Geopolitical Risk in Global Defense Supply Chains: Assessing the Ripple Effects of China's Sanctions on Hanwha Ocean's U.S. Units

The recent imposition of Chinese sanctions on five U.S. subsidiaries of South Korean shipbuilder Hanwha Ocean has ignited a firestorm of uncertainty in global defense supply chains. These sanctions, targeting entities such as Hanwha Philly Shipyard Inc. and Hanwha Ocean USA International LLC, are part of a broader escalation in U.S.-China trade tensions, with far-reaching implications for defense contractors, shipbuilding industries, and geopolitical economic strategies. As the world grapples with the weaponization of trade policy, investors must scrutinize how such actions ripple through critical sectors.

The Sanctions and Their Immediate Impact

China's Commerce Ministry announced the sanctions on five U.S. subsidiaries on October 14, 2025, barring its entities from engaging with Hanwha's U.S. subsidiaries over their alleged involvement in Washington's Section 301 investigation into Chinese maritime and shipbuilding practices. This move follows reciprocal port fees imposed by both nations, further inflating operational costs and complicating logistics. For Hanwha Ocean, which has invested $5 billion to modernize its Philly Shipyard and expand U.S. naval repair capabilities, the sanctions threaten to disrupt access to critical components such as piping, electrical systems, and offshore equipment traditionally sourced from China, Korea JoongAng Daily reported.

The company's stock plummeted nearly 9% intraday following the announcement, settling at a 5.8% loss, as markets priced in the risk of delayed projects and inflated costs, Morningstar reported. Hanwha's U.S. defense contracts, including maintenance and overhaul (MRO) work for vessels like the USNS Wally Schirra and USNS Yukon, now face scrutiny over supply chain vulnerabilities, Donga reported. These contracts, part of a broader U.S. effort to revive domestic shipbuilding under the "Make American Shipbuilding Great Again" (MASGA) initiative, highlight the growing interdependence between geopolitical strategy and industrial capacity, Britannica noted.

Broader Implications for Defense Supply Chains

The sanctions underscore a critical vulnerability in global defense supply chains: overreliance on adversarial trade partners. Hanwha Ocean's case is emblematic of a larger trend where third-party nations-South Korea, in this instance-are caught between U.S. strategic alliances and Chinese economic leverage. According to an EY analysis, 78% of aerospace and defense firms are now prioritizing nearshoring or in-sourcing to mitigate such risks. For Hanwha, this means accelerating diversification efforts, including securing a $1.4 billion contract with Taiwanese shipping giant Yang Ming Marine Transport for LNG carriers, Donga reported.

However, diversification is not without challenges. South Korea's Defense Acquisition Program Administration (DAPA) is reportedly considering sanctions against Hanwha over internal disputes tied to the KDDX destroyer project, compounding operational pressures, Business Korea reported. Meanwhile, the U.S. Byrnes-Tollefson Amendment, which restricts foreign shipyards from building Navy vessels, limits Hanwha's ability to pivot entirely to domestic production, Reuters reported. These layers of complexity reveal how geopolitical risks can cascade across regulatory, financial, and operational domains.

Mitigation Strategies and Geopolitical Adaptation

To counteract the fallout, Hanwha Ocean is adopting a multi-pronged approach. The company is accelerating localization of core components, investing in U.S. workforce training, and expanding into international markets like Poland and Canada, AJU Press reported. Additionally, it has dissolved a joint venture with Chinese firm China Merchants Heavy Industry (CMHI), signaling a strategic pivot toward Southeast Asia and Singapore, I Marine News reported. These moves align with broader industry trends: 62% of defense firms now prioritize digital resilience, including cybersecurity and AI-driven logistics, to buffer against disruptions, CIO reported.

Governments are also playing a role. The U.S. SHIPS For America Act, aimed at incentivizing domestic shipbuilding, and South Korea's diplomatic efforts to mediate with China, illustrate how policy can both exacerbate and alleviate geopolitical risks, Forbes argued. For investors, the lesson is clear: resilience in defense supply chains requires not only technological and operational agility but also geopolitical foresight.

Conclusion: Navigating a Fractured Landscape

China's sanctions on Hanwha Ocean's U.S. units are a microcosm of the broader U.S.-China rivalry's impact on global trade. As shipbuilding becomes an extension of national security, companies must balance commercial interests with strategic alignment. For Hanwha, the path forward hinges on its ability to navigate these crosscurrents while maintaining its role in U.S. defense modernization. Investors, in turn, must weigh the risks of geopolitical entanglement against the opportunities in a reconfigured global order.