some thoughts, drawing on the success of American industry during the Second World War as articulated in his book Freedom’s Forge, he stated, “the message of Freedom’s Forge is not that we need to abandon the market economy. Instead, this successful paradigm maximises the advantages of market discipline and private sector innovation and minimises the disadvantages of government direction and intervention, while also using the potentially disruptive impact of new technologies as strategic leverage. In short, it aims to secure the virtues of industrial policy while minimising its shortcomings”.
Final thoughts
It is clear that Australia needs bold, ambitious, and exciting leaders who can present an engaging, visionary, and optimistic future direction for the nation. We need our leaders to pull at the heartstrings of all Australians and their hopes and dreams, while providing for a clearly communicated path to achieving this vision.
Equally, the Australian public needs to be educated on the challenges we face in our region and more broadly, the post-Second World War order upon which our wealth and stability is built, because without it, many Australians will blindly simply go with the flow and watch as we fade into the pages of history.
Enhancing Australia’s capacity to act as an independent power, incorporating great power-style strategic economic, diplomatic, and military capability, serves as a powerful symbol of Australia’s sovereignty and evolving responsibilities in supporting and enhancing the security and prosperity of Indo-Pacific Asia.
Australia is consistently told that as a nation, we are torn between our economic relationship with China and the longstanding strategic partnership with the US, placing the country at the epicentre of a great power rivalry – but what if it didn’t have to be that way?
Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch at
Stephen Kuper
Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.
