Hanwha Ocean (042660.KS) has emerged as a leading candidate to seize a new opportunity after U.S. President Donald Trump allowed foreign shipbuilders to build up to two Navy vessels in the United States. Hanwha Ocean meets the Trump administration's conditions, which include investing in or acquiring a local shipyard, and is the key partner leading MASGA — Make American Shipbuilding Great Again — a South Korea-U.S. shipbuilding cooperation project. Still, the industry sees cooperation from the U.S. Congress, which holds budget authority, as the decisive factor for actual ship orders.
Trump signed a National Security Presidential Memorandum (NSPM) on the 13th local time that allows foreign shipbuilders investing in U.S. shipyards to export up to two vessels to the United States. When the news broke, market observers said South Korea's shipbuilding industry stands to benefit the most. Last month, Trump raised the need to ease shipbuilding rules to strengthen U.S. naval power, saying the administration would "look at companies in South Korea and other regions." With the memorandum in effect, the U.S. war secretary must submit a ship procurement plan within 90 days.
The U.S. Burns-Tollefson Amendment in principle bars the construction of U.S. Navy vessels abroad. It grants the president exceptional authority to bypass the ban when national security interests require it. A prominent example is the "Finland model," adopted to procure medium-sized icebreakers for the U.S. Coast Guard. Under that approach, initial units are built at foreign shipyards while follow-on units are built at U.S. shipyards, speeding up the pace of vessel acquisition.
The vessels now cleared for foreign construction fall into three categories: surface combatants capable of anti-submarine and surface warfare; consolidated tankers for integrated at-sea cargo resupply; and roll-on/roll-off ships that load cargo via ramps. Units beyond the initial batch of up to two must be built at U.S. shipyards.
The U.S. administration set demanding conditions for building vessels abroad. Eligible firms are foreign shipbuilders that build a new shipyard in the United States or hold a majority stake in an existing U.S. shipyard. They must also employ and train U.S. citizens, transfer to their U.S. shipyards the proprietary shipbuilding methods and technology licenses used at their home yards, and use local supply chains for future vessel construction and maintenance.
Hanwha (000880.KS) Group is the only Korean shipbuilder that meets these conditions. Hanwha has continued direct and indirect investment in U.S. shipbuilding, beginning with its 2024 acquisition of the Philly Shipyard in Philadelphia, Pennsylvania. After announcing last year a plan to invest an additional $5 billion (about 7 trillion won) in the Philly Shipyard, the company has been actively expanding local facilities and hiring. Trump has also shown active support for South Korea-U.S. cooperation on warship construction, repeatedly asking President Lee Jae-myung whether South Korea "could quickly build 10 U.S. warships" when they met at the Group of Seven (G7) summit and the North Atlantic Treaty Organization (NATO) summit.
Still, many hurdles remain before ships are actually ordered and translate into gains for Korean shipbuilders. Resistance from the U.S. Congress, which holds budget authority, is the first obstacle. The National Defense Authorization Act (NDAA) passed by the U.S. House on the 22nd of last month bars the use of Navy funds to buy combat ships built at foreign shipyards. A draft NDAA prepared by the Senate Armed Services Committee explicitly calls for removing the president's exception authority on the matter. Without funding, a warship construction contract with a foreign shipbuilder is impossible in itself.
Concerns have also been raised that the exception clause alone cannot ensure the sustainability of the business. Under the conditions for building vessels abroad, a shipbuilder must effectively transfer its entire construction supply chain and technology to the United States while building the initial batch of up to two vessels. For this reason, some point out that a fundamental revision of the relevant legislation is needed to widen opportunities for Korean shipbuilders.
