The Jones Act is American Self-Sabotage
In their zeal to defend the protectionist Jones Act, supporters of the law argue that it helps thwart the ambitions of countries such as China. The truth is almost the complete opposite. If Beijing was able to vote for its favorite U.S. law, the Jones Act would surely be a strong contender. It’s been a disaster for both the U.S. economy and its maritime sector.
Passed in 1920, the Jones Act limits the waterborne transportation of goods within the United States to vessels that are U.S.-flagged, U.S.- built and at least 75 percent U.S.-crewed and owned. These restrictions increase the cost of moving goods across the country. In effect, the law acts as a trade barrier that interferes with the ability of Americans to do business with one another.
The reasons aren’t hard to understand. Out of the tens of thousands of ships in the world, a mere 99 comply with the Jones Act. That’s only 99 ships to meet the needs of the world’s largest economy and its non-contiguous states and territories including Alaska, Hawaii, and Puerto Rico.
And these few ships were built at fantastic expense. A ship built in the United States can cost up to five times more than one built abroad. Instead of paying $50 million for a ship Americans may instead be forced to pay $250 million.
With limited competition and expensively-built ships, the inevitable result is higher transportation costs. Shipping a container from the East Coast to Puerto Rico can cost about twice as much as sending the container to nearby foreign destinations not subject to the Jones Act. Shipping oil from the Gulf Coast to East Coast refineries may cost up to three times more than sending it a longer distance to Canada.
Faced with high shipping costs, Americans do their utmost to avoid the use of Jones Act ships. Instead, they often use alternative forms of transportation such as trucks and rail. While 40 percent of freight is moved by sea in Europe, ships account for just two percent of freight movement in the United States.
Shipping-dependent areas of the country such as Alaska, Hawaii, and Puerto Rico, however, don’t have this option. But they do have another way around the Jones Act: buy foreign products. By purchasing from abroad instead of domestically they can escape the use of Jones Act ships.
And that’s exactly what they’ve done.
As the Congressional Research Service points out, Hawaii and Puerto Rico purchase more cargo from foreign countries than they do from the U.S. mainland. The CRS notes that since 1960 shipments from the U.S. mainland to Alaska, Hawaii, and Puerto Rico have increased only “slightly,” while those from foreign sources have increased “tremendously.” The Government Accountability Office provides examples of Puerto Ricans importing goods such as jet fuel from Venezuela and agricultural products from foreign countries instead of the United States because, once the cost of transportation is factored in, buying American doesn’t make financial sense.
But sometimes the Jones Act doesn’t just deter the purchase of American products—it makes it impossible. Puerto Rico and New England both import natural gas for electricity generation, but none of it comes from the U.S. mainland. That’s because there are no Jones Act ships capable of transporting it. So all the natural gas brought in by ship necessarily comes from foreign sources, including Russia.
Because of the Jones Act, China buys cheap U.S. natural gas while Puerto Rico cannot.
Beyond its economic toll, the Jones Act has had a calamitous effect on the U.S. maritime sector. By artificially raising the cost of buying ships and reducing their competitiveness, demand for Jones Act ships has dropped. That means fewer of them. The Jones Act fleet has more than halved since 1980.
This naked protectionism hasn’t done any favors for U.S. shipbuilding either. Lacking the international competition that has promoted excellence in other U.S. industries such as autos and aerospace, U.S. commercial shipbuilding has become wildly uncompetitive. With its staggering prices, there are few takers for its products. This year a mere two U.S-built ships are scheduled to be delivered. Next year, just one. 2022 is likely to see zero.
The few ships that are built, meanwhile, feature numerous imported components such as the engines, so any notion that the Jones Act makes the U.S. self-reliant in shipbuilding is just wishful thinking.
The Jones Act is an economic burden, discourages the use of American products, and has left the United States with a shrunken, uncompetitive maritime sector. It’s hard to think of a law that does more to advance the interests of America’s rivals and adversaries.
Colin Grabow is a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.