It is time to repeal the Jones Act

It is time to repeal the Jones Act

Today, the Dispatch reported that according to FOIA documents from the Maritime Administration I, my colleague’s past, and the entire Cato Institute staff should be charged for treason because we criticized the Jones Act. Although this was a joke, it is important to remember that the real costs of protectionism and cronyism do not come as a surprise. The Maritime Administration’s suggestions seem to indicate that there is no better moment than now to demonstrate the inequitable and counterproductive nature of the Jones Act.

Before I begin, I want to say that I am eternally grateful for the incredible work scholars at Cato Institute did–and continue doing–to expose many of the Jones Act’s flaws. Colin Grabow and his coauthors have written tens of thousands of words about every aspect of the Jones Act. Scott Lincicome deserves a special mention for his dedication to fighting the Jones Act on Twitter.

This effort has been supported by other scholars. The Mercatus Center published a 2018 piece by Thomas Grennes titled “An Economic Analysis and the Jones Act“, urging reform of a law that has “imposed large losses to American consumers.” Alden Abbott and Andrew Mercado, my Mercatus colleagues, published a policy brief that delineates the negative economic consequences of the Jones Act as well as the reasons for its retention. The papers reveal that while some may believe there is market concentration in ocean-based shipping because there are fewer firms in the market, in reality, the Jones Act has monopolized the markets and prevented local competition from entering international markets. This issue could be addressed by ending the Jones Act.

This conclusion is shared by all ideologies. Ex-Treasury Secretary Lawrence Summers of the Obama administration wrote a tweet about how the need to repeal the act after Hurricane Ian devastated Puerto Rico. Summers correctly stated that the best time is now to get rid of the act.

Because the Jones Act embodies all of the inefficiencies, injustices, and unfair regulations of protectionism, unfair regulation, and cronyism it is a shameful act. The repeal of the Jones Act will increase economic efficiency and end the unhealthy marriage between the government and special interests. It will reduce inequality and stop the corruption of government officials through unions and other cronies.

The Jones Act, a 102-year-old federal law, aims to support and maintain America’s merchant marine fleet for both commercial and military purposes. It restricts waterborne cargo transportation within the U.S. only to vessels that are U.S. flagged, U.S. built, at least 75% the U.S. crewed, and at least 75% U.S. owned. It is possible for a foreign ship to enter the U.S. port to drop its foreign cargo. If it does not meet these conditions, it cannot pick up domestic goods at a U.S. Port and transport them to another U.S. destination.

This statute was created to support the U.S. maritime sector for national security purposes. We need American ships to fight American Wars! As Colin Grabow wrote in one of his many papers about the act, “A century’s worth of evidence supports that the Jones Act failed to achieve its main objectives while imposing significant economic costs.”

The Jones Act, which aims to protect domestic shipbuilders against foreign competition, raises the cost of domestic shipping in America. This is a sad but natural consequence. This is a good thing. It encourages producers to invent both their products and their production processes. Over time, the result is more diverse products and lower production costs. However, without competition, the results are exactly the opposite. The Jones Act forces U.S. customers to purchase domestic ships at eight times the price of foreign ships. Grabow writes that “American-built coastal and feeder vessels cost between $190 million and $250 million, while a comparable vessel built in a foreign shipyard costs about $30 million.”

The Jones Act increases transportation costs by denying American businesses access to the best shipping options. Cato data shows that shipping oil from Texas to the Northeast costs three times as much as shipping oil from Africa, which is an additional cost for U.S. customers. Greene’s study shows that U.S. shipbuilders, carriers, and sailors gain $1 for every $1 lost by the act. This results in a net loss to consumers.

The Jones Act can also be harmful to the environment. The U.S. shipping industry is now more expensive than ever. Companies keep older, less fuel-efficient, and more dangerous ships instead of updating them or retiring them. An older fleet means more pollution and greater energy consumption. Freight costs that are high due to waterborne transport also cause freight to be diverted from ships to trucks or trains. These vehicles are more polluting.

These harsh consumer penalties have failed to achieve the act’s goals, which were to help domestic builders and ensure a supply of vessels ready for deployment in times of war or emergency. The act has encouraged monopolistic complacency, rather than strengthening the shipping sector. Cato data shows that the U.S.’s shipbuilding output is below 1% compared to China and Korea, which is a shockingly low figure. Grabow once more:

In 2004, the U.S. Maritime Administration (MARAD), published an annual report on U.S. Shipyards. It noted that there were 89 of them, including 9 active yards, 4 public shipyards and 15 with build positions that haven’t produced a ship in 2 years. There are also 27 repair yards and 34 top-side repair yard. . . . This is far less than the number of shipyards found in Asia. For example, Japan has over 1,000 shipyards and China, more than 2,000. The United States has only seven active major shipbuilding yards, compared to 60 in Europe. Major shipyards are those that produce ships over 150 meters.

The Jones Act and the fall in demand it triggered haven’t prevented, but in fact likely caused, the closure of 300 U.S. shipyards since the early 1980s. The lack of U.S. vessel building, it has resulted in a significant decrease in our ability to transport military equipment.

Like a leaking vessel, the Jones Act should be scrapped. It is not surprising that Trump’s protectionist policies are still in place. Trump is not in the White House anymore; Joe Biden is. There were also Presidents Obama, Bush, and Clinton before Trump. Why hasn’t anyone of them, or their predecessors, repealed the law? The obvious answer is that politicians cater to their special interests in the trucking, rail, and shipping industries. They also benefit from high shipping costs by sea and maritime unions.

I’ll repeat it. U.S. politicians have repeatedly agreed to maintain the Jones Act, in the name of serving a few cronies. They have also agreed to impose outdated and expensive ships on American shippers and merchants. They have also agreed to pollute and made it more difficult to aid Puerto Rico and other areas affected by hurricanes.

The economic facts will not be changed by a tongue-in-cheek accusation that treason was made. This monument to cronyism, and special interest politics must be ended.

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