How an Old Shipping Law Raises Consumer Prices - The Atlantic

Donald Trump is the most protectionist president America has seen in more than a century. So it’s odd that a consequence of his war on Iran has been the waiving of one of the most protectionist pieces of legislation on the books: the Jones Act. Passed in 1920, the Jones Act requires that all shipments by water within the United States, including by ocean, be made on ships that are built in America, owned by American companies, and crewed by American mariners. In normal times, this would be the kind of law that Trump loves. But in the hope of easing supply-chain problems and holding down oil prices, he issued a Jones Act waiver in March for shipments of energy-related products and fertilizer, then extended it, and is now considering extending it again.<br>Republicans in Congress have been lobbying Trump to let the waiver expire in August. But the experience of the past few months has shown just how anachronistic, costly, and unnecessary the Jones Act is. It is a classic example of what the social scientist Mancur Olson described as a policy that has concentrated benefits but diffuse costs. For American shipbuilders and shipowners, the law insulates them from competition, guarantees them business, and allows them to charge higher rates than they otherwise would. For the rest of the country, the law simply makes it harder to get things at a reasonable price and to ship things at a reasonable cost. It’s a hidden tax that, most of the time, is easy to overlook. Instead of lobbying for the law, Congress should be thinking about reforming, if not repealing, it.<br>The Jones Act dates back to a time when naval capacity was seen as essential to national defense and national security more generally. Its purpose is to support a robust domestic shipbuilding industry capable of constructing battleships and cruisers, and a robust domestic merchant-marine fleet and workforce that can transport goods and people. It also was intended to give the Navy backup capacity in wartime. But in practice, the Jones Act functions as a gift to U.S. shipowners and an inefficient and largely ineffective jobs program, all at the expense of American consumers.<br>To be fair, the Jones Act has helped the U.S. maintain a reasonably strong industry building barges and tugboats. But the law’s national-defense rationale applies most obviously to oceangoing vessels, and in that regard, it’s been a failure.<br>Read: How America lost control of the seas<br>The United States’ once-large domestic shipbuilding industry has shrunk dramatically over the decades—even with the Jones Act—thanks to competition from countries with lower costs and better production methods, such as China and South Korea. This shift can’t be blamed entirely on America’s costly labor and strict regulations. Even countries with similarly high labor costs and regulatory hurdles—such as Canada and Norway—have relatively greater shipbuilding capacity than the U.S. does. This is partly because the Jones Act protects American vessels from international competition, ensuring that U.S. shipbuilders needn’t innovate for an international market.<br>All of this means that the ships that can legally transport goods from Houston to San Francisco—let alone Hawaii or Alaska—are old and small in number. In 1997, there were slightly less than 200 Jones Act–compliant oceangoing ships, meaning they were built, owned, and operated by Americans; now there are about 92. And certain kinds of ships aren’t being built here at all. Although the U.S. is a major exporter of liquefied natural gas—and certain parts of the country, like the Northeast, use a lot of it—the U.S. has not built a single LNG tanker since 1980.<br>Then there are the Jones Act’s considerable costs. Because foreign boats aren’t allowed to ship goods between American ports, the lack of competition keeps domestic-shipping costs high, so most stuff gets sent by train or truck (which is, among other things, not great for the environment). The tonnage transported by ship among U.S. coastal cities has fallen almost by half since the 1960s.<br>Scott Lincicome: The obscure maritime law that ruins your commute<br>Even more perversely, an act designed to protect and serve U.S. industry has actually encouraged the import of goods from foreign countries. Because the Jones Act applies to only domestic trade, a ship that carries goods from Hong Kong to Long Beach doesn’t need to comply with the law, whereas a ship that carries the same goods from Baltimore to Long Beach does. On this point, the Jones Act waiver has proved especially useful lately, because it has allowed Texas oil to travel by ship to the Northeast, which would otherwise have had to import that oil from abroad, and to California, which normally relies heavily on oil from the Persian Gulf.<br>The waiver has been especially valuable for Americans outside the continental U.S., in Alaska, Hawaii, and Puerto Rico, who because of the Jones Act have...