WEBVTT - Trump Has a Shipbuilding Dream. Can South Korea Make It a Reality?

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Earlier this year, Bloomberg reporter way Loon soon visited Hanwa Ocean,

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<v Speaker 2>one of the biggest shipyards in South Korea. They build

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<v Speaker 2>everything from oil tankers to container ships that carry goods

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<v Speaker 2>all around the world. Waylon for people like me who've

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<v Speaker 2>never been to a shipyard, and what does it look like.

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<v Speaker 1>So it's really actually a factory town. You arrive at

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<v Speaker 1>the top of the hill and then you slowly drive

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<v Speaker 1>down and from there you can really see this huge

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<v Speaker 1>crans called goliath queens. They're really tall, almost like a building.

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<v Speaker 1>You see them rising up in front of your eyes.

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<v Speaker 1>And then beyond that you see a lot of workers

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<v Speaker 1>on bicycles and their coveralls and their goggles and their

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<v Speaker 1>helmets going around doing their daily work. And then when

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<v Speaker 1>you cast your eyes across a shipyard, you see huge

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<v Speaker 1>blocks of metal sitting around on the ground. They look

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<v Speaker 1>like huge lego pieces.

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<v Speaker 2>These lego pieces will be assembled together over the next

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<v Speaker 2>few weeks, months, or even years to become gigantic ships.

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<v Speaker 1>The largest ones can be as tall as the Empire

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<v Speaker 1>State Building. Just imagine the entire building tilted sideways horizontally.

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<v Speaker 1>You put them on the water, and then off they go.

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<v Speaker 2>This shipyard, Hanwa Ocean and others like it across Korea

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<v Speaker 2>are busier than they've been in years.

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<v Speaker 1>Korean shipyards are fully booked till twenty twenty eight. Workers

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<v Speaker 1>are hiring all around. The place is really buzzing with activity.

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<v Speaker 1>Every single dock space is filled.

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<v Speaker 2>Korean shipyards are busy these days. As Soul and Washington

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<v Speaker 2>land a new trade deal, it includes a huge pledge

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<v Speaker 2>from Korea to invest one hundred and fifty billion dollars

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<v Speaker 2>in America's shipbuilding industry to boost US maritime power. Here's

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<v Speaker 2>Trump talking about the alliance at a meeting with South

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<v Speaker 2>Korean President Lee J Mung earlier this week.

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<v Speaker 3>You know, we really sort of need each other. We

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<v Speaker 3>love what they do, we love their product, we love

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<v Speaker 3>their ships, we love at.

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<v Speaker 2>This newfound love affair between the two countries is driven

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<v Speaker 2>by the US's goal to curb the dominance of the

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<v Speaker 2>world's biggest shipbuilder, China, and boosting the South Korean shipbuilding

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<v Speaker 2>sector is a key part of that plan.

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<v Speaker 3>We're going to be buying ships from South Korea, but

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<v Speaker 3>we're also going to have them make ships here with

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<v Speaker 3>our people. Using our people, and we're going to go

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<v Speaker 3>back into the shipbuilding business again.

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<v Speaker 1>Now you have Donald Trump trying to remake the global

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<v Speaker 1>trade order through the use of tariffs. And for Korea,

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<v Speaker 1>you also have this country that used to be a

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<v Speaker 1>huge shipbuilding power but lost its crown to China. Having

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<v Speaker 1>American interests in their shipbuilders. It's also a good way

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<v Speaker 1>for them to find new growth engines for them to

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<v Speaker 1>expect and beyond Korea, to have that transfer of knowledge

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<v Speaker 1>and then maybe to even start building ships in the US.

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<v Speaker 2>This is the Big Take Asia from Bloomberg News. I'm Wanha.

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<v Speaker 2>Every week we take you inside some of the world's

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<v Speaker 2>biggest and most powerful economies and the markets, tycoons and

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<v Speaker 2>businesses that drive this ever shifting region. Today in the show,

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<v Speaker 2>Trump has a shipbuilding dream in Korea. Make it come true.

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<v Speaker 1>MASCA project, Pasca, Masca project.

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<v Speaker 2>We're going to do that.

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<v Speaker 3>I think we're going to do that very very strongly.

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<v Speaker 2>This week's meeting between Trump and South Korean President Lee

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<v Speaker 2>J Mung at the White House was the first time

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<v Speaker 2>the two met since Lee took office in June, and

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<v Speaker 2>they discussed the details of a trade agreement reached last month.

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<v Speaker 2>The deal set of fifteen percent teriff freight on Korean

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<v Speaker 2>goods imported to the US. It also included a pledge

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<v Speaker 2>by Korea to invest three hundred and fifty billion dollars

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<v Speaker 2>in the US, nearly half of that dedicated to shipbuilding.

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<v Speaker 2>Bloomberg's Way. Looon Soon says the initiative even has a

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<v Speaker 2>name that's likely to get the thumbs up from Trump

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<v Speaker 2>Masco make American Shipbuilding great Again for.

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<v Speaker 1>Soul in Washington. Both do realize that shipbuilding is a

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<v Speaker 1>big overlapping theme that they can at least see ito

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<v Speaker 1>ion way. Before Trump came into office, the Biden administration

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<v Speaker 1>was already looking at concerns over shipbuilding and having seen

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<v Speaker 1>ships as a strategic national asset.

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<v Speaker 2>Korea builds hundreds of ships every year. When completed, they

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<v Speaker 2>join a global fleet that carries eighty percent of the

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<v Speaker 2>world's trade. And building these massive ships is a li

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<v Speaker 2>labor intensive process. Hundreds of workers assemble the metal blocks together,

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<v Speaker 2>then there's all the electronic and mechanical equipment that has

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<v Speaker 2>to be installed before the ships are finally painted. The

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<v Speaker 2>whole process can take up to two years from start

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<v Speaker 2>to launch.

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<v Speaker 1>They have a little ceremony to see off the ship,

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<v Speaker 1>and I remember distinctly one of the people that we

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<v Speaker 1>and a few he did say that each time he

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<v Speaker 1>sends off a ship, it's like seeing off your son

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<v Speaker 1>or your daughter off at a wedding, because it took

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<v Speaker 1>so long to put them together, and it's a proper

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<v Speaker 1>moment for them.

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<v Speaker 2>Korea's modern shipbuilding industry really took off in the nineteen seventies.

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<v Speaker 2>The government developed the sector by pouring subsidies into it

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<v Speaker 2>and importing foreign tech. The sector got a boost from

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<v Speaker 2>a surge in global trade and demand for affordable ships.

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<v Speaker 2>By two thousand, Korea had become the world's biggest shipbuilder.

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<v Speaker 1>They had the workforce, and crucially, they were economies that

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<v Speaker 1>would turning outwards. They were looking to export a lot

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<v Speaker 1>of their manufactured goods to the rest of the world

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<v Speaker 1>as the economies of scale war of as labor costs

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<v Speaker 1>went up, Korea stepped up to become the world's top

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<v Speaker 1>shipbuilder in the late nineties. It's also partly driven by

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<v Speaker 1>its own need for national security, because you have this

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<v Speaker 1>persistent threat from the North itself, so both military and

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<v Speaker 1>commercial shipping. The needs in those two aspectually drove career

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<v Speaker 1>to become a bigger shipbuilder.

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<v Speaker 2>But the tide started to turn after China joined the

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<v Speaker 2>World Trade Organization in two thousand and one.

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<v Speaker 1>If we were to take the year two thousand as

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<v Speaker 1>a baseline, during that year, Korea commanded a twenty nine

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<v Speaker 1>percent share of the global order book for ships. Japan

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<v Speaker 1>was not far off. It was around twenty eight point

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<v Speaker 1>five and China was under nine percent. And if we

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<v Speaker 1>fast forward by just a few years, you can tell

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<v Speaker 1>that in the year two thousand and eight on nine

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<v Speaker 1>China overtook Korea and Japan in just a short span

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<v Speaker 1>of eight on nine years.

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<v Speaker 2>Then in two thousand and eight, the financial crisis brought

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<v Speaker 2>global trade to a halt. New ship orders collapsed. Korean

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<v Speaker 2>shipbuilders were now struggling to compete with Chinese rivals who

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<v Speaker 2>began flooding the market with cheap vessels. One by one,

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<v Speaker 2>they were forced to close, workers lost their jobs, and

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<v Speaker 2>some of the biggest shipbuilding companies reported record losses. Today,

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<v Speaker 2>China is by far the biggest shipbuilding country in the world.

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<v Speaker 2>They're building sixty percent of all the ships under construction.

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<v Speaker 1>Now, that's why you see the US being concerned about

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<v Speaker 1>China's dominance because let's say in a time of crisis,

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<v Speaker 1>what would happen to all these strategic resources that they

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<v Speaker 1>might need to rely on to get goods and commodities

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<v Speaker 1>flowing to US shaws And that's where a lot of

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<v Speaker 1>the content comes from.

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<v Speaker 2>After the break, as Korea and US joined forces to

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<v Speaker 2>revive American shipbuilding, could that topple China's maritime dominance. After

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<v Speaker 2>Trump took office earlier this year, the US took aim

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<v Speaker 2>at China's grip on the shipbuilding industry. It announced that

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<v Speaker 2>ships owned, operated, or built by Chinese companies would have

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<v Speaker 2>to pay additional fees to the US government to dock

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<v Speaker 2>at American ports. Ship owners were looking at paying millions

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<v Speaker 2>of dollars more for each port visit.

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<v Speaker 1>When it first came out Alio this year, it cost

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<v Speaker 1>a lot of confusion and chaos in the global shipbank

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<v Speaker 1>industry because so many shipowners have bought Chinese ships.

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<v Speaker 2>Korean shipbuilders, including Hanua Ocean, were suddenly they back in demand.

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<v Speaker 1>They got phone calls from some of the larger container

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<v Speaker 1>liners saying that they are willing to pay upwards off

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<v Speaker 1>ten percent or more and premiums just to secure an

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<v Speaker 1>earlier slot at their shipyards which are already booked to

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<v Speaker 1>twenty twenty eight.

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<v Speaker 2>If I may add, no, imagine that's probably millions of dollars.

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<v Speaker 1>No, exactly, a container ship can cost up to tens

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<v Speaker 1>of even hundreds of millions and a ten percent premium.

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<v Speaker 1>It's a really staggering amount for just one ship.

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<v Speaker 2>In the first half of this year, twenty five percent

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<v Speaker 2>of the world's global ship orders went to Korea. That's

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<v Speaker 2>up from seventeen percent last year, and the US did

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<v Speaker 2>eventually lower the levees on Chinese ships. The short term

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<v Speaker 2>chaos faded and Korean shipbuilders got fewer calls, but Waylon

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<v Speaker 2>says the US's message to the global ship and community

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<v Speaker 2>was received loud and clear.

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<v Speaker 1>It's using that leverage that it has an economic power

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<v Speaker 1>to tell the rest of the world that wants a

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<v Speaker 1>treyer with the that hey, you shouldn't really too much

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<v Speaker 1>on Chinese ships because we are concerned that China could

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<v Speaker 1>be a competitor to us. We are also concerned that

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<v Speaker 1>China is subsidizing a lot of these excess capacity in

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<v Speaker 1>building ships that is at the detriment of not only

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<v Speaker 1>your own economies, but also the US economy. So what

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<v Speaker 1>is forcing the rest of the shipping wall is to

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<v Speaker 1>make a choice that either you're traded with US without

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<v Speaker 1>Chinese ships, or you can continue buying cheaper Chinese ships

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<v Speaker 1>but just don't trade with US. And that's a message

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<v Speaker 1>that're trying to put across to the rest of the world.

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<v Speaker 2>By targeting China's shipbuilding dominance, the US is making it

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<v Speaker 2>clear that reliable maritime supply chains are critical to national security.

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<v Speaker 2>And here's an important stat Right now, the US builds

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<v Speaker 2>less than one percent of the commercial shipping fleet. Korea's

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<v Speaker 2>one hundred and fifty billion dollar investment is aimed at

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<v Speaker 2>helping the US increase that market share, and Wayland says

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<v Speaker 2>it could help Korea too.

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<v Speaker 1>For these Korean shipbuilders, it actually gives them a way

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<v Speaker 1>to secure more contracts and deals for the services that

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<v Speaker 1>they can potentially provide for the US. And already we

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<v Speaker 1>see that happening, like some of them are inking contract

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<v Speaker 1>deals with the US Navy for maintenance and repair and overhaul.

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<v Speaker 1>Some of them have even bought over shipyards in the

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<v Speaker 1>US to establish a base for shipbuilding in the US.

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<v Speaker 1>And further down the line, we can actually think of

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<v Speaker 1>ways that the Koreans can forge more ways of collaboration

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<v Speaker 1>with the shipbuilders in America, and I think ultimately when

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<v Speaker 1>you see the US shipbuilding sector growing, the Korean yards

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<v Speaker 1>will be very good partners for them.

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<v Speaker 2>But for the moment, the make American Shipbuilding Great Again

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<v Speaker 2>plan is just a handshake agreement.

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<v Speaker 1>Details are still scanned at this moment, but we do

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<v Speaker 1>know that these will go into various segments of the

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<v Speaker 1>shipbuilding sector. It's not just about building dogs or like

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<v Speaker 1>parts in the US, but it's also involved doing maintenance projects,

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<v Speaker 1>building ships and also training some of the workers in

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<v Speaker 1>the US so that overall, not only do you see

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<v Speaker 1>ships being built in the US, you also have the

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<v Speaker 1>technical know how an expertise being transferred from Korea to

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<v Speaker 1>the US so that the US can start really think

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<v Speaker 1>about having domestic ships being built.

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<v Speaker 2>So best case, this deal is a rising tide that

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<v Speaker 2>lives shipbuilding in both countries. And even if it does

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<v Speaker 2>pay off, Korean shipbuilders will still face serious headwinds. Wages

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<v Speaker 2>are rising in Korea and the country is dealing with

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<v Speaker 2>the labor shortage, one that's made worse by the lowest

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<v Speaker 2>birth rate in the world.

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<v Speaker 1>If you think about shipbuilding, not only it requires a

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<v Speaker 1>large pull of labor of workers upstream, you also need

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<v Speaker 1>a strong supply of steel. At the same time, they're

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<v Speaker 1>stuck in a country that's quite small.

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<v Speaker 2>And China has the edge in almost all those areas.

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<v Speaker 1>China had a good pool of labor, they had cheap steel,

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<v Speaker 1>and of course you have the really strong Beijing government

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<v Speaker 1>and I think in one of the five year plans

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<v Speaker 1>they did say explicitly during this period of time that

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<v Speaker 1>they want to build up shipbuilding and parts are important

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<v Speaker 1>into China's vision of a global economy.

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<v Speaker 2>So Wayluan China is at the moment dominating the shipbuilding market.

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<v Speaker 2>What edge then does Korea have to compete with China.

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<v Speaker 1>From our conversations with the shipbuilders in Korea, it came

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<v Speaker 1>to realize that they're way past the stage of competing

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<v Speaker 1>the China on the cost of building ships. In today's shipbuilding,

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<v Speaker 1>it's really the need for more advanced ships and also

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<v Speaker 1>newer forms of energy. If we talk about cleaner fuewel.

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<v Speaker 1>You have at the global level the International Maritime Organization

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<v Speaker 1>trying to push for a vision to decognize the maritime sector,

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<v Speaker 1>and with that you need to burn different kinds of fuel.

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<v Speaker 1>It's not just fossil fuels, but you're talking about methanol ammonia.

0:14:16.480 --> 0:14:20.840
<v Speaker 1>These are fuels that are quite new to the industry

0:14:21.160 --> 0:14:23.200
<v Speaker 1>and you need to find a way to burn them

0:14:23.400 --> 0:14:27.000
<v Speaker 1>efficiently but safely. And so this is where Korea is

0:14:27.000 --> 0:14:31.080
<v Speaker 1>trying to innovate on and designing engines and also the

0:14:31.280 --> 0:14:32.480
<v Speaker 1>entire ship structure.

0:14:33.920 --> 0:14:36.520
<v Speaker 2>Now, way loon, since we're talking about shipbuilding in the sea,

0:14:36.520 --> 0:14:38.600
<v Speaker 2>I'm going to try to use as many sea puns

0:14:38.680 --> 0:14:41.600
<v Speaker 2>as I can think of. Sure, Okay, Now, with this

0:14:41.760 --> 0:14:45.040
<v Speaker 2>new US push this year the shipbuilding industry in a

0:14:45.080 --> 0:14:48.240
<v Speaker 2>new direction. Will this be smooth sailing for South Korea?

0:14:48.480 --> 0:14:51.000
<v Speaker 2>Or could it put shipbuilders in a tricky spot where

0:14:51.160 --> 0:14:52.720
<v Speaker 2>they're having to just tread water.

0:14:53.600 --> 0:14:55.720
<v Speaker 1>I think it's going to be choppy waters for the

0:14:55.800 --> 0:14:58.800
<v Speaker 1>current shipbuilders in the weeks and months to come, because

0:14:59.240 --> 0:15:01.960
<v Speaker 1>we do see that President Donald Trump can be quite

0:15:02.040 --> 0:15:07.200
<v Speaker 1>unpredictable at times in bilateral negotiations. We already see the

0:15:07.360 --> 0:15:11.680
<v Speaker 1>commitment that Korean ship builders have with regard to finding

0:15:11.720 --> 0:15:15.240
<v Speaker 1>ways to collaborate with the Americans. But the question is

0:15:15.440 --> 0:15:19.640
<v Speaker 1>how willing are the Americans and seeing this in the

0:15:19.680 --> 0:15:24.000
<v Speaker 1>long term, because ultimately building a ship, as we've discussed earlier.

0:15:24.120 --> 0:15:27.200
<v Speaker 1>It's beyond just two five years. It takes a long

0:15:27.240 --> 0:15:31.520
<v Speaker 1>time for the entire industry to be built. You are

0:15:31.680 --> 0:15:35.360
<v Speaker 1>taking something that takes decades to build and you're trying

0:15:35.360 --> 0:15:39.480
<v Speaker 1>to crunch it down into a four yer US presidency rate.

0:15:40.000 --> 0:15:44.120
<v Speaker 1>You have the US President trying to push shipbuilding to

0:15:44.240 --> 0:15:46.920
<v Speaker 1>the top of his agenda. But at the same time,

0:15:47.000 --> 0:15:50.520
<v Speaker 1>one are steps needed to turn this vision into a

0:15:50.560 --> 0:15:54.560
<v Speaker 1>sustainable one beyond this term in office, and that's where

0:15:54.600 --> 0:15:57.280
<v Speaker 1>a lot of the details need to be ironed out.

0:15:57.720 --> 0:16:00.680
<v Speaker 1>These are partnerships that can potentially bring a lot of

0:16:00.960 --> 0:16:04.160
<v Speaker 1>benefits to both economies, and it can create a lot

0:16:04.200 --> 0:16:06.760
<v Speaker 1>of jobs and also bring a lot of revenue. But

0:16:06.880 --> 0:16:09.200
<v Speaker 1>the question is how do we get there in ten

0:16:09.280 --> 0:16:12.240
<v Speaker 1>years time? And that's a big question for all the

0:16:12.240 --> 0:16:14.480
<v Speaker 1>shipbuilders and the experts that we've been talking to.

0:16:21.520 --> 0:16:24.400
<v Speaker 2>This is The Big Take Asia from Bloomberg News. I'm

0:16:24.400 --> 0:16:27.880
<v Speaker 2>wanha to get more from The Big Take and unlimited

0:16:27.880 --> 0:16:30.960
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0:16:31.000 --> 0:16:34.920
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0:16:35.080 --> 0:16:37.680
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0:16:37.760 --> 0:16:41.040
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0:16:41.080 --> 0:16:43.960
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