The Little-Discussed Policy That's A Major Problem For International Trade
The United States is in the midst of negotiating two groundbreaking free trade agreements. However, one major impediment to international trade is surprisingly absent from the conversation. The Merchant Marine Act of 1920, also known as the Jones Act, requires all goods transported by water between U.S. ports to be carried on ships built in America, owned by citizens, and crewed by U.S. residents. While this Act may sound harmless, it has devastating effects on American consumers and domestic business investment.
Contrary to the claims of Jones Act supporters, the law does not increase economic growth. Rather, it reduces it. A select few ship builders and those they employ benefit, but most consumers lose because the restriction on shipping competition raises prices for everyday goods. For example, because of the Jones Act, it costs about $6 per barrel to move crude oil from the Gulf Coast to New England — triple what it costs to ship crude from the same destination to Canada on a foreign-flagged ship.
The Jones Act is particularly harmful to non-contiguous U.S. states and territories, such as Puerto Rico, Alaska, and Hawaii. Former U.S. Representative Charles Djou of Hawaii told me, "The Jones Act is an antiquated piece of legislation that needlessly drives up the cost of living in Hawaii. We lack the competition with trucking and rail to help keep shipping prices down. That's why regulated monopoly shipping particularly hurts Hawaiians." No wonder Hawaii has the nation's highest cost of living, 12 percent higher than second-place Connecticut.
By insulating domestic producers from foreign competition, the Jones Act is harming, not supporting, the U.S. maritime shipping industry. The U.S. trucking industry does not enjoy the same protections as maritime shipping does, though both are critical to American economic and geopolitical power. U.S. exports of cruise and cargo ships only reached $100 million in 2013, compared with $4.1 billion for exports of semi-trailer trucks.
Imagine how expensive flying would be if only planes constructed in the United States, owned by U.S. citizens, and crewed by U.S. permanent residents could transport goods and people between American cities. What if all trains had to be built in the United States and all taxis had to be U.S.-made and owned and operated by U.S. permanent residents? The costs to consumers are apparent in these cases. On the other hand, most Americans do not ride on industrial cargo ships. With the Jones Act, the negative economic consequences are felt daily in small amounts — when purchasing anything that was transported by water, in whole or in part.
The crew costs are about 4.5 times higher on U.S.-flagged ships than they are on foreign-flagged ships and account for about 80 percent of the difference in operating costs. This is a major reason why the supply of U.S.-flagged merchant ships has steadily decreased over the past 50 years.
Why has this protectionist law, which only benefits a select industry, not been repealed? It turns out that defeating powerful entrenched interests such as maritime shipping unions and ship builders is remarkably difficult.
Senator John McCain, a longtime proponent of eliminating the Jones Act, recently introduced an amendment to the Keystone XL Pipeline bill that would do just that. Those who support Keystone XL for its economic benefits will have their principles tested in the face of the powerful shipping lobby. This is McCain's first attempt to end the Jones Act since his failed efforts in 2010.
Reform of the Jones Act is long-overdue. Despite cries of necessity from its supporters, the Jones Act does nothing more than protect a politically-powerful few at the expense of the rest of America.
This piece originally appeared in Washington Examiner
This piece originally appeared in Washington Examiner