Naval Warfare, the Crux Of Industrial War
Sea Battles Are Won In Shipyards & the Future War For The Pacific
(This article sets the background for the next premium stock report, focusing on the defense industry, and more specifically military shipbuilders.)
Modern Wars Are Industrial Wars
Pre-Modern Wars
The fate of historical wars depended on multiple factors, the first of which was manpower and surplus income.
The reason countries like France were among the most powerful in Europe was simply geography. With fertile soil, and enough but not too much rain, it was the perfect place to sustain a dense population.
At a time when all economies were agricultural, high food production was military power.
First, it gave enough surplus income (grain sales) to finance highly expensive and expertly trained professional warriors - the knights - as well as paying the skilled craftsmen making their very expensive weapons.
Secondly, it provided a vast population from whom to extract taxes, conscript/levee, and mandate free labor: most medieval castles were maintained thanks to mandatory labor from the local village, up to 2 weeks of work per year.
Industrial Wars
The situation slowly evolved from the Renaissance to WWI. The growing importance of artillery brought an emphasis on economic power and industrial capacities.
Having the more numerous and/or more motivated/fanatic/trained warriors was no longer enough.
God fights on the side with the best artillery.
Napoleon Bonaparte
This really became an inescapable reality in 1914.
Proud and courageous charges across no-mans land were futile and wasteful.
Equipping millions of men with boots, rifles, ammo and helmets required a full mobilization of a country’s economy.
And artillery guns would consume all the shells you could feed them in a matter of hours.
The limiting factor was not men or weapons anymore, but industrial production.
War was now a cold, calculated matter of supply, economic stamina, and keeping production up.
A war of money, foundries, and spreadsheets had replaced valor and men.
If you have read me before, you will know that the trench war in Ukraine is taking the exact same shape, whoever runs out of ammo first, loses.
Industrial Sea Warfare
The situation in the trenches of Verdun was not a new one for sailors. They knew for a long time that better boat designs and more guns was what won sea battles, at the very least as much as the men’s skills.
And no theatre of war would ever prove it more than the War in the Pacific.
When the Japanese hit Pearl Harbor, they had two objectives:
Keep the US from protecting European powers in south-east Asian colonies, to secure their oil and rubber production. Especially since the US had banned sales of oil to Japan, strangling its war machine through economic sanctions.
Inflict such a blow that the Pacific fleet could not recover until Japan had conquered all of Asia.
The problem was that the USA had massively industrialized in the decades before the war. It also had unlimited access to the resources of the entire Americas.
This in turn converted into an unstoppable steamroller of industrial production.
In 1937, the USA had 30% of the industrial capacity of the world, and Japan 5.2%.
The USA produced 334,5 million tons of crude steel (for guns, tanks and ships) and 4,123,200 tons of aluminum (for planes) between 1942-1945.
Japan produced “just” 24,1 million tons of crude steel & 361,000 tons of aluminum.
Simply put, for every ship the Japanese could sink, the USA would produce 10 more.
By the end of the war, the USA would produce an astonishing quantity of 8812 major naval vessels. (the current Navy has less than 300).
Of course, the sailors manning these ships fought hard and often died in the line of duty.
But their victory was truly won in the steel mills of Pittsburg and the “liberty shipyards” of the East Coast.
The Pacific War was won in the shipyards.
The New Great Naval Struggle
The Island Chains
I have already explained previously how the US will most likely blockade China to keep it from becoming an even stronger power.
The central strategy of the US to contain China is to rely on the 3 Island Chains.
The idea is to have a layered military capacity:
Local allies (Taiwan, Japan, Philippines), the most likely to suffer the brunt of a war with China.
US military bases in the rear, to offer safe harbors and resupply to the US fleet and support to the first island chain.
Command centers, training, safe strategic stockpiles, and repair in Hawaii and Australia + New Zealand.
This is a sound strategy. For a very long time, China did not at all have the naval capacity to attack the first island chain, even less endanger Guam or Hawaii.
And you will notice, the first island chain + Korea can cut ALL of China’s sea lanes, including the all-important Strait of Malacca, from which most of China's minerals and energy come from.
A Changing Balance of Power
The problem with this strategy is that, obviously, it relies entirely on the US fleet being able to keep China locked away.
If the Chinese Navy can force its way through the first island chain, all hell could break lose.
So how are the Chinese Naval Forces doing?
(I took a lot of my data from this great, 1h long video from the US Naval Institute)
In ship numbers, China has overtaken the US in 2015.
The tonnage data tells another story, with the US Navy still essentially double than that of China’s in 2020.
But as you can see below, this advantage is melting away fast.
And the US Navy battleforce size goals tend to never match reality: PLAN=People’s Liberation Army Navy (China), USN=US Navy.
There is also the discussion that China’s navy is a “green sea” navy. It means it is mostly designed for coastal defense, and ill fit for overseas expeditions.
It is entirely true and would be a serious weakness if Chinese ships wanted to, let’s say, blockade the Panama Canal. Or defend Chinese interests in the Atlantic.
However, I doubt this is much of an issue to control the South China Sea…
Especially as this is a shallow sea, where submarines might struggle to make a difference.
So combined with the presence of missiles and air force on the mainland, able to support the Chinese Navy (more on that below), I would say both navies are on relatively equal footing at the moment.
And the balance is quickly tipping in China’s favor.
All Sea Wars Are Industrial Wars
Remember, naval wars are won in the shipyards. Who can churn out ships the quickest wins.
So a conflict with China will be decided by industrial capacity.
This might not have been true if the Chinese Navy had been so weak as to permanently let the American Navy dominate the area, and for example, destroy its shipyards.
But with the 2 forces already on a similar level (for a localized conflict), a South China Sea or Pacific War would be determined by who can produce the most ships and wear down his opponent first.
Current Military Shipyard Capacity
Chinese military shipyards have overtaken the US in sheer tonnage produced, and haven’t stopped growing in capacity since.
In addition, the USA is not the only one with naval bases. China has militarized the South China Sea islands into “unsinkable aircraft carriers” by building military bases, some larger than Pearl Harbor.
So potential military support from land is not only in the mainland but at the center of the South China Sea as well.
The US Establishment’s Sudden Realization
It seems that until recently, the American leadership was blissfully unaware of the rising Chinese capacity. Being the unmatched sea power for almost a century will do that to you I guess…
US Navy Secretary Carlos Del Toro
Now, the CNN interview of Del Toro takes rather a bizarre turn, when he claims China is using slave labor in its shipyards as an excuse for the US to have lost its lead.
One big US problem is finding skilled labor, he said.
He also said China can do things the US can’t.
“They’re a communist country, they don’t have rules by which they abide by,” he said.
So while the US finally realized it has a problem, it does not seem ready to admit the problem is first and foremost internal.
This is really more than a little concerning.
At the same time, it will be great for a select few defense companies, which I will cover in my next report.
As a sidenote, when even CNN calls you out for distorting the truth, you know it was a truly ridiculous statement:
I fully agree that “two decades to conceptualize, design and build ships for its own navy“ perfectly describe the situation.
This is the same military running out of ammo in Ukraine.
There is something deeply wrong with the Pentagon procurement system!
Civilian Industry Mobilization
Ultimately, in case of a USA-China hot war, military shipyard capacity will be relatively irrelevant. WW2 was won by the USA by converting civilian capacity to military one.
Ford & GM car factories —» tank factories.
Civilian shipyards —» military shipyards.
So military shipyards are maybe not THAT important. In case of a serious conflict, the “spare” capacity of the civilian industry would be the real determining factor.
Civilian capacity is also vital for building all the tankers, supply ships, etc… required during a war. This was notably why the “Liberty Shipyards” were so important in WW2.
The problem for the West is that the ENTIRE shipbuilding industry is now in Asia. I am not exaggerating. Only 4% of the world’s ships are NOT built in Japan, Korea, or China…
Why It Matters
I cannot emphasize how important this could be.
This is a MAJOR vulnerability of the Western alliance. Something that they finally seem to have realized - just look again at the rather ridiculous and somewhat panicked claims of the US Navy Secretary Carlos Del Toro.
This vulnerability will not be ignored anymore. The Ukraine war is shaking off Western complacency.
So you can count on the US to start rebuilding its shipyards very soon.
This obviously has major geopolitical consequences.
But it also has clear economic and investing implications.
And what company in the US will benefit from a boost in military shipbuilding and more state support?
This is something for the next premium report.
Not Ships, But Missiles?
As a concluding thought, I will also mention the potential of anti-ship missiles to matter a lot in such a conflict.
And it seems to be a very real part of China’s plan, as it trained on how to shoot a moving target in the South China Sea from 1,800 miles inland.
A possible method to utilize such land base missiles would be to saturate the targeted fleet, overwhelming the anti-missile defenses.
Another option could be to just exhaust the missile defenses. It basically takes missiles to shoot down missiles. So if you can constantly shower the enemy fleet with ordinance until they run out of protection.
This gives the nation defending close to home a tremendous advantage.
Add to it that China is the only country with a dedicated and independent missile division (like the Marines or Air Force), the People's Liberation Army Rocket Force, with the largest land-based missile arsenal in the world.
As missiles cost a LOT less than ships, you can win a war of attrition at sea this way.
This is also what Chinese propagandists claim is their plan (which in itself, puts into question just how much about this missile threat is propaganda).
You still cannot go on an adventure in the Panama Canal, but you can blockade Taiwan, bomb Korean shipyards, or keep the enemy away from the Malacca Strait.
This is something that Russia learned the hard way, with the sinking of the Moskva cruiser and the relative uselessness of its Black Sea Fleet.
Hyper-Threat?
Another unknown variable is hypersonic missiles.
Can they entirely ignore missile defense and turn aircraft carriers worth tens of billions into “sitting ducks”, causing damage 1000 times the price of a single missile?
That’s at least what the Washington Post claims to have discovered from the recent Pentagon leaks.
In military history, wonder weapons are often less impactful than people imagine. But if properly used, you occasionally have a military revolution, like the “corps” division of Napoleon or the German Blitzkrieg.
So maybe the only solution is to build so many ships that you can fire back no matter what.
Once again, a positive change if you are in the business of making more ships.