WASHINGTON — A Pentagon request for $1.85 billion in reconciliation funding could be used not just to study whether foreign shipbuilders could construct a warship for the US Navy, but also to begin bankrolling the first vessel built in Japan or South Korea, an Office of Management and Budget official told Breaking Defense.
The money in question is a request for an upcoming reconciliation bill to include $1.85 billion in Navy research and development funds that would be used on “two separate study and procurement efforts” aimed at investigating the ability of allied shipbuilders to build future cruisers, destroyers and frigates, according to an overview of the Pentagon’s mandatory funding request.
“The fact is, no one spends $1.85 billion studying something. That money is there for procurement of assets,” an OMB official told Breaking Defense in an interview. “The OMB director has made that clear, I’m making it clear. We’re here to seriously look at procuring assets sooner rather than later.”
“In the case of frigates, that would purchase an entire frigate, depending on who the manufacturer is,” the official said. “And even with regard to cruisers or destroyers, … if you look at the average cost of destroyer construction in Japan and Korea, $1 billion is a fairly nominal cost associated with destroyer construction.”
“This actually gets at what we’re looking at, on adding competition and capacity in the United States. Japan and Korea are both building advanced surface combatants at a much lower cost than what we’re seeing here in the United States,” the official added.
The acknowledgement could ignite a legislative fight with Congress, after lawmakers made clear in hearings with Navy leaders in recent weeks that they remain skeptical that foreign companies should be tapped to alleviate capacity pressures on heritage US shipyards.
Lawmakers are also concerned that the inherent flexibility of reconciliation funding — which is not subject to the same oversight as normal discretionary appropriations — could allow the administration to use the $1.85 billion in ways that Congress did not explicitly authorize.
“That’s the difficult part with reconciliation, and it’s something that we went through with [the One Big Beautiful Bill],” a congressional staffer told Breaking Defense.
“To go ahead and say that we need to start [building ships] overseas is certainly premature, and really that doesn’t hurt the primes as much as it hurts their supply chains and their subcontractors,” the staffer added. “People forget that less than five years ago we were in a supply chain crisis that we’re still trying to dig out of.”
Shaking Up The Paradigm
The Navy and Coast Guard rely on eight domestic shipbuilders — five of which are owned by HII and General Dynamics — to construct its surface combatants and auxiliary ships, according to the Congressional Budget Office. But despite nearly doubling the Navy’s shipbuilding budget over the past two decades, workforce challenges, supply chain fragility, and aging infrastructure and capacity constraints at the major shipbuilders, have hindered Navy efforts to boost ship production, the Government Accountability Office reported in 2025.
The Trump administration wants to reverse the trend of ever-expanding shipbuilding delays and ballooning costs by injecting foreign investment into the current industrial base, which the OMB official said would boost capacity and competition in the United States.
“There’s a lot of concern from the major naval shipbuilding shipyards in the United States about, ‘Well, why aren’t you just giving those orders to us?’” the official said. “We just doubled the shipbuilding budget [of] … the United States Navy. They are already one to four years behind schedule on every major program. If I just keep giving them money, they’re just going to go farther and farther behind. This is the only way to shake up the paradigm.”
Should the administration press forward with procurement of a foreign surface combatant, the OMB official underscored that production of US warships abroad would only be a temporary measure, with foreign shipbuilders required to set up new yards in America.
OMB’s vision is that the hull, mechanical and electrical (HM&E) structures of the first ships, “maybe two” vessels total, would be produced abroad in either Japan or South Korea, with the combat systems integration being led by an American defense contractor, the official said.
“Those ships could be delivered to the United States while — and this would be contractual — while those parent shipbuilders are making their investments here in the United States, whether that’s a brownfield yard, [meaning] they buy an already existing shipyard and modernize it, or they establish a new greenfield shipyard where no shipyard existed ly,” the official stated.
The administration ly used this strategy in agreements with Finland for icebreakers, resulting in what the administration has dubbed the “Finland model.” Under the terms of one deal, Rauma Marine Constructions will build two arctic security cutters (ASCs) in Finland while standing up ship production in the United States with Bollinger Shipyards in Louisiana, which would build the four vessels. Meanwhile, Davie Defense, the American sister company to Canada’s Davie, will build two ASCs at Helsinki Shipyards and three domestically.
The administration is engaged in discussions with South Korean shipbuilding companies Hanwha, HD Hyundai and Samsung Heavy Industries, as well as Japan’s Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Japan Marine United (JMU) Corp., about potential ship construction for the US Navy, the OMB official said.
“They’ve embraced modernization, robotics. They’re doing more in terms of production in a quicker fashion at a lower cost than what we’re seeing [in the United States],” the official said.
For example, JMU has laid the keels for two Aegis System Equipped Vessel (ASEV) cruisers within the past year, and plans on delivering those ships in 2028 and 2029.
“This is a new program, newly stood up, new design, they’re going to have it in the water in essentially less than five years. Whereas what we’re seeing with some of our major programs is we’re stretching out years, in terms of build,” the official said. For example, Arleigh Burke class destroyers are currently “anywhere from 14 months to nearly 42 months behind schedule.”
The Navy also hopes to procure auxiliary ships from foreign builders, and the service has requested in a legislative proposal to receive authorization for up to two vessels in the fiscal 2027 National Defense Authorization Act, according to the Navy’s shipbuilding plan.
The OMB official said auxiliary ships like console tankers and roll on/roll off vessels are “standard commercial designs” that are less complex than warships.
“Our idea would be for them to build the first couple overseas while they make their initial investments in a US brownfield or greenfield yard, and then to take up the remainder of a multi year procurement contract, probably a 10-ship block buy that would … be built here in the United States, utilizing US workers and a US supply base,” the official stated.
The Navy referred Breaking Defense to OMB when asked for comment on whether funds for the study would go toward procurement efforts. However, the Navy’s top two leaders have recently addressed the question of buying foreign-built ships.
During a Senate Appreciations Committee hearing on May 21, Acting Navy Secretary Hung Cao, pushed back on the assertion that the Navy wants to buy into foreign yards, claiming instead that the US wants foreign yards to invest in the US — like South Korean shipbuilder Hanwha did when it acquired a shipyard in Philadelphia in 2024.
“That’s why to be able to have them invest over here. I mean my Toyota is not built in Japan, it’s built in the United States,” Cao told lawmakers. “So, have them build their factories over