It’s Time To Repeal the Jones Act
It’s Time To Repeal the Jones Act
The statute’s misguided attempts to bolster the U.S. shipping industry ultimately harm American consumers
By Veronique de Rugy
The Dispatch reported today that, according to a set of FOIA’d documents from the Maritime Administration, I and my colleagues past and present, along with the entire Cato Institute staff, should be charged with treason for criticizing the Jones Act. While that statement was likely a one-off quip, the actual costs associated with protectionism and cronyism are nothing to joke about. In light of the Maritime Administration’s apparent suggestions, it seems there is no better time to yet again demonstrate the unfair and counterproductive nature of the Jones Act.
Before I do, let me say that I am forever grateful for the tremendous work that scholars at the Cato Institute have done—and continue to do—to expose the Jones Act’s many flaws. Colin Grabow and his co-authors have produced tens of thousands of words on every single aspect of the Jones Act. A special mention goes also to Scott Lincicome who, more than anyone, has made fighting the Jones Act hip on Twitter.
Other scholars have worked on this effort, of course. For instance, in 2018 the Mercatus Center published a piece by Thomas Grennes called “An Economic Analysis of the Jones Act” urging the reform of a law that “imposed large losses on American consumers.” My Mercatus colleagues Alden Abbott and Andrew Mercado also recently published a policy brief that delineates the negative economic effects of the Jones Act and debunks the justifications for its retention. One of the most important findings in the papers is that whereas some may perceive market concentration in the ocean-based shipping industry because of the “small” number of firms operating in the market, the real concentration story exists in monopolized markets around the country where the Jones Act has eliminated competition and shielded local firms from international market forces. Ending the Jones Act would go a long way to address this issue.
This conclusion is shared across ideological lines. For instance, after the devastation of Puerto Rico by Hurricane Ian, former Obama administration Treasury Secretary Lawrence Summers wrote a Twitter thread about the need to get rid of the act. Summers rightly explained that there is no better time to do it than right now.
The Jones Act is detestable because it perfectly embodies the inefficiencies and injustices of protectionism, unfair regulations and cronyism. Eliminating the statute will not only increase economic efficiency; it will help to annul the unhealthy marriage between special interests and government. And in doing so, it will also reduce inequality before the law and end the scandalous capture of government officials by unions and other cronies.
The Jones Act is a 102-year-old federal measure that aims to promote and maintain the American merchant marine fleet for commercial and defense purposes. To achieve this goal, it restricts the waterborne transportation of cargo within the U.S. to vessels that are U.S.-flagged, U.S.-built, at least 75% U.S.-crewed and at least 75% U.S.-owned. The concrete results are that a foreign ship can enter a U.S. port to drop off its foreign cargo, it can even from there sail to different U.S. ports to drop off other foreign goods, but it is not allowed to pick up any domestic goods in a U.S. port and bring those goods to another U.S. destination if it doesn’t meet the four conditions listed above.
Since 1920, this statute has been justified as a means of bolstering the U.S. maritime industry for purposes of national security—we need American ships to fight American wars! However, as Colin Grabow writes in one of his many papers on the act, “A century of evidence supports the conclusion that the Jones Act has failed in its main objectives while imposing substantial economic costs.”
Indeed, by trying to protect domestic shipbuilders from foreign competition, the Jones Act jacks up the cost of domestic shipping in the U.S. This consequence is unfortunate but not unexpected. Competition encourages producers to innovate both in the products they offer to consumers and in their production processes. The result over time is better, more diverse products and lower costs of production. Without competition, however, the results are the opposite. In the case of the Jones Act, U.S. consumers are forced to buy domestic ships that are up to eight times more expensive than foreign ships. Grabow writes, “American built coastal and feeder ships cost between $190 and $250 million, whereas the cost to build a similar vessel in a foreign shipyard is about $30 million.”
By denying American businesses access to the best shipping options, the Jones Act boosts transportation costs. According to Cato data, shipping oil from Texas to the Northeast costs three times more than shipping oil from Africa to the Northeast, an extra cost paid by U.S. consumers. Grennes’ study also finds that for every $1 gained by U.S. sailors, shipbuilders and carriers as a result of the act, U.S. consumers lose more than $1, resulting in a net loss.
The Jones Act is also bad for the environment. More expensive U.S. vessels mean the U.S. shipping industry has fallen behind in terms of innovation: Companies hang onto older, less fuel-efficient and more dangerous ships rather than updating or retiring them. Older fleets mean more pollution and energy use. High waterborne transportation costs also divert freight from ships to trucks and trains, which are more polluting too.
Sadly, these extreme consumer penalties have not even achieved the act’s goals of helping domestic builders and ensuring a ready supply of vessels to deploy during a war or emergency, such as Hurricane Ian in 2022 or Hurricane Maria in 2018. Rather than strengthening the shipping industry, the act has fostered monopolistic complacency. According to Cato data, U.S. shipbuilding output is less than 1% of that of China and Korea—a startlingly low number. Grabow again:
The U.S. Maritime Administration (MARAD) last published annual data on U.S. shipyards in 2004 and noted that there were 89 shipyards, including 4 public shipyards, 9 active yards, 15 shipyards with build positions that have not produced a ship in two years, 27 repair yards, and 34 top‐side repair yards. . . . This pales in comparison to shipyards in Asia. Japan, for instance, currently has more than 1,000 shipyards, and it is estimated that China has more than 2,000. There are also only 7 active major shipbuilding yards in the United States, as compared to roughly 60 major shipyards in Europe (major shipyards are defined as those producing ships longer than 150 meters).
The Jones Act, and the reduction in demand that it triggered, hasn’t prevented—and in fact probably caused—the closure of 300 domestic shipyards since the early 1980s. The lack of U.S. shipbuilding has meant a significantly diminished ability to transport military equipment and supplies.
The Jones Act, like a worn-out and leaky vessel, should be scrapped. It’s unsurprising that the Trump administration, with its outdated protectionist theories, didn’t get rid of it. But Trump is no longer in the White House; Joe Biden is. And before Trump there were Presidents Obama, Bush and Clinton. So why haven’t any of them or their predecessors repealed this law? The answer is obvious: Politicians cater to their special-interest friends in the trucking and rail industries—they benefit from the high cost of shipping by sea—and the maritime unions and shipbuilders.
Let me repeat that. In the name of catering to a handful of cronies, U.S. politicians repeatedly have agreed to keep the Jones Act in place. They have agreed to foist expensive and outdated ships onto American merchants and shippers. They have agreed to pollute, and they have chosen to make it harder to carry out relief efforts in Puerto Rico and other places when hurricanes strike.
No tongue-in-cheek accusation of treason will change the economic facts. It is time to put an end to this monument to cronyism and special interest politics.