The conclusion comes after the USTR launched an investigation last year, responding to a petition by five unions.

"Beijing's targeted dominance of these sectors undermines fair, market-oriented competition, increases economic security risks, and is the greatest barrier to revitalization of US industries," USTR Katherine Tai said in a statement.

Tai added that the findings, under Section 301 of the Trade Act, "set the stage for urgent action to invest in America and strengthen our supply chains."

Beijing's commerce ministry hit back Friday, saying it was "strongly dissatisfied and firmly opposes" the probe, adding that its conclusions were "full of false accusations against China."

A Section 301 investigation was a key tool President-elect Donald Trump's first administration used to justify tariff hikes on Chinese goods.

Tai said Thursday that the United States builds fewer than five ships each year -- a sharp decline from in the 1970s -- while China builds more than 1,700.

The USTR investigation found China's efforts to dominate the sector "unreasonable" as they displace foreign firms and create dependencies on the world's second biggest economy.

The USTR added that Beijing also has "extraordinary control over its economic actors and these sectors."

In its Friday response, Beijing's commerce ministry said that "historically, the decline of the US shipbuilding industry has had nothing to do with China."

"China's shipping market has always been open to the world and has never adopted discriminatory policies against foreign ships and foreign companies," it said in a statement.

It added that "China's industrial policy is mainly guiding rather than mandatory and treats Chinese and foreign companies equally."

"The US 301 investigation is based on domestic political needs and the aim to suppress China's development," it said.

A decision on what actions to take would be considered in the next stage of the US probe.

On Thursday, Alliance for American Manufacturing president Scott Paul applauded the pursuit of the investigation.

"Failing to take decisive action will leave our shipbuilding capabilities at the mercy of Beijing's persistent predatory market distortions," Paul said.