China’s Commerce Ministry announced Tuesday that it is banning Chinese companies from dealing with five subsidiaries of South Korean shipbuilder Hanwha Ocean, marking the latest escalation in tensions with U.S. efforts to rebuild its domestic shipbuilding industry.

The move comes as Beijing launched an investigation into Washington’s probe of China’s growing dominance in global shipbuilding, warning of potential additional retaliatory measures. The ministry claimed the U.S. investigation threatens China’s national security and its shipping industry, citing Hanwha’s involvement in the probe.

The U.S. Trade Representative initiated the Section 301 trade investigation in April 2024, concluding that China’s leadership in shipbuilding creates disadvantages for American businesses.

“China just weaponized shipbuilding,” said Kun Cao, deputy CEO of consulting firm Reddal. “Beijing is signaling it will target third-country firms that support U.S. efforts to counter China’s maritime dominance.”

The dispute adds to ongoing tensions over international shipping and port fees, with both countries imposing new fees on each other’s vessels this week. South Korea and the U.S. have strengthened shipbuilding cooperation in response to China’s dominance.

Hanwha Ocean acquired the Philly Shipyard in Pennsylvania in late 2024 for $100 million and plans to invest $5 billion in new docks and quays to boost U.S. shipbuilding capacity. The company also holds U.S. Navy contracts for maintenance, repair, and overhaul of naval vessels.

Hanwha Ocean said it is reviewing the potential business impact of China’s sanctions. Shares in the company fell over 8% during trading, closing 5.8% lower. South Korea’s Foreign Ministry said it is assessing the effects on Hanwha subsidiaries and related industries, and will engage with relevant parties to minimize damage.

The sanctioned entities are: Hanwha Shipping LLC, Hanwha Philly Shipyard Inc., Hanwha Ocean USA International LLC, Hanwha Shipping Holdings LLC, and HS USA Holdings Corp.

Trade tensions between the U.S. and China have escalated after President Donald Trump threatened a 100% tariff on Chinese imports, citing new Chinese export controls on rare earths. The developments have raised doubts about a planned meeting between Trump and Chinese leader Xi Jinping later this month.

China also announced new port fees targeting U.S.-owned or flagged vessels, mirroring similar U.S. measures. Currently, U.S. businesses control just 2.9% of the world fleet by capacity and 0.1% of global shipbuilding tonnage, while China accounts for over half of new shipbuilding, with South Korea at roughly 30% and Japan around 10%.

In May, Hanwha Ocean withdrew from a joint venture in China amid growing geopolitical tensions.