By Brent D. Sadler

Introduction

Riding a wave of success during his Asia tour, President Donald Trump triumphantly announced the U.S. would be working with South Korea to build nuclear submarines.¹ To those familiar with the AUKUS (Australia-U.K.-U.S.) deal, this may seem a repeat of that effort to build nuclear submarines with Australia. By all accounts, this is not what is at hand.

South Korea’s growing investment in American shipbuilding could foster the development of ships capable of using next generation small modular nuclear reactors (SMNR), to include their use on modified South Korean submarines appropriate to their operational needs. This likewise has applicability to Japan, who should be included should the effort proceed.

Given the unique naval needs of South Korea and Japan, their decades of experience in building conventional submarines, and the U.S. need for allies in reviving its maritime industry – this deal could be very opportune. That said, it will not be AUKUS and to succeed it must also contribute to a revival of America’s shipbuilding to best serve America’s national interests. 

South Korea’s National Security Situation

South Korea’s capital, Seoul, is within range of hundreds of North Korean artillery pieces. For them danger is always near, and has focused their military to the threat ever since the armistice paused the Korean War.² Adding to the dangers, the North has in recent years accelerated development of its own nuclear-armed submarine-launched ballistic missile – the Pukguksong series that began testing in 2015 and now has six iterations.³ Given this at-sea nuclear threat, as in the Cold War, there will be a necessity of locating and keeping track of North Korean submarines with nuclear-armed SLBMs, like the SSB 841 Hero Kim Kun Ok launched in September 2023.⁴

Beyond the North Korean threat, China has also encroached into its waters and strong-armed the South. Most notably, the Chinese Communist Party was the hand behind political interference and public agitation in 2017 over the placement of the THAAD missile defense system.⁵ Keeping its economy free of coercion will require a Navy able to keep the People’s Liberation Army Navy (PLAN) in check in the East China Sea and Yellow Sea. Should war break out in Asia over the fate of Taiwan, critical shipping routes through the South China Sea and potentially across the North Pacific will need to be guarded. 

Unlike the Australian strategic challenges that drive them to pursue a nuclear submarine in the AUKUS initiative, South Korea’s maritime threats are closer to home. This operational situation prioritizes stealth and on-station endurance with the ability to conduct high-speed sprints without needing to come near to the surface to recharge submarine batteries. These operational requirements inform South Korea’s submarine program, today led by production of its 3,600 ton KSS-III Batch-2 submarine with 10 vertical launch cells and torpedo tubes built by shipbuilder Hanwha.⁶ SMNRs offer a way to enhance the lethality on a potentially modified South Korean submarine like a future batch of the KSS-III.

A Brief History of SMNRs Backfitted on Conventional Submarines

Twice in the recent past have navies attempted to extend the undersea endurance of existing conventional submarines with small modular nuclear reactors. The first was in the mid-1980s, when the Soviet Navy installed a 600kWh VAU-6 600 nuclear power plant on a project 651 (Juliett-class) diesel submarine and greatly extended its range.⁷ The implications of this development were never felt in the West, as the Cold War was coming to a rapid end by the time this was completed.

The idea of greatly increasing the tactical capabilities of existing conventionally-powered submarines has surfaced again. For the past several years, experts looking over satellite images of China’s sole naval nuclear shipyard at Huludao have noticed the expansion of production lines and what appeared as components of a new class of nuclear-powered warship. The answer would be clear in September 2024 following months of speculation that a new larger Yuan-class conventional submarine was being readied for sea with a new type of propulsion.⁸ That month, reports of its pier side sinking drew a subsequent U.S. Department of War response that confirmed it was a variant being fitted out with an auxiliary nuclear power plant. And so the Soviet idea was reborn with Chinese characteristics.

Given China’s large and modern conventionally powered submarine fleet, its use of SMNRs to complement air independent propulsion would have severe ramifications for the U.S. and its allies. Already fairly stealthy, the latest Yuan-class Chinese submarine would see its endurance greatly extended and survivability improved with the ability to sprint at high speeds to evade hostile contacts without having to come to the surface to recharge its batteries soon afterwards. Moreover, the limited nuclear construction capacity at Huludao could be augmented by numerous conventional submarine shipyards, with SMNRs being produced and backfitted on Yuan-class submarines in shipyards like Wuchang and Jiangnan.

Shared Allied Interest in SMNRs

As news broke of President Trump’s announcement on building nuclear submarines with South Korea, Japan also got interested.⁹ Japan is no stranger to maritime nuclear propulsion with its own Mutsu launched in 1969 and retired in 1992.¹⁰ This ship was a flawed attempt at exploring the commercial potential of nuclear power, with unacceptable radiation leakage dooming the ship. Recently, there have been calls by Japanese politicians to pursue developing a nuclear submarine – a call first triggered by the AUKUS initiative in 2021 and now with a potential U.S.-South Korean project.

Like South Korea, Japan too has a robust, successful, and longstanding conventional submarine program. The latest addition to the Japanese Maritime Self Defense Forces (JMSDF) is the 3,000 ton Taigei-class.¹¹ However, Japan’s operational needs are more extended than South Korea’s, given its expansive archipelago that stretches deep into the Pacific Ocean and critical shipping lanes threatened by Russia, China, and North Korea. This threat is in part why Japan began a military modernization during the later Cold War to protect its shipping lanes 1,000 miles from Japan – a mission that lives on today. As such, the added endurance and survivability offered by SMNRs as an augmented power source for existing conventional submarines would be welcome.

Additionally, both Japan and South Korea are today the only viable rivals to China’s shipbuilding colossus. As such, both are looking to invest in the U.S. as a means of expanding market share, which could be amplified by harnessing the potential of SMNRs to cleanly power the next generation of commercial ships and revolutionize the maritime industry. However, only the U.S. has the experience (thanks to its naval nuclear program) and capacity (based on existing nuclear research and development) to bring this new nuclear technology quickly to market with confidence.

Recent developments have the hallmarks of a potential consortium of investors forming to bring SMNRs to sea and soon. Already two South Korean shipbuilders have invested in the U.S. and Japan has signaled investments are coming. What especially stands out is the investments since December 2024 in Philadelphia Shipyard by South Korean shipbuilder Hanwha. The proverbial canary in the coal mine is how well Hanwha will be able to turn a profit in the long term when taking orders for commercial ships at its new American shipyard.

Newer to the scene is Hyundai, another South Korean shipbuilder, who has joined into a partnership with American naval ship and submarine builder Huntington Ingalls Industries (HII).¹² The scope of this new partnership is relatively undefined as of November 2025, but signals an intent to deeply integrate into domestic American naval shipbuilding. The most explicit expression of this is a commitment of $150 billion by the South Korean government to back investment in American shipbuilding.¹³ On the other hand, Japan has only recently signaled its intent to move into the American market, with $4 billion of government backing to $2.5 billion of private investment.¹⁴ Focusing some of this foreign investment in what could be a market-setting technology can leverage the shipbuilding capacities and expertise of allies, while mitigating the risks in getting SMNRs to sea.

Proliferation and Compromised Supply Chain Concerns

In the case of both Japan and South Korea, there are grounds for concern regarding the potential for compromised maritime industrial supply chains and information security. Less of a concern is the threat of proliferation of weapons-grade nuclear material in the SMNRs under development. This is due to the use of lower enriched nuclear fuel (approximately 5% compared to weapons grade above 90%) and the fuel assemblies that complicate the separation and refinement of the fuel to weapons grade.

Nonetheless, memories of Brazil’s past attempts to develop a nuclear submarine as pretext for a nuclear weapons program are informative and cautionary.¹⁵ Putting a check on such possibilities are counter-proliferation protocols enshrined in the so-called “123 agreement” named for the section 123 of the 1954 Atomic Energy Act. These agreements are conditional by the U.S. prior to entering into any agreed transfer of nuclear technology or materials. Both Japan and South Korea have active 123 Agreements.¹⁶

Regarding maritime supply chains, however, both Japan and South Korea conduct significant shipbuilding related activity in China.¹⁷ This is primarily in the prefabrication of sections or modules and supply of components like pumps or solenoids that are then assembled outside China. Should either nation enter into a new SMNR developmental project and associated shipbuilding endeavor with the U.S., exposure to associated Chinese supply chains must be addressed, especially as it relates to military use in South Korean and Japanese submarines.

Finally, tight information security, such as done with Naval Nuclear Propulsion Information (NNPI) addressed for AUKUS, will be a necessity. A complicating factor for allies will be the dual-use applicability of SMNRs and how to ensure associated high information security for both military and commercial programs. Thankfully, the U.S. has current information-sharing agreements with both Japan and South Korea that includes industrial security. In 2025, memorandums of understanding signed with both South Korea and Japan make clear an intent to bolster supply chains as the three nations progress and work together in reviving America’s maritime industry.¹⁸ However, statements of intent are not enough to ensure the sensitive next-generation nuclear power technology behind SMNRs remains an American comparative advantage.

The Optimum Pathway for American Maritime SMNR

Developing SMNRs and then putting them to sea on commercial and backfitted allied conventional submarines will be a multifaceted task. First, the technology needs to be perfected in a way that makes it compatible for use in commercial shipping and scaled for use as an alternative power source for today’s conventional submarines built in Japan and South Korea. Second, trust in sharing sensitive nuclear technologies for SMNR will be needed, to include their safe operation and maintenance. Third, an industrial plan will need to be implemented for building SMNRs that can be installed on commercial ships and on allied conventionally powered submarines. To preserve American investment in developing next generation SMNR and foster an American comparative advantage in the global maritime market space, construction and installation should be initially confined to occur at U.S. shipyards. Much of this can be accomplished taking a similar approach used for the AUKUS optimum pathway and as advocated in an earlier Heritage Foundation report.¹⁹

Almost two years after its September 2021 announcement, the Australian government, in concert with U.K. and the U.S., announced the “optimum pathway” to deliver a domestic nuclear submarine capability.²⁰ This plan addresses developing domestic nuclear industrial competencies, training a cadre of nuclear-certified shipyard workers to sustain this nuclear fleet, and begin the nuclear training of the crew of these future boats. Unlike AUKUS, development of overseas SMNR construction would not be a goal. Nonetheless, bringing a SMNR forward with allies like South Korea and Japan will require a similarly multifaceted approach to ensure it is viable and safe.

Recommendations

The U.S. and its allies should form a private-public consortium to inform and oversee development of a naval SMNR. There are several designs all progressing to working prototypes with initial criticality (first time nuclear fission) tests before the end of the decade.²¹ This consortium would be critical in accelerating the testing and maturity of viable designs currently being planned at the federal nuclear test labs in Idaho (i.e. INL). Given the commercial and potential military use, the effort should be led by U.S. Department of Energy with technical support from Naval Reactors (design), Coast Guard (regulatory), and Maritime Administration (commercial use).

Putting an operational SMNR on a commercial ship or submarine is likely at least seven years away. Waiting until that time to develop the demand for commercial shipping would guarantee its failure or worse, cede dominance of this capability to hostile competitor China. As such, orders for new commercial ships (i.e. ultra large container ships, LNG carriers, etc.) today should be of designs that are forward-compatible for installation of SMNRs.²² This would also guarantee those ships meet stringent International Maritime Organization (IMO) carbon requirements while removing uncertainty that has delayed ship orders over which green energy will be embraced by the market. As the second and third largest shipbuilders, Japan and South Korea are best placed to ensure uptake of this new technology. Moreover, information security amongst members of this consortium will be paramount, especially as variants of the SMNR are installed on allied submarines. For AUKUS, this was an early achievement given the bedrock of the Five Eyes intelligence sharing program.²³ A similarly structured approach, but narrowly focused on SMNR use, would be warranted with allies Japan and South Korea.

Today there is one U.S. shipyard owned by a South Korean shipbuilder. Philadelphia Shipyard, owned by Hanwha since December 2024, is a natural choice to base this new endeavor and future SMNR installations. Already Hanwha is continuing the U.S. Maritime Administration’s (MARAD) third of five National Security Multi-mission Vessel (NSMV) and making a $5 billion capital investment to upgrade the shipyard for orders of 10 new medium-range tankers and bulk carriers.²⁴ Doing nuclear shipyard work here will require added investments to attract future SMNR builders to locate fabrication and installation facilities nearby. In the meantime, future upgrades should be done with an eye to nuclear certification of the yard.

This shipyard should not be the only place where this type of commercial nuclear maritime installation will occur. Given the national security aspects of backfitting SMNRs on submarines, shipyards with history in naval shipbuilding make the most sense. In this case, the expertise of HII and its budding partnership with Hyundai makes a natural fit for backfitting operations of SMNRs. Caution is warranted in this case, as the U.S. submarine industrial base is tardy in growing its capacity to meet U.S. orders for nuclear submarines.²⁵

As such, HII and Hyundai, to include Japanese submarine builders Kawasaki and Mitsubishi Heavy Industries, with American submarine shipbuilders HII and Electric Boat, should look to set up facilities favorable to shipyards not involved in building American or AUKUS nuclear submarines. A logical choice is the former naval nuclear shipyard at Mare Island, which has dry docks, warehouses, and pier space ready to be upgraded to the purpose. Moreover, there is ongoing Navy and Coast Guard maintenance being done on cutters and naval logistic ships, providing ample workload to justify the investment until SMNRs become operational.

Designing, building, and installing SMNRs on commercial ships and allied submarines is one thing, operating them is another. For AUKUS, this was addressed by embedding Australian sailors on U.S. and U.K. nuclear submarines and sending Australian shipyard workers to American shipyards to learn the nuclear trades. It is too early to know if this will succeed, but the goal is to create the institutional culture and expertise to securely maintain and safely operate nuclear-powered ships. Unlike AUKUS, this new SMNR endeavor will have a commercial aspect which will mean the U.S. Maritime Administration and its Merchant Marine Academy at Kings Point will need to resurrect its defunct nuclear training program. This program was begun to crew and conduct associated shipyard nuclear work for the first and only U.S. nuclear powered commercial ship in 1964 – the Savannah, subsequently retired in 1972. The U.S. Coast Guard, the lead agency for regulating maritime credentials in the U.S., too must revisit its certification programs to include standards for crew and shipyard workers on SMNR-powered commercial ships. Given that allies will be involved, associated programs will have to be opened for their training and certification. 

Initial Steps

There will be a lot of work ahead should the President’s words prove prophetic, and a new national endeavor is launched with allies to build nuclear-powered commercial ships and backfit allied conventional submarines. When AUKUS was announced an 18-month assessment and planning phase was begun before actual work was undertaken. A similar planning effort will be critical, though need not be as long as 18 months. Given this, a potential optimum pathway for SMNRs should take the following steps.

Establish a White House-Led Planning Cell. The President of the United States should formally invite both Japan and South Korea to send delegates to a planning cell to formulate a pathway to developing and operating SMNRs for commercial shipping and backfitting their conventionally powered submarines. The primary goal of this group is to produce an agreed regulatory framework, credentialing program, and industrial plan with associated investment strategy. This in total would represent the optimum pathway for this endeavor.

Reestablish Civilian Nuclear Training and Credentialing Programs. The Secretary of Transportation should direct the Maritime Administrator to re-establish the nuclear program at the Merchant Marine Academy and seek funding from Congress. This should be accomplished within two years to ensure adequately credentialed crew and shipyard workers ready when the first SMNR installed and operated by early 2030s. Additionally, the Maritime Administrator must further direct these programs be open to participating allies, staff, and students to ensure a coherency amongst participants and assist in rapidly standing up an SMNR-powered commercial fleet. Lastly, the U.S. Coast Guard must conduct a review and as needed update to its credentialing and regulatory standards appropriate for operating SMNRs at sea and associated shipyards and port operations.

Create an SMNR Information Sharing Framework. The U.S. Chief of Naval Operations should direct the development and approval of a dedicated information sharing classification and handling standard that can be agreed to by all participant nations. This would be similar but distinct from Naval Nuclear Propulsion Information that Australia was allowed to gain access to as part of AUKUS. The goal is to prevent unauthorized access to sensitive design and operational details regarding SMNR in both commercial and military uses.

Designate and Certify American Shipyards for SMNR Work. The Secretary of Energy should seek and act on the recommendation of Naval Reactors and the Maritime Administration to designate shipyards for work on maritime SMNRs. Initially two shipyards should be named – one focusing on the commercial uses and a second suitable for naval installation on conventional submarines.

Establish SMNR Support Facilities in Participant Nations. The Secretary of State, with the advice of Submarine Forces Pacific and the Maritime Administrator, should update existing nuclear agreements and establish support facilities overseas. Initially, the only participants to consider should be major shipbuilders and treaty allies South Korea and Japan. As such, commercial and military facilities should be established in both countries to support future SMNR operations. For the time being, all major refueling and maintenance should be conducted in the U.S. Importantly, both Japan and South Korea (re-negotiated in January 2025) already have “123 Agreements” with the U.S. for peaceful nuclear cooperation.

Conclusion

President Trump’s comments may have preempted and even accelerated what has been a slowly developing effort – joint development and operation of at-sea SMNRs. Done right, advanced SMNR technology will offer an avenue to develop a new American maritime industrial comparative advantage while rapidly making allied conventional submarines many times more lethal against competitors.

Captain Brent Sadler (Ret.) joined the Heritage Foundation as a Senior Research Fellow in 2020 after a 26-year naval career in nuclear submarines and as a foreign area officer. He has extensive operational experience in the Western Pacific, having served at Seventh Fleet, Indo-Pacific Command, as Defense Attache in Malaysia, and as an Olmsted Scholar in Tokyo, Japan.

References

[1] Paul McLeary and Phelim Kine, “Trump Will Arm South Korea with a Nuclear Submarine,” POLITICO, October 29, 2025, https://www.politico.com/news/2025/10/29/trump-south-korea-nuclear-submarine-00629402 (accessed November 9, 2025).

[2] Terence Roehrig, “South Korea: The Challenges of a Maritime Nation,” NBR, December 23, 2019, https://www.nbr.org/publication/south-korea-the-challenges-of-a-maritime-nation/ (accessed November 9, 2025).

[3] Sam-man Chong, “The Implications of North Korean SLBM for KSS-III Submarines,” Korea Institute for Maritime Strategy, January 27, 2024, pg. 2-3, https://drive.google.com/file/d/1dYb2_ui_BaLe4rC8VhuDmeMuI309OBJH/view?pli=1 (accessed November 9, 2025).

[4] Josh Smith and Soo-Hyang Choi, “North Korea Unveils First Tactical Nuclear-Armed Submarine,” Reuters, September 8, 2023, https://www.reuters.com/world/asia-pacific/north-korea-launches-new-tactical-nuclear-attack-submarine-kcna-2023-09-07/ (accessed November 9, 2025).

[5] Ethan Meick and Nargiza Salidjanova, “China’s Response to U.S.-South Korea Missile Defense System Deployment and Its Implications,” July 26, 2017, pg. 7-10, https://www.uscc.gov/sites/default/files/Research/Report_China%27s%20Response%20to%20THAAD%20Deployment%20and%20its%20Implications.pdf (accessed November 9, 2025).

[6] Chen Chuanren, “South Korea Launches First KSS-III Batch 2 Submarine,” Asia Military Review, October 28, 2025, https://www.asianmilitaryreview.com/2025/10/south-korea-launches-first-kss-iii-batch-2-submarine-foc/ (accessed November 9, 2025).

[7] “VAU-6 Auxiliary Nuclear Power Plant (ANPP) Dollezhal eggs – Submarines,” Global Security, https://www.globalsecurity.org/military/world/russia/reactor-vau-6.htm (accessed November 9, 2025).

[8] Brent Sadler, “China’s Great Submarine Sinking: What We Know and Why It Matters,” National Security Journal, October 9, 2024, https://nationalsecurityjournal.org/chinas-great-submarine-sinking-what-we-know-and-why-it-matters/ (accessed November 9, 2025).

[9] “Japan Eyes Nuclear Subs After U.S. Gives OK to S. Korea,” Asahi Shimbun, November 7, 2025, https://www.asahi.com/ajw/articles/16143129 (accessed November 9, 2025).

[10] Kaoru Ohno, “Nuclear Powered Ship Mutsu Designated as Special ‘Ship Hertiage’,” Japan Atomic Industrial Forum Inc., https://www.jaif.or.jp/en/news/4725 (accessed November 9, 2025).

[11] Kosuke Takahashi, “Japan Launches Sixth Taigei-class Submarine,” Naval News, October 14, 2025, https://www.navalnews.com/naval-news/2025/10/japan-launches-sixth-taigei-class-submarine-for-jmsdf/ (accessed November 9, 2025).

[12] “Huntington Ingalls, HD Hyundai Sign MOA to Expand US-Korea Shipbuilding Cooperation,” WorkBoat, October 27, 2025, https://www.workboat.com/huntington-ingalls-hd-hyundai-partner-to-expand-u-s-korea-shipbuilding-cooperation (accessed November 9, 2025).

[13] Chris Panella, “White House says South Korean shipbuilding giants are going to pour billions into reviving America’s shipbuilding industry,” Business Insider, October 29, 2025, https://www.businessinsider.com/trump-south-korean-shipbuilders-will-invest-billions-into-us-industry-2025-10 (accessed November 9, 2025).

[14] “Report: Japan and U.S. to Sign Memorandum on Shipbuilding Cooperation,” The Maritime Executive, October 26, 2025, https://maritime-executive.com/article/report-japan-and-u-s-to-sign-memorandum-on-shipbuilding-cooperation (accessed November 9, 2025).

[15] Michael Barletta, “The Military Nuclear Program in Brazil,” Center for International Security and Arms Control, August 1997, pg. 6, https://www.files.ethz.ch/isn/22239/14_Military_Program_Brazil.pdf (accessed November 19, 2025).

Carlo Patti, “Origins and Evolution of the Brazilian Nuclear Program (1947-2011),” Nuclear Proliferation International History Project, November 15, 2012, https://www.wilsoncenter.org/publication/origins-and-evolution-the-brazilian-nuclear-program-1947-2011 (accessed November 19, 2025).

Shane Ward, “The Strategic Rationale for Brazil’s Nuclear Submarine Does Not Hold Water,” Georgetown Security Studies Review, https://gssr.georgetown.edu/the-forum/topics/defense/the-strategic-rationale-for-brazils-nuclear-submarine-does-not-hold-water/ (accessed November 19, 2025).

[16] “123 Agreements for Peaceful Cooperation,” U.S. Department of Energy, July 11, 2025, https://www.energy.gov/nnsa/123-agreements-peaceful-cooperation (accessed November 11, 2025).

[17] Kawasaki Heavy Industries (KHI) has significant operations in China across various business segments, including shipbuilding, robotics, hydraulic equipment, and environmental systems, primarily through joint ventures and local subsidiaries: https://global.kawasaki.com/en/corp/sustainability/creation/rd.html (accessed November 11, 2025).

Mitsubishi Heavy Industries (MHI) does not have wholly-owned shipyards building complete vessels in China, but it has several joint ventures, licensing agreements, and service operations in the country related to marine machinery, engines, and engineering services: https://www.mhi.com/group/mhimsb/company (accessed November 11, 2025).

Hanwha Shipbuilding has operations in China, specifically a shipyard in Shandong province that builds ship components for final assembly in South Korea. These components are critical to the company’s production and supply chain: https://www.hanwhaocean.com/en/whoweare/gn/aff/ (accessed November 11, 2025).

[18] “Fact Sheet: President Donald J. Trump Drives Forward Billions in Investment from Japan,” The White House, October 28, 2025, https://www.whitehouse.gov/fact-sheets/2025/10/28195/ (accessed November 11, 2025).

“Memorandum of Understanding Between the Government of the United States of America and the Government of the Republic of Korea regarding the U.S.-ROK Technolgy Prosperity Deal,” The White House, October 29, 2025, https://www.whitehouse.gov/articles/2025/10/u-s-korea-technology-prosperity-deal/ (accessed November 11, 2025).

[19] Brent D. Sadler, “AUKUS: U.S. Navy Nuclear-Powered Forward Presence Key to Australian Nuclear Submarine and China Deterrence,” The Heritage Foundation, October 27, 2021, pg. 7-9, https://www.heritage.org/sites/default/files/2021-10/BG3662.pdf

[20] “Pathway to Australia’s Nuclear-Powered Submarine Capability,” Australian Submarine Agency, March 14, 2023, https://www.asa.gov.au/sites/default/files/documents/2024-10/Nuclear_Powered_Capability_Fact_Sheet_0.pdf (accessed November 9, 2025).

[21] “Advanced Small Modular Reactors (SMRs), U.S. Department of Energy, https://www.energy.gov/ne/advanced-small-modular-reactors-smrs (accessed November 9, 2025).

[22] Brent D. Sadler and Peter St. Onge, “Regaining U.S. Maritime Power Requires a Revolution in Shipping,” The Heritage Foundation, May 15, 2023, pg. 18-20, https://www.heritage.org/sites/default/files/2023-05/SR272.pdf (accessed November 9, 2025).

[23] Adam Broinowski, “AUKUS Pillar 2,” Parliament of Australia, August 15, 2024, https://www.aph.gov.au/About_Parliament/Parliamentary_departments/Parliamentary_Library/Research/FlagPost/2024/August/AUKUS_Pillar_2 (accessed November 9, 2025).

[24] “Hanwha Announces $5 Billion Philly shipyard Investment as Part of South Korea’s Commitment to US Shipbuilding Growth,” Hanwha, August 25, 2025, https://www.hanwha.com/newsroom/news/press-releases/hanwha-announces-5-billion-philly-shipyard-investment-as-part-of-south-koreas-commitment-to-us-shipbuilding-growth.do (accessed November 9, 2025).

[25] “U.S. Navy Shipbuilding Is Consistently Over Budget and Delayed Despite Billions Invested in Industry,” GAO, April 8, 2025, https://www.gao.gov/blog/u.s.-navy-shipbuilding-consistently-over-budget-and-delayed-despite-billions-invested-industry (accessed November 9, 2025).

Featured Image: The JMSDF submarine Taigei (SS-513) (JMSDF photo).

By Colin Grabow

Earlier this year, Michael D. Purzycki argued—as others have before him—that the writings of Adam Smith bolster the case for maintaining the Jones Act to address U.S. national security needs. But notions that a law roundly rejected by economists across the ideological spectrum would be embraced by one of history’s great economic thinkers should be met with considerable skepticism. To the extent the Jones Act provides any benefits to the country’s defense, it does so in grossly inefficient fashion that could be better accomplished through alternative means. It is more likely that Smith would view the law as a protectionist relic that imposes a heavy economic burden while undermining the country’s maritime industry and national security.

Passed in 1920, the Jones Act restricts the domestic waterborne transport of goods to vessels that are U.S.-flagged, U.S.-owned, U.S.-crewed, and U.S.-built. These restrictions were ostensibly put in place to help provide the United States with shipyards, U.S.-controlled ships, and a pool of mariners that can be relied upon for auxiliary sealift support in time of war.

The problem is that this approach does not work. U.S. commercial shipbuilding is small and uncompetitive, the Jones Act oceangoing fleet is in a state of perpetual decline, and there is a documented shortage of mariners to meet national security needs. The Jones Act is a clear failure and should be replaced with a more effective and efficient policy.

The Sad State of Domestic Shipbuilding

The Jones Act’s most unusual and self-defeating component is its U.S.-built requirement. When the United States first adopted shipping protectionism in 1789—including restricting the U.S. flag registry to vessels constructed in the United States—U.S. shipbuilders were some of the world’s best. Sadly, this is no longer the case—and has not been since vessels of wood and sail gave way to iron and steam.

By the late 1800s, U.S.-built ships were estimated to be 25-35 percent more expensive than those constructed in British shipyards, with a similar estimate made in 1922. By the 1960s, U.S. shipbuilding costs were double those of leading international yards, while by the 1990s they were three times higher. Ensconced behind its protective Jones Act wall, U.S. commercial shipbuilding’s competitiveness has now deteriorated to the point that a U.S.-built ship is estimated to cost four to five times as much as one constructed abroad.

Unsurprisingly, demand for U.S.-built merchant ships has been relegated to the increasingly diminutive and captive domestic Jones Act market. Since 2000, deliveries of oceangoing cargo ships from U.S. shipyards have averaged just three per year. Last year American shipyards produced zero. The few ships that are delivered, meanwhile, are highly dependent on foreign ship designs and components, shattering any notions that the Jones Act frees the United States of foreign reliance for its commercial shipbuilding needs.

Jones Act protectionism is complicit in the industry’s diminished state. A complete shielding from the competitive pressures of global shipyards as well as the limited scale and reduced specialization from building for a small domestic market makes its lack of competitiveness a foregone conclusion. Put differently, U.S. shipbuilding inferiority is baked into the Jones Act cake.

That a small handful of larger shipyards still exist is owed far more to taxpayer expenditures than commercial Jones Act shipbuilding. As a 2021 U.S. Maritime Administration report notes, 14 of 15 large deep-draft vessels delivered the previous year were for the U.S. Navy and Coast Guard. Nearly 80 percent of U.S. private shipbuilding and repair industry revenue in 2019 came from the U.S. military.

It is unclear how much benefit, however, even this limited commercial shipbuilding offers U.S. warfighting capabilities given the lengthy, often delayed construction timelines of Jones Act ships. The last ten Jones Act-compliant tankers delivered required an average of approximately 17 months to build while the last ten containerships took 30. The small remaining Jones Act shipyard base is wholly inadequate to support Defense Department requirements during any large-scale, enduring conflicts, and any new-build cargo ships built could well arrive after the fighting has already ceased.

Ships and Mariners in Decline

Though the U.S.-built requirement’s benefits are unclear, its costs to the U.S. fleet are obvious. Simply put, forcing Americans to pay dramatically higher prices for new ships means fewer of them. As a 1965 interagency maritime task force report noted, requiring the purchase of new vessels from U.S. shipyards at double the cost of those purchased by foreign ship operators “seriously impedes the economic growth of the U.S. fleet.” That was written nearly 60 years ago. Today one must replace “double” with “quadruple” or “quintuple”.

In large part due to the burden of such high capital costs, the Jones Act ships are principally employed where no other transportation option exists. The nation’s 23 Jones Act containerships almost exclusively ply the non-contiguous trades, while tankers are generally employed serving those parts of the countries that are either pipeline constrained or lack them entirely.

But even serving the non-contiguous trades is no guarantee that actual ships will be used. Of the 13 vessels engaged in liner service to Puerto Rico, only five are self-propelled ships (one of which was built in Poland) with the remainder consisting of cheaper oceangoing barges. That the major Jones Act shipping firm Crowley uses two ships and four barges for its Jones Act service to Puerto Rico, whereas in its unconstrained Caribbean international routes solely employs self-propelled vessels, seems a clear indication of high capital costs discouraging the use of proper ships. Oceangoing tugboats and barges require fewer American mariners, reducing operational expenses, but also having the perverse effect of obviating the qualifications necessary for auxiliary sealift employment.

From 257 ships as recently as 1980, the fleet of Jones Act-compliant oceangoing merchant ships has declined to just 93 today. For the world’s largest economy, this shrunken fleet stands in stark contrast to the nearly 54,000 ships in operation globally.

Jones Act ships are not just few in number but also kept in service far longer than global shipping fleet standards due to sky-high replacement costs: the last 15 Jones Act ships scrapped or removed from the fleet had an average age of nearly 43 years, far beyond that commonly found in commercial shipping. Notably, commercial ships participating in the Maritime Security Program to provide military sealift cannot be accepted beyond 15 years of age. In a perverse twist of national security, meanwhile, aging Jones Act ships are not only of debatable military utility, but generate significant repair and maintenance work for China’s state-owned shipyards.

Unsurprisingly, a declining fleet of ships (with unnaturally long lives of increasing decrepitude) has had a detrimental impact on mariner numbers. In fact, a 2017 government report concluded that the United States faced a deficit of 1,839 mariners with the needed credentials to conduct concurrent operations of the U.S. commercial fleet and a sustained sealift operation. In 2019, the former U.S. Maritime Administrator Mark Buzby noted that making up this shortfall would require an additional 45 ships in the U.S. fleet. Thanks to the damaging effects of the Jones Act, however, the fleet has since declined by 6 hulls.

Given the Jones Act fleet’s depleted and deteriorated state, it is unsurprising that its ships play only a de minimis role in sealift planning assumptions. A 2020 U.S. Maritime Administration report, for example, referenced privately-owned U.S.-flag ships engaged in international trade—i.e. the 85 non-Jones Act U.S.-flag ships—and the mariners they employ as “primary resources” to serve as an auxiliary force in time of war or national emergency, while no mention of the domestic Jones Act fleet was made in this context. This stance appeared to be confirmed by the head of the U.S. Transportation Command, who testified last year that wargaming has revealed Jones Act ships to be unlikely candidates for meeting national defense needs.

As two RAND Corporation analysts wrote last year, beyond 60 foreign-built ships in the U.S.-flag non-Jones Act fleet that receive Maritime Security Program stipends, there are “very few, if any, additional U.S.-flagged vessels, certainly not a sufficient number of the type required to move large amounts of military cargo.”

Whether measured in terms of shipbuilding, ships, or mariners, the Jones Act has failed to meet U.S. national security needs. Meant to promote the fortunes of both the domestic shipping and shipbuilding industries, it has succeeded only in making both vastly uncompetitive. Given this bleak record, it is unclear why a man of Smith’s caliber would support such a law.

Failure of the Navigation Acts

That Smith is viewed by some as a likely Jones Act supporter owes to the economist’s endorsement of Great Britain’s own protectionist Navigation Acts. His support, however, is perhaps due to Smith simply not living long enough to fully appreciate their shortcomings. In 1847 a pronounced drop in trade led to the laws being suspended, and that same year the House of Commons conducted an inquiry into the Navigations Acts. After a select committee issued several reports documenting the damage inflicted by these protectionist laws, they were repealed in 1849.

Far from visiting harm on the British maritime industry, the Navigation Acts’ repeal coincided with a great flourishing. As a Library of Congress report points out:

In just over a decade, there was a 52.2 percent increase in tonnage owned, and the yearly average of British tonnage which entered and cleared from British ports increased by 102.7 percent…An overwhelming, demand for shipping caused the price of vessels to rise and British shipyards were kept busy.

The United States, meanwhile, saw its own shipping and shipbuilding industries decline as the country clung to shipping protectionism. In his 1876 book History of Merchant Shipping and Ancient Commerce, British author William Schaw Lindsay pointed out these contrasting fortunes:

…I cannot refrain from directing the attention of my readers to the fact that the nations which have adopted a liberal policy have made much the greatest advance; while the United States of America, to which I have so frequently referred, have, with all their natural advantages, materially retrograded as a maritime people.

This retrogression, aided and abetted by the Jones Act, continues today. U.S maritime policy, both for the country’s economic prosperity and national security, is crying out for a dramatic overhaul.

Overhaul of Maritime Policy Sorely Needed

One obvious corrective would be to dispense with the Jones Act’s U.S.-built requirement—at the very least for oceangoing ships. Accepting a smaller and less modern fleet (and the resulting stultifying impact on domestic trade) in exchange for the construction of a tiny number of commercial ships highly reliant on foreign inputs is a terrible bargain. Instead, policy should be dramatically revised by scrapping Jones Act restrictions in favor of a more purposeful measure such as targeted, direct subsidies. This is an approach straight out of Adam Smith’s playbook. As he wrote in The Wealth of Nations:

If any particular manufacture was necessary, indeed, for the defense of the society, it might not always be prudent to depend upon our neighbors for the supply; and if such manufacture could not otherwise be supported at home, it might not be unreasonable that all the other branches of industry should be taxed in order to support it.

Using taxpayer-funded subsidies to assure the specific types of ships, mariners, and maritime infrastructure required in times of war would offer at least two key advantages over Jones Act protectionism. 

Transparency: The Jones Act is an implicit subsidy whose vast cost of provision is challenging to derive with any great precision. Indeed, the federal government has not even attempted to calculate its economic damage since 2002. Also unknown are the law’s benefits, with the number of ships, mariners, and shipbuilding that would exist in the law’s absence rendered a mere guessing game. Such opacity may serve the small orbit of maritime special interests that profit from Jones Act protectionism but renders a cost-benefit analysis a highly fraught if not impossible task.

Fairness: To the marginal extent the Jones Act provides ships, mariners, and shipbuilding, the burden of doing so is borne in vastly disproportionate fashion by the residents of Alaska, Guam, Hawaii, and Puerto Rico. While comprising less than 2 percent of the U.S. population, these non-contiguous states and territories account for more than half of ships employed in Jones Act trades. This inequity is further compounded by the fact that residents of Guam and Puerto Rico have no voting representation in Congress and must bear the burden of high shipping costs while suffering from some of the country’s highest poverty rates. If the Jones Act is truly rooted in national security, then it should be paid for by a broad swath of Americans rather than a small percentage based on geographical happenstance.

Perhaps most importantly, subsidies would be far more effective than current policy given the Jones Act’s demonstrable failures. Handcuffing domestic vessel operators to a wildly uncompetitive shipbuilding industry has proven a formula for maritime mediocrity.

A system of direct subsidies could eliminate such dynamics and link expenditures to discrete goals. If more ships are needed, fund ships. If more mariners are needed, subsidize their hiring or fund an expansion of the fleet for increased billets (which could perhaps be done in conjunction with the establishment of a robust Merchant Marine Reserve to assure their availability and proper training).

National security should be paid for with transparent spending linked to clear goals, not K Street-funded protectionism with opaque costs.

None of this is pie in the sky thinking. The Maritime Security Program provides a $5.3 million stipend to 60 vessels in exchange for their availability for Department of Defense use in time of war or national emergency. That means not just ships but billets for mariners. If more ships and mariners are needed, why not simply expand the program (ideally paired with reforms such as a bid system to promote cost containment)?

Aiding shipyards, meanwhile, is a trickier proposition. While the use of subsidies to cover the difference between U.S. and foreign shipbuilding costs would be preferable to the Jones Act’s U.S.-built requirement, such an approach should be regarded warily given past experience. One alternative might be a long-term shipbuilding program to replace aging vessels in the Ready Reserve Force and Military Sealift Command fleets. Such a recapitalization effort could be opened to shipyards from NATO and Major Non-NATO Allies to promote competition but with a reasonable price preference to U.S. yards to level the playing field. Subsidies linked to the realization of certain performance metrics might be another alternative. While the exact approach can and should be debated, the shortcomings of current policy demand new and innovative thinking.

There is much that Jones Act supporters and critics disagree on, including how Adam Smith may have thought about the law in the 21^st century. But there should be a clear consensus that the military must be provided with the tools it requires to accomplish its mission—including sealift. These needs should be met in the most effective and efficient manner possible. As ample evidence shows, the Jones Act is not it. After more than a hundred years of maritime failure it is time for a new approach, one that Adam Smith himself would have been willing to lend his support to.

Colin Grabow is a research fellow at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.

Featured Image: Tanjong Pagar Container Terminal seen from Asia Square, Singapore. (Photo by Nicolas Lannuzel via Wikimedia Commons)