Postcards: He Who Rules the Seas (Part Two)

China has undermined the U.S. shipping industry since 2006, but we'll have a formal investigation into its practices. Can you guess who ran the Senate Committee on Foreign Relations in 2006? ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: He Who Rules the Seas (Part Two)]( China has undermined the U.S. shipping industry since 2006, but we'll have a formal investigation into its practices. Can you guess who ran the Senate Committee on Foreign Relations in 2006? [Garrett {NAME}](floridarepublic) Jun 19 floridarepublic   [READ IN APP](   Market Update: Markets are closed on Wednesday in honor of Juneteenth. Today’s article follows up on my piece on naval security and the history of Genoa’s wealth and dominance in sea trade before a steady decline due to internal and external forces. There are parallels between Genoa and the United States, and our government has been asleep on maintaining our naval power since the 1980s. Foreward As a graduate of the Global Security Studies program at Johns Hopkins, I only took one pure military security course. Still, supply chain security work covered the military's role in shipping channels. Plus, we did plenty of work analyzing China’s rise. So, it’s staggering to me that our leadership is this far behind on what’s happening. It’s either stupidity or malice… But it can’t be both. This was three hours of my time. --------------------------------------------------------------- Dear Fellow Expat: In April 2024, the Biden administration [announced plans to launch a trade]( into China’s dominance in the global shipping industry. Such an “investigation” sounds like a sudden threat that emerged due to a bombshell report on Capitol Hill or some revelation from the World Trade Organization. Yes, the announcement did come after Naval leaders met with House Appropriations that month to express concerns about the country’s “shipbuilding and maintenance shortfalls,” [as noted by Military.com on April 10](. [I’ve already explained in several blogs]( that the U.S. [has likely lost the Arctic Ocean]( to the Chinese and Russians. They’re building nuclear subs and icebreakers, and we’re still using the same technology to break ice from the 1970s. It’s insane to me. Plus, [the Jones Act undermines our shipbuilding capacity and our supply chain functionality.]( That is why, at this rate, I worry that we may easily lose our influence over anything west of Hawaii in the future or face a major military skirmish due to China’s expansionary policies. But I must say… if anyone in this administration spends a dime on an investigation– and can’t just read this article or use Google – they must be fired or, at worst, left on a raft near the Solomon Islands. [Upgrade to paid]( Forty YEARS in the Making On August 8, 1985, [the Associated Press]( an article about the planned shuttering of [General Dynamics shipyard in Quincy, Massachusetts](. The 180-acre shipyard produced 227 Navy ships during World War II. Defense contractor General Dynamics (GD) owned the facility for 21 years. But in 1985, it laid off 4,200 people… and shuttered the shipyard. As the AP noted, from 1981 until that 1985 publication, the U.S. lost 25 of its 110 shipyards. (And it wasn’t like everyone wasn’t talking about it. Hell, even the [Christian Science Monitor wrote about this]( in 1985.) At the time, the AP noted multiple factors that drove the decline of shipyards. A lack of government allocations and subsidies, foreign competition, and wages. About 30 years prior, U.S. shipyards built global fleets. But by 1985, nations like South Korea and Japan could build ships at half the price in half the time. Everyone in the article argues that the reasons are labor costs and the loss of government subsidies. The Korean worker made $2, and the average American shipbuilder made $11. In 1981, the Reagan administration eliminated the subsidies for half the ship's price. At the time, Jed Babbin, then the vice president and general counsel of the Shipbuilders Council of America, explained the obvious… “The loss of Quincy is a major reduction in the size of the mobilization base and our capability of meeting wartime demand,” he said. Again, this is 1985. Richard Piccuito, then president of Shipbuilders Local No. 5 in Quincy, told AP that the industry was doomed and defense was a problem. “The American shipbuilding industry is going down the tubes,” Piccuito said. “And if we ever have a problem with our national defense . . . how are we going to man the seas if we can’t build the ships?” Yes, we should blame the Reagan Administration’s cost cuts. It’s like funding defense is part of the government’s job, no? Even a libertarian can come around on this one. Of course, we know that Reagan expanded nuclear arms, introduced Star Wars, and allocated a lot of money to new aircraft and common defense against Russia. But when it came to the shipyards’ demise… this would be obvious to anyone paying attention… maybe a significant body in Congress overseeing all things global on security issues. Emphasis mine… The Senate Foreign Relations Committee oversees American relations with foreign nations generally; treaties; foreign economic, military, technical, and humanitarian assistance; foreign loans; diplomatic service; International Red Cross; international aspects of nuclear energy; International Monetary Fund; intervention abroad and declarations of war; foreign trade; national security; oceans and international environmental and scientific affairs; protection of U.S. citizens abroad; United Nations; World Bank and other development assistance organizations.  So… in August 1985, one should ask… Who sat on the Senate Committee on Foreign Relations? Four names stick out… John Kerry… Chris Dodd… Paul Sarbanes… and… Joseph R. Biden Jr. And now, we’re finally investigating whether the industry KNEW was a problem in 1985. I stress this: This is not an endorsement of Trump, Williamson, Kennedy, Oliver, Stein, or West. It’s a reminder that this crisis has lasted every minute of my life. And a drunken, high monkey with a basic understanding of 21st-century Chinese economic and military policy could conduct the Biden investigation into Chinese shipping practices… even if it was his freaking day off… from Milan, Italy. [Upgrade to paid]( He Who Rules… As we depart Genoa for Milan, the cultural shift goes to Northern Italy. Witnessing the remnants of a former empire always humbles the economist and historian. But it also satisfied my appetite with a kilogram-sized Florentine steak prepared properly – Rare. [As I noted yesterday,]( the power of the Genoa fleet delivered wealth and influence across the Mediterranean. But times changed. The Western Colonies emerged. Europe grew obsessed with Mayan cocoa beans. Trade moved toward the Atlantic. And politics and infighting fueled the decline. “He who rules the seas rules the world” has been an adage for some time. And if we’re not careful, we have a problem. Some analysts already worry that this China shipping investigation is little more than an effort to court blue-collar workers for the election – and then do nothing about it afterward. After all, it’s not like people haven’t known about China’s economic ambitions for the better part of… checks watch… the past… 20 years. Agathe Demarais, a senior policy fellow on geoeconomics at the European Council on Foreign Relations, [already laid this out in April for the layman]( (and people on… say… the Senate Foreign Relations Committee.) China’s shipbuilding plans are part of its broader economic strategy. The nation uses cheap labor to create cheap products, puts them on subsidized ships built by similar cheap labor, sends products abroad, imports dollars, buys gold, drives rival companies (and ultimately nations) out of business, and builds market share. Overall, China’s strategy is a warped form of mercantilism in which money is no object. It’s a strategy to undercut American government influence, and U.S. businesses focused on revenue and profit models. Demariais writes that China will create up to 80% of all new dry bulk and oil shipping vessels in the next three years. All invested capital will stay within the country. The writer notes that since 2001, Chinese firms have been unable to invest in other nations’ shipbuilding. But here’s what gets me. As she noted… [China announced absolute state control of seven industries]( in December 2006 (two months after the U.S. midterm elections). Shipping was one of those seven industries where a state-owned company must have the largest stake. The other sectors are armaments, power generation/distribution, oil and chemicals, telecommunications, coal, and aviation. You know… tangible assets. Everyone in Washington had to know this… hell, I knew this by accident in 2007 when working in supply chain security analysis... before I knew much about anything... But… who should have known this? Who do you think took over as the Chair of the Senate Committee on Foreign Relations in 2007, just a month after China made this announcement? Of come on… let’s all not see the same hands. Say it with me: Joe Biden. And by 2008… the Congressional Research Service explicitly prepared a report for the Senate Committee on Foreign Relations called… “CHINA’S FOREIGN POLICY AND ‘‘SOFT POWER’’ IN SOUTH AMERICA, ASIA, AND AFRICA.” It lays out China’s economic strategies as outlined by Agathe Demarais last month. Did anyone read it? It’s not like Biden didn’t have the same aides running around in Washington while all this was happening. They could have read it, right? Secretary of State Anthony Blinken… what was he doing at the start of 2008? Oh, he’d just been staff director for the [Senate Foreign Relations Committee]( for six years already. America’s current Director of National Intelligence, Avril Haines, was… in 2007… a Deputy Chief Counsel for the… Senate Committee on Foreign Relations. Senator John Kerry joined the SFRC in… 1995 and was a prominent member until 2009 when he took over the Committee because Biden became Vice President. [Did he read the report?]( Did any of these people read the report? And if there is a report… there had to be hearings on the subject. Were any of these people awake during those hearings? 2008 Senate Committee on Foreign Relations Kerry also ran this committee after Biden became VP in 2009 for four years before becoming Secretary of State. Did any of his aides read it? Did anyone read the multiple versions and updates of the CRS reports [China Naval Modernization: Implications for U.S. Navy Capabilities]( or [China’s Naval Modernization: Motivations, Goals, and Prospects]( The first versions of those two reports were released in the 2000s… They’ve been updated dozens of times, and they’re free… And then, while Biden was VP and Kerry was flying around worrying about carbon emissions, [China expanded its strategic spending and subsidization in 2011 by $1.5 trillion](. This expansion was in every major newspaper. It was one of my first conversations with my father-in-law about finance, national security, and my graduate work. Again, this entire story on China’s strategy… is 15 to 20 years old. And we’re just starting an investigation? Come on… let’s stop with this nonsense. I’d scream louder into the sky, but my hands hurt from typing… Tomorrow, we will address the rest of this story in Part III. We’ll talk about why the U.S. is so far behind… and what it will mean moving forward. Like our current leaders, we'll “pretend” that China’s economic initiatives are all BRAND NEW. I need to eat… Stay positive, Garrett {NAME} Secretary of Defense Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. 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