Should We Keep the Jones Act? NO!

The Jones Act, formerly the Merchant Marine Act of 1920, mandates that waterborne shipping within the United States must be on US-built ships, that are registered in the U.S. and crewed by mostly U.S. seaman. The main purpose of the Jones Act was to preserve the Merchant Marine fleet after World War I. Whatever its initial merits, the Jones Act has become a vehicle for protecting domestic shipping and maritime employment. Protectionist measures like this one drive up costs and hurt innovation by stifling competition.

One of the arguments used to justify keeping the Jones Act is to maintain US shipbuilding capacity and to avoid relying on China or South Korea that build a large number of the world’s commercial vessels. While China might be a less reliable partner for shipbuilding, that hardly is the case with South Korea, one of our staunchest allies. Further, ships last decades and no one can possibly know today what our international relations will be with other countries 30 or more years in the future or which countries will be leading in shipbuilding. And, the argument that a domestically built maritime fleet is needed for national security reasons flies in the face of DOD leasing foreign vessels for some of its activities.

In a global economy that is interlinked and competitive, continuing the Jones Act harms US competitiveness by driving up shipping costs because both crew and operating costs are higher than those of foreign competitors. That conclusion has been borne out by studies by the Federal Reserve Bank in New York and the Government Accountability Office.

The oil and gas renaissance has put the spotlight on the imperative of repealing the Jones Act. The US is exporting increasing quantities of refined products and, if the President does the right thing, will be exporting crude oil as well. Requiring that those commodities be shipped in Jones Act tankers adds significantly to shipping cost—perhaps a third more than the costs of using foreign vessels. Higher costs negatively impact demand, so the economic benefit of exports will be less than it could be. It will not be long until we are able to export large quantities of liquefied natural gas to relieve the scarcity in other countries particularly those in the EU who are under Russia’s shadow. Requiring LNG to be shipped on Jones Act vessels has the same negative effect. Free trade and competition benefit all.

As the Heritage Institute concluded in a report that it issued last year:

“The Jones Act is blatant cronyism in which one group is benefiting from special treatment by the government at the expense of everyone else. If politicians are serious about affordable energy, economic growth, industrial innovation, and providing competitively priced goods and services, they would remove government barriers to competition in the shipping industry. Repealing the outdated, protectionist Jones Act would promote competition, strengthen the economy, and benefit American consumers”.

More and more, we are seeing examples of Professor Bruce Yandle’s Bootlegger and Baptist theory at work. Maintaining the Jones Act is just one more example. Bootleggers (domestic shipping interests) are “private interests that seek political action in pursuit of narrow economic gains.” The Baptists represent “group action driven by …a desire to serve the public interest” (those who appeal to national security interest to support the Jones Act. The net effect of not repealing this outdated law is to block competition and maintain uneconomic operations.

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