Balsa Policy Institute chose as its first mission to lay groundwork for the potential repeal, or partial repeal, of section 27 of the Jones Act of 1920. I believe that this is an important cause both for its practical and symbolic impacts.
The Jones Act is the ultimate embodiment of our failures as a nation.
After 100 years, we do almost no trade between our ports via the oceans, and we build almost no oceangoing ships.
Everything the Jones Act supposedly set out to protect, it has destroyed.
For a hundred years, we have required ships carrying cargo between two American ports to be American built, American owned (75% of stock owned by Americans), American manned and American flagged.
If we repealed the Jones Act, we could again take spices in one port, and ship them to another port. Generalized, this is a big deal.
Why Work to Repeal the Jones Act?
There is a unique opportunity here. Repeal would restore America’s oceangoing trade between its ports and rebuild its merchant marine, noticeably impacting the price level and GDP growth.
This would be offset by only small losses to a small number of private interests. If necessary, it would cost only a small fraction of the benefits to strike a deal that fully compensates the losers.
Yet I see no attempt to create credible studies of all of the benefits and costs involved, that would serve as the foundation of such a deal, or any attempt to explore what a deal would look like. Nor do I see the groundwork being laid to justify pushing through those private interests.
While there are those who robustly and repeatedly point out the madness of the Jones Act and related laws, and CATO wrote a whole book, I believe their cases fail to backchain from a successful repeal. They do not lay the necessary groundwork.
Thus, a small effort can greatly increase the chances of a Jones Act repeal, potentially unlocking huge benefits. We need to try.
America’s few remaining oceangoing vessels are now mostly old and obsolete. We have never had a smaller Jones Act fleet. Building or hiring such ships is obscenely expensive. They are of little or no use in any potential war.
What little is left of our shipping concentrates on the captive markets where there is no good alternative. From ‘Revitalizing Coastal Shipping for Domestic Commerce,’ which draws from U.S. Energy Information Administration, PADD5 Transportation Fuels Markets, September 2015, we see that by tonnage:
35% of domestic ocean-shipping tonnage involves Hawaii, Puerto Rico and Alaska.
25% is short range fuel transfers where the pipeline alternatives are running at capacity
10% are west coast shipments to coastal cities lacking an alternative connection.
25% is ore shipped from the Mesabi iron mines in northeast Minnesota to steel mills near Chicago, Detroit and Cleveland.
That adds up to 95%.
A handful of shipping categories have survived for lack of an alternative. The rest, not so much, for example:
We no longer ship almost anything between American ports other than a modest amount via riverboats, almost at all.
One example of many: Rather than ship liquified natural gas (LNG) from Houston to Boston, a feat no ship permitted to make the journey can handle, we ship that LNG across the Atlantic to Europe. Then we import our LNG back across the Atlantic from the Caucuses.
The Jones Act has failed to protect America’s shipbuilding and merchant marine.
Colin Grabow notes that calculations on costs work both ways (direct link to podcast). If it would add 3% to the costs of production when you deliver goods via Jones Act ships, it would save 3% to stop doing so from the flagging effect alone.
What Else Happens When We Ship More Goods Between Ports?
Shipping domestically via water is the most environmentally friendly option available.
Not doing so diverts transport to trucks, or creates otherwise inefficiently long trade routes.
Better internal shipping is necessary in many cases for reshoring of other production.
Emergency Case Study: Salt Shipment to NJ in the Winter of 2013-2014
In Benefits of the Jones Act, this was used as an example of a problem that the paper claimed was falsely blamed on the Jones Act.
The defense says, look at all the salt, almost all of it, that was indeed delivered as ordered and on time. What happened was that New Jersey was going to run out of salt, so they had to order more, and ‘for the same reason I have a tough time finding a cab in New York on a Friday evening in the pouring rain’ no Jones Act ship was available that had the necessary equipment to help.
Interesting example. I find it very easy, today, to find a cab in New York in the pouring rain on a Friday evening. I open the Lyft (or Uber, or Juno) app on my phone. I ask for one. A few minutes later, it arrives. The reason you used to have trouble in that situation was that the government only issued so many taxi medallions, putting a cap on supply, and combined this with a price that could not adjust. Now those issues are gone, and the closest I have come to failing on a cab was on January 1 at about 2am, when I was informed it was going to cost about $150 and we took the subway.
Why was there no ship able and willing to carry New Jersey’s salt? Because the system has less than 10% of the domestic capacity it is supposed to have, and is unable to use additional supply in an emergency. In a slow-moving situation where we can make plans, yes, we get to move all our salt, prices do their thing even if they are several times too high.
In an emergency, like this or a hurricane? That means there is no available supply.
So, yes, the failure of New Jersey to get its extra salt that winter was due to the Jones Act. As a result, everyone has to always order extra salt, to head off such a situation.
When there is predictable and inelastic demand, it is a question of price. The price adjusted until the Jones Act-only market for salt transport clears in the normal case.
There would, however, be a serious problem if even one of the salt transport ships were to be put out of commission, or there was a larger future emergency surge in salt demand.
The larger salt issue they point out is that American salt sold at the time for $49.15 a ton excluding shipping costs, whereas Chilean salt sold for $23 a ton excluding shipping costs.
I would be inclined to agree that with that high a disparity, cutting American shipping costs will be insufficient to make us competitive, but it still requires investigation.
The post pleads that Chile’s salt starts out cheaper than America’s salt, so America’s higher shipping costs are not the issue. America’s shipping costs, however, should be actively lower. We should have a big edge not having to haul tons of salt across continents. Which is supposed to help compensate for American labor and other higher costs. Instead, Chile’s shipping is cheaper. Why ever could that be?
The other case the same paper cites is the Gulf Oil spill of 2010.
Letting no crisis go to waste, Jones Act critics—mostly from outside of the United States—took to the airwaves to complain that oil recovery efforts were being impeded because oil recovery vessels from the Netherlands were not being used by BP because of the Jones Act. But was this true? If so, it is an outrage.
…
It was Admiral Thad Allen, the National Incident Commander, who was called upon to finally set the record straight and explain that the Jones Act does not regulate the skimming of oil on the surface of the ocean.
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[Allen’s report]: To date, no waivers of the Jones Act (or similar federal laws) have been required because none of the foreign vessels currently operating as part of the BP Deepwater Horizon response has required such a waiver.
In this case, we were fortunate that the Jones Act did not apply to such vessels. We agree that foreign vessels should be allowed to help with this particular emergency.
But that only raises the question: What makes these two cases different?
It also raises the question: If the Jones Act advocates are correct in their logic in general, why do we allow the skimming of oil by foreign vessels? Are we not worried this will outcompete Americans, and prevent us from having a strong domestic fleet or supply of mariners? Could not an enemy intentionally cause an oil spill in time of war, for which we might be unprepared without foreign help?
Or is all of that quite obviously rather crazy?
Why no Emergency Exceptions?
New Jersey being short on salt could be a serious problem. Roads could be shut down. But if the situation was sufficiently dire, the salt could be brought in on trucks.
Hurricanes in Hawaii and Puerto Rico are far more serious emergencies that have occurred several times per decade with increasing severity.
Supplies have often been urgently needed. With so few Jones Act oceangoing ships, none were available to deliver the supplies in the time frame they were needed. There happened, by nature of their ordinary business, to be foreign ships that could deliver the supplies.
The obvious thing to do, the only reasonable or merciful thing to do, is to grant an exception and deliver the supplies.
Jones Act supporters instead loudly protested the granting of any exceptions, saying it would weaken the Jones Act [p.340-344]. That there might even be some possibility that the foreign ship might thereby earn a profit. So people should not get their supplies in the wake of a disaster.
Now, no waiver can be issued unless the U.S. Maritime Administration first canvasses the market for available U.S.-flag vessels, undertakes steps to engage U.S. carriers, and determines that qualified U.S.-flag vessels cannot meet the need (which it must publish) – while the victims of natural disasters languish awaiting emergency supplies. Prior to this, it was possible for a waiver to be issued by the Secretary of Defense without these conditions, which was what was used to provide waivers with respect to hurricanes Harvey and Maria [p.59].
This is crazy.
Emergency help does not hurt American shipyards or American shipping companies. It does not hurt anyone.
Nor does it strengthen the Jones Act to not grant obviously necessary exemptions. Instead, it highlights the insanity of the Jones Act and how it weakens us as a nation.
It also highlights that the defenders of the Jones Act care more about protecting the sanctity of their protections than they do about hurricane victims, and have no interest in cooperating for the greater good. To tell ships they cannot unload their cargo of emergency supplies is the act of a mustache-twirling villain.
Even if you believed that the Jones Act was somehow a good idea in the general case, proponents show zero willingness to compromise or provide exceptions in the cases where we face catastrophic failure.
Our existing Jones Act fleet simply cannot, for example, transport liquified natural gas or install offshore wind platforms, for any quantity at any price, because those ship types are entirely absent from the fleet. In the wake of hurricanes, they vehemently oppose any temporary waivers for the delivery of emergency supplies.
These are not good faith actors who want what is best for America.
To make matters worse, a recent ruling says that foreign tankers cannot load LNG from multiple American ports before heading overseas, because for safety reasons a tiny amount of the LNG loaded at the first terminal needs to be unloaded at the second one, which technically violates the Jones Act, since there is no safety exception, and has no de minimis exception either.
How do Jones Act supporters respond to that? Here we have an editorial literally saying that New England should not get a Jones Act waiver because they should have planned for the Jones Act and their resulting inability to ship LNG from one port to another port, by building pipelines instead to avoid ‘being vulnerable to the global supply chain.’ So it is wrong to blame the Jones Act, we should blame the victims.
Never mind ‘asking for it,’ this is flat out ‘you knew I was going to shoot you so it’s your fault for not wearing a bulletproof vest.’ Also, there are other factors also increasing prices, which means the Jones Act could not possibly also be increasing prices, you would have to ‘match the price in Europe.’
That sounds like a lot, but this makes it sound like a lot more:
Eliminating the Jones Act would have reduced average East Coast gasoline, jet fuel, and diesel prices by $0.63, $0.80, and $0.82 per barrel, respectively, during 2018–2019, with the largest price decreases occurring in the Lower Atlantic. The Gulf Coast gasoline price would increase by $0.30 per barrel. U.S. consumers’ surplus would increase by $769 million per year, and producers’ surplus would decrease by $367 million per year.
As in, the price of gasoline on the east coast would be $0.63 lower without the Jones Act. That’s insane. Can you imagine what voters would do if they realized they were paying that much extra for gas?
The Jones Act made that plan moot. The compact RO-RO would have cost $65 million to build in Europe at the time but double that in the United States. Because of the Jones Act, Kunkel and Heidenriech could not use foreign-built boats, and the increased cost made the plan cost-prohibitive.
“So that killed the whole project completely,” Heidenriech said. “If you allow for import of ships today, over the next 15 years, you will see 500 foreign ships owned by Americans under a U.S. flag with U.S. crews going up and down all the coasts of the United States. There’s no more economical way of transporting goods containers than ships.”
What Are Some Specific Impacts on Regions?
In 2020, the Jones Act directly cost the average family in Hawaii about $1,800 per year, a total of $1.2 billion. Many things are more expensive to ship to Hawaii than they would be otherwise.
Shipping from Hawaii to the West Coast is also a problem. A particular issue is that there are no Jones Act-compatible livestock vessels. Hawaiian ranchers are left with two options: cram their cattle into modified 40-foot containers known as “cowtainers” that come with a host of issues, or literally fly their cows to California via Boeing 747s.
By contrast, a report by the pro-Jones Act American Maritime Partnership claims ‘the Jones Act is responsible for’ 13,000 jobs and adding $3.3 billion to the economy, which means that is currently the value to Hawaii of all shipborne trade with America.
This 2022 study estimated the economic cost to Puerto Rico on private consumption to be $691 million, a 1.2% tax, or approximately $203 per citizen per year versus median income of about $22k. This does not include how cost impacts production, profitability or public costs.
In 2018, a twenty-foot container shipped from Jacksonville to San Juan on a U.S. flagged ship cost about $2937 at the same time that shipping that same container to the Dominican Republic cost $1765. [p.159]. Colin Gabow, an advocate of Jones Act repeal, estimated that the Jones Act was effectively about a 65% tax on shipping services [p.159].
For any purpose requiring shipping to or from America, Puerto Rico is non-competitive. It takes a lot to be part of the United States, where citizens don’t pay Federal income tax, and have the economy struggle.
There is, somehow, dispute that the cost of shipping goods to Puerto Rico is more expensive simply because it requires the use of more expensive ships paying more expensive maintenance and for more expensive crews. They say that when you consider that shipping to Puerto Rico can use 53’ containers instead of 40’ or 20’ containers, effective rates become comparable. To be absolutely clear, by “they”, I mean the general counsel of a Jones Act company that pleaded guilty to price fixing on freight services between the US and Puerto Rico in 2012.
And while I have not researched this in detail, it defies all economic logic that making something cost more to provide and subjecting it to a duopoly does not render its market price more expensive. If foreign ships were permitted, they too could take advantage of the larger container sizes, and we should expect comparable relative savings to that we see with the smaller containers.
There has been much controversy about various waivers, and the failure to offer other waivers, of the Jones Act during natural disasters. From these incidents we learn that proponents of the Jones Act value their ability to extract private rents above the timely delivery of goods in the wake of natural disasters. We routinely reject such price gouging when it enables the delivery of goods to those in need, so why are we tolerating it when it instead prevents the delivery of those goods?
The claim is absurd on its face. The entire American shipbuilding and repair industry, all of it, including all indirect employment, is only responsible for about 400,000 jobs. Only about 110,000 of those are direct jobs. The entire shipbuilding and ship repair industry, even including indirect and secondary effects, only accounts for $42 billion a year. What is going on?
More than 40,000 American vessels built in American shipyards, crewed by American mariners, and owned by American companies, operate in our waters 24-hours a day, seven days a week, and this commerce sustains nearly 650,000 American jobs, $41.6 billion in labor compensation, and more than $154.8 billion in annual economic output.
This is not a claim about the Jones Act.
It is definitely not a claim about the counterfactual without the Jones Act.
This is literally them adding up all the commerce driven by ships that are currently required to be Jones Act compliant.
Yes, it is highly plausible that 650,000 American jobs, $41.6 billion in labor compensation (average of ~$64k/job) and $154.8 billion in annual economic output depends on our ability to move things from one American port to another American port, including via the Mississippi River, despite the restrictions of the Jones Act.
That does not mean that without the Jones Act, we would have less such commerce and activity. We would very obviously have vastly more.
To use this statistic to defend the Jones Act is a deeply disingenuous move.
What About the Need to ‘Protect’ American Shipbuilding?
Kyle Chan: While we were busy debating whether industrial policy works, our entire shipbuilding industry went to Asia.
The US went from world leader in shipbuilding capacity to less than 1% of the world’s commercial ships.
For one hundred years, we have had these ‘protections’ and the result has been the destructive of American competitiveness in the shipbuilding industry. Without the need to face competition directly, American shipbuilders lost their ability to compete.
Colin Grabow: This Jones Act tanker is based on a South Korean design and is largely built from South Korean components. As the photo shows, the vessel is also maintained in South Korea.
Yet JA supporters argue that allowing the purchase of vessels directly from South Korea would threaten national security.
Actual maritime industry employment is likely under 100k people, despite regular claims to the contrary (e.g. ‘the Jones Act is responsible for 650k maritime jobs.) Even for those jobs that do exist, what they do is they assume that without the Jones Act there would be zero jobs, so they claim credit for all of them. You can’t do that.
Colin Grabow points out that the reason we still employ people in ship and boat building is that we do still build boats in this country – except the ones we build are recreational, small and medium boats. The Jones Act does not apply to recreational boats, so they don’t have the protection. Yet that is the area where our shipbuilding is doing fine.
It was plausible back in 1920, when first considering the Jones Act, that these restrictions would have been good for American competitiveness in shipbuilding. The world could have turned out to work that way.
A century later, we need to admit that this hypothesis was false. The restrictions did not protect our shipbuilding industry in the long run. Instead, they doomed it to become so expensive and uncompetitive that we not only can’t compete on the global market, we can’t even compete against no boats at all – we have mostly stopped using oceangoing ships to move things between American ports.
If we want to protect and promote American shipbuilding, then we can do that via Navy and other government contracts, and we can do it via direct subsidies similar to those offered by other countries.
The cost of generous supports, even if we also fully bailed out the entire existing American Jones Act related shipbuilding industry to make them and all their employees more than whole, would be a smaller order of magnitude than that of not having any ships available for domestic trade. And then we could actually get the industry back on its feet.
If it facilitates a deal to get the Jones Act repealed, we should absolutely make that part of the deal. I am not a fan of industrial policy, but it would be highly reasonable industrial policy, at worst a relatively small mistake.
The Opposing Arguments Are Disingenuous and Terrible
Given the results, how is anyone defending the Jones Act?
Those advocating for the Jones Act systematically defy all economic and military logic. They deny that costs are costs and that benefits are benefits. They use other unjustified cabotage restrictions to justify those in the Jones Act as non-impactful. And they flat out deny the evidence screamed by every cost measurement, every statistic, and the simple fact that our merchant marine and oceangoing trade have utterly collapsed.
The bulk of the additional costs imposed are due to the requirement that ships be manufactured domestically. This requirement is defended on the grounds that this is militarily necessary in time of war, despite there being no plausible scenario in which our existing capacity is useful to us. What tiny capacity we do have relies heavily on the supply chains of our allies.
The act is defended on the basis of the need for American flagged ships and an American merchant marine for national defense needs. Look around. After a century of the Jones Act, we have very little of either of them.
We also already have a better model for maintaining civilian transport capacity for military needs: the Civil Reserve Air Fleet (CRAF). CRAF is a voluntary program where civilian airlines commit to providing aircraft (which do not need to be US built) and crews during emergencies. Airlines get peacetime business from the DoD in exchange for this commitment, and the military gets reliable access to surge capacity without needing to maintain a massive standing fleet. CRAF has successfully maintained a reserve fleet of hundreds of aircraft ready for military use since 1952, while the Jones Act has presided over the near-total collapse of the U.S. merchant marine.
The act is defended on warnings about potential foreign ownership or domination of our trade. This is pure senseless fearmongering. If necessary to answer such challenges, ownership restrictions in place, as they impose little of the costs. All fears of ‘falling into the wrong hands’ are phantoms, but can be headed off easily if they are dealbreakers.
The act is defended as creating or protecting American jobs or union jobs, when repeal would do the opposite. There would be far more good American jobs, and good union jobs, if we traded again between our oceangoing ports. In the meantime, there are few ships, so there are few jobs. We could easily make whole the few specific jobs that might be lost.
The act is defended by claims that foreigners subsidize their shipbuilders. They very much do that, but if after 100 years we cannot compete with the alternative of no ships at all – a hell of a subsidy – you cannot blame foreign competition. If we want to, we can offer similar subsidies to American shipbuilders going forward, as part of the repeal deal.
Some claim the Jones Act does not hurt our international trade, because it applies only to domestic trade. But the inability to complement international routes with domestic routes makes the international routes more expensive.
Some claim that because Alaska and Hawaii sometimes buy foreign goods and have chosen to live in remote locations, they cannot only blame the Jones Act for their high prices, and they should thank the Jones Act for their protection. This is rather Obvious Nonsense.
One valid argument is that other cabotage restrictions would deny us many of the benefits of Jones Act repeal. Yes, we should fix those laws as well, but Jones Act supporters never support such actions.
In 2014, Congress requested that MARAD submit a national maritime strategy for increasing the use and size of the U.S. fleet. In response, MARAD held a series of symposiums to invite ideas from industry. Most of the suggestions by U.S.-flag carriers and shipyards were to either expand legal restrictions favoring the use of U.S.-flag vessels, step up enforcement of existing restrictions, or increase appropriations to MARAD programs.
Other than the subsidies, how could this possibly help? There are no ships going around dastardly evading the Jones Act restrictions to provide domestic shipping. Domestic shipping is ceasing to exist.
Subsidizing the domestic ships and shipping would potentially work if we put enough funding into it to cover the increased costs and make such shipping competitive. There is the danger with any oligopolistic and shielded industry there that costs would simply expand to eat up the subsidy over time.
We could potentially revitalize American shipbuilding through gigantic subsidies that were conditioned on old school, Asian-style export discipline. I could be convinced that this was better than the status quo, if those were the only choices, but it does not seem to be an obviously easier ask than outright repeal.
What Might Be a Decent Instinctive Counterfactual?
This entire section is an intuitive set of Fermi calculations, rather than the result of careful research. It is the intention of Balsa Policy Institute to turn similar methods of thinking into proper research papers and findings over time, and two studies to this end have been commissioned.
In the year 2023, America is estimated to be moving $182 billion in goods via water, versus a grand total of $16.2 trillion dollars transported. Thus about 1% of goods moved were moved via water by value, although it is 6% by volume. This is despite America’s plentiful natural waterways such as the Mississippi River.
These numbers are historic lows. Civilizations historically almost never thrive without robust waterborne trade routes.
A hundred years ago, before the impact of the Jones Act, a reasonable estimate would be that America shipped 10%-20% of its goods via water.
America, on the other hand, has seen its share of domestic commerce shipped via water decline dramatically.
One could reasonably say that the change in distribution of America’s population increasingly to landlocked urban areas is responsible for some of this decline, perhaps 25%-50%.
This still leaves at minimum a further 80% decline one could reasonably attribute to the Jones Act, and our adaptations over a century.
(One could also say that causation went the other way, that our historically bizarre rise in the population of landlocked urban areas is driven in part by our abandonment of water transport, and thus the impact is the full 90% decline. But that damage is mostly not reversible.)
While the comparison is obviously unfair due to crossing oceans, one must note that worldwide around 80% of goods are transported by ships.
Thus, an intuitive counterfactual is that an America without the Jones Act or other similar cabotage restrictions would likely ship about 5-10x more domestic goods via water.
If we take the Study Claiming Big Benefits at face value, that means 3 million to 6 million additional American jobs, $200 billion to $400 billion in additional labor income, and $750 billion to $1.5 trillion in economic activity. That is a lot, presumably the original source was too high and we would see some diminishing secondary impacts as size goes way up, but on GDP of $23.3 trillion, if it enabled shipping of a double digit percentage of all goods via water? It does not seem like an obviously wrong order of magnitude to see a permanent 3% rise in GDP.
The implied increase in federal tax revenue alone, more than $100 billion per year, gives us more than enough to buy out the losers in such a change.
That is true even with various conservative estimates on partial changes. A 2019 OECD study uses a statistical model with standard assumptions about price elasticity and trade elasticity to analyze repeal. Even under their most conservative scenario (the repeal only reduces capital costs by 50%, which in turn reduces domestic maritime freight rates by 14.7%), they find benefits to the broader economy of 37-65 times the size of the original protected shipbuilding industry, translating to up to $40 billion in increased ongoing economic activity. Remember that US shipyard prices are typically 4-5 times higher than foreign yards, suggesting the potential for much larger cost reductions and corresponding benefits.
Under their second scenario, which models a 50% reduction in total freight rates, the benefits grow to 126-219 times the original industry size, translating to up to $135 billion in increased ongoing economic activity. Again, this is conservative – Jones Act vessels have operating costs more than triple [p.5] those of equivalent foreign-flagged ships, before even considering the increased capital cost, the inefficiencies from using older and less efficient vessels, and having entire classes of specialized vessels missing from the fleet. The actual benefits from full repeal, allowing both construction and operation at international market rates, would likely be substantially larger than these estimates suggest.
The estimate here of $750 billion or more is based instead on full repeal of all relevant provisions, to a point where our laws are about as permissive as those of the EU.
The entire American private shipyard industry has a total impact on GDP of $42.4 billion, only $12.2 billion of which is direct. In the worst case, we could hand out an additional $15 billion in Navy contracts or direct subsidy payments each year.
Except that the shipyards likely would be winners, not losers. Currently, with so little building going on, a reasonable estimate is that of the remaining work, 50% of it is repair work on existing ships. If there are five to ten times as many ships trading within American waters, most of which are on rivers and thus not ocean worthy, it seems likely that the additional repair work would exceed any jobs lost in construction of new vessels. If and where necessary, such repair work could be subsidized during a transition period.
Repeal would also be good even for much domestic production.
One then has to worry about uncounted secondary and tertiary effects of such a large shift. Measuring those properly is complicated, but reducing shipping costs for domestic trade can reasonably be expected to have net positive knock-on impacts.
What About Our Other Protectionist and Cabotage Laws?
A standard defense of the Jones Act is that, while in a fully free market shipping costs would be lower and we would ship things from one port to another port, the Jones Act is not our only regulation on such matters. Even if it was gone, American immigration restrictions, safety standards and other regulations of various sorts would remain in place.
There are two obvious responses to this.
The first is that the Jones Act presents uniquely expensive barriers, even if all our other barriers were to remain. The requirement that ships be built domestically is not duplicated by other laws and constitutes the largest imposed cost barrier.
The other requirements would in practice be partially duplicated to varying degrees, but with far more flexibility.
Notice what happens in emergencies, when Jones Act shipping is often not available quickly in sufficient quantity, at any price. Or when war was declared, in the past the Jones Act was often waived. When the Jones Act was so waived, did the other laws also need to be waved? No, they did not.
What About Potential Marine Highways, or Short Sea Shipping?
In ‘Double Down on the Jones Act,’ it is suggested that America could benefit from more waterborne shipping. The author suggests we have many excellent opportunities in America to build marine highways to enable this, offering many advantages.
To illustrate this need, they show that America has dramatically little waterborne shipping compared to Europe, despite similarly rich logistical opportunities.
This is certainly true. The primary cause is the Jones Act.
But also America has failed to invest in waterborne transport infrastructure, while heavily subsidizing alternative transportation. Without the Jones Act, opportunities like this would open up. With it, there’s little point.
What Happened to All Our Offshore Wind?
The restrictions also interfere with offshore wind installation, as there are no Jones Act ships capable of installing wind turbines. We use barges to ferry components from ports to installation sites, where foreign WTIVs (which sail to the site from Canada and are not allowed to land at US ports) then handle the actual installation. This setup is so sacred that there’s literally a vessel called the Jones Act Enforcer whose sole job is to patrol U.S. waters for technical violations. One installation off the Virginia coast that would have taken a few weeks in Europe took over a year – a significant cost when WTIVs can cost more than $300,000 a day to charter.
Ørsted pulled the plug on the Ocean Wind project off the coast of New Jersey in 2023. This post from Eric Boehm explains how the Jones Act thus sank one of America’s biggest offshore wind projects. The company had based its financial projections on being able to lease America’s first (and only) Jones Act-compliant Wind Turbine Installation Vessel (WTIV), which was expected to be ready by early 2023. When that vessel’s construction fell behind schedule, Ocean Wind’s timeline and economics fell apart. The technical term they used was ‘vessel delay,’ but what they really meant was “we bet our project on American shipyards being able to deliver a highly complex vessel on time and on budget, and we lost that bet.”
Ken Girardin: !!! This was *the ship* offshore wind developers were spending a half-billion dollars on because states, including NY, refused to ask Congress for an exemption from the Jones Act because it would have hurt the AFL-CIO’s feelings.
CT Examiner: Three years ago, to great fanfare, the companies announced that Charybdis would be operating first out of State Pier in New London.
But last August, it was reported that the vessel’s expected cost had risen from $500 million to $625 million, and that delays in its construction meant Dominion would [also] miss deadlines for the installation of 704 MW Revolution Wind, and 924 MW Sunrise Wind.
That same ship is now projected to cost $715 million – which is still miraculously only a little more than double what South Korean shipyards would charge for a similar vessel. Delivery is also now expected in “late 2024 or early 2025.”
There is an invisible graveyard of offshore wind projects that were never even proposed, that would have existed except for the Jones Act. There is also a large visible graveyard of cancelled projects. And while experts say we need 4-6 WTIVs to meet our 2030 offshore wind goals, we currently have no plans for a second vessel. This is not the only regulatory barrier making things much harder than they need to be, but removing it alone would be a huge deal.
What Estimates Are There of Overall Cost?
A 2015 Journal of Maritime Law and Commerce paper, ‘Myth and Conjecture: The “Cost” of the Jones Act’ points to a multi-year International Trade Commission review of associated shipping costs.
One must note that such estimates will always be dramatic underestimates of the true economic cost. They only measure shipping costs that were worthwhile to pay even under the more expensive regime. Whereas the bulk of American shipping that would otherwise take place on water was instead diverted to other transportation or lost entirely, and thus does not show up in the numbers.
As noted above, in the absence of unusually strict cabotage restrictions, we would likely see a 5 to 10 times multiplier on water-shipped goods, which means that the effective cost estimates are likewise off by a good fraction of this multiplier. We would then additionally benefit from the resulting economies of scale.
As explained in Myth and Conjecture [p.28-29], the ITC’s initial estimate was, based on existing goods shipped, that the Jones Act added $3.6 billion to $9.8 billion in additional shipping costs.They then reduced this in 1993 to $3.1 billion and then reduced it further, with authors complaining that the numbers could not be verified because the ITC failed to consider which laws would apply to foreign flag operators – even if the Jones Act were repealed, other restrictions might still get in the way of commerce. So we can’t tell how much Jones Act repeal alone would fix this.
What other additional laws might apply to vessels engaged in American domestic trade? Myth and Conjecture suggest these:
Tax laws would apply to income generated by corporations.
Tax laws would apply to labor income.
Minimum wage laws would apply.
Mariner protection laws would apply.
Immigration laws would apply and could get tricky.
Foreign crews would have to periodically return home, presumably.
Transportation Worker Identification Cards would be required.
They assume Coast Guard would require US-flagged-level safety standards.
Almost all of that is about additional labor requirements. My presumption is that for most domestic routes, American labor would be used in any case, because of the need to integrate with American union-controlled ports and because the shipping is taking place within America.
As for the other two issues listed? The safety standards would be required if and only if the Coast Guard chose to require them for a given purpose. There would be no tax advantage to using foreign shipping, but we would not want there to be one.
What Are the Costs of Being American Flagged?
The costs are mostly of our own making, and we could undo those costs, or offer subsidies to offset them. For example, the Tariff Act of 1930 implemented a 50% duty on the price of any non-emergency repairs on U.S. flag ships done in foreign shipyards.
The only inherent cost is being available to the American military in time of war. This is the whole point of the ships being American flagged, so if we value it, we should offer further subsidies to compensate, rather than inflicting additional costs.
What Are the Costs of Being American Made?
Do we actually make American oceangoing ships in America in a meaningful way?
If a shipyard cannot operate without foreign trade, then that shipyard offers us little resiliency. If you can import all the components, you can also buy a ship.
The result is a compromise where our shipyards are prohibitively expensive compared to their foreign competition, and also would be incapable of building ships or at least vastly more costly than that, in any scenario where we lost access to foreign shipyards.
These vessels in theory could (but in practice almost never do) split into multiple components, reducing registered tonnage, which in turn reduces the Coast Guard base crew requirements. The barely exist outside of America, because the reason they exist is regulatory arbitrage.
If that is accurate and other costs stayed the same, that means U.S. crews were (in 2011) fully six times the cost of foreign crews, more than doubling operating costs. That is rather insane.
What Would Happen in a Real War?
We would waive the Jones Act, of course, as FDR did when we entered World War 2 [p.347] . And we would not make much use of what is left of the Jones Act fleet.
The Jones Act oceangoing fleet currently consists of 56 tankers, 23 container ships, and 8 ‘relatively small general-cargo’’ ships, and 6 roll on/roll off (“Ro-Ro”) ships for carrying wheeled cargo. In a real war, what remains of our fleet would be of little practical use.
The military sealift force is largely composed of more economical foreign built ships [p.21] , most of it quite old. The military seeks cargo ships with flexible capabilities [p.22], which does not match the commercial Jones Act fleet , and our shipyards are insufficient to support necessary repairs over time.
What about supporting our supply of merchant marines? From 1990 to 2017 alone, the estimated number of qualified merchant marines has shrunk from 25,000 to 11,768, only 3,000 or so of which are crew members on Jones Act vessels [p.34] . The Jones Act is shrinking, not expanding, our supply of qualified merchant marines.
If war comes, it will not matter whether our existing fleet was built in America. If we retain the requirement of being American flagged, those ships will still be available to us.
What we could in theory care about is shipyard capacity, which is also falling apart.
If we instead repealed the Jones Act and far more ships were permanently in American waters, our shipyards would at least be vastly better at capacity for ship repairs, a vital task in war.
Also we would start out with vastly more ships.
What would it take for our shipbuilding capacity to even matter?
Building new ships being a vital function would require a war that lasted for years, while America was cut off from the shipyards of its allies but kept its fleet in being, while the war did not go nuclear. I do not even know what that war would look like. Parallels to World War II emphasize how strange a situation this would be.
Nor has the Jones Act left us remotely prepared for that scenario. What little shipbuilding and repair capacity we retain depends on foreign supply lines. Which in that scenario would be cut off. In effect, we would need to rebuild our supply chain and shipbuilding capacity from scratch.
Cruise Ship Sanity Partially Restored
The United States has not built a cruise ship since the SS United States was completed in 1952.
To qualify, all passengers must also take a full round trip. I am curious what happens if someone decides not to return to the ship and the government finds out.
These Danish MFers out here trying to reduce our energy costs and carbon emissions more efficiently and affordable than Aaron Smith’s boys and he is NOT having it. I’m sorry, what did you think was the goal of our new industrial policy (which is definitely different from the old industrial policy)?
Biden fully supports this absurdity: “There are some who are content to rely on ships built overseas, without American crews to operate them. . . not on my watch.”
Matthew Zeitlin: Jones Act Enforcer sounds like the twitter handle of someone very active in the odd lots discord.
Yes, they have a ship moving around to ensure that no offshore wind farms get installed by a ship that didn’t abide exactly by every technical rule, such as using a port much farther away. Yes, this is what we are prioritizing. Not on Biden’s watch will you build green energy using the only ships capable of building it.
Colin Grabow: The CEO of Jones Act shipping company Matson (28th-largest carrier in the world) made almost as much last year as the CEO of Maersk (second-largest carrier in the world).
Yes. What would happen if we repealed the Jones Act?
The workers would mostly not lose their jobs or easily find new ones, and there would be more jobs and also more union jobs and more good jobs for Americans across the board. But let us cry a tear for the CEO of Matson, and a handful of other people in management at firms entirely dependent on protectionism. For they would truly be out of luck.
Others Make the Case
In the Washington Post, George Will writes ‘Ahoy! It’s crony capitalism sailing in and out of U.S. ports.’ Mostly it is no one sailing in and out of U.S. ports, but yes occasionally the crony capitalists do send a ship. He covers the basics, that U.S. built ships have a price premium of 300%-400% or more, and that the quality of the merchant marine has national security implications and has been devastated by the Jones Act. Indeed, the craziest arguments you hear are variations of ‘we need the Jones Act to have a strong merchant marine,’ given one can look at the merchant marine.
He closes by mentioning the U.S. Maritime Association’s recommendation to ‘charge all past and present members of the Cato and Mercatus Institutes with treason,’ and yes that did happen, in case you were worried anyone calling for repeal was being too unkind.
Colin Grabow is the Jones Act Ridiculer-in-Chief. Here is one write-up of his, destroying a claim that our protectionism ‘works’ or ‘helps stabilize the maritime industry,’ as evidenced by our industry’s failure to create or maintain oceangoing ships.
This report from Austin Vernon looks at what it would take to revitalize US Navy shipbuilding, pointing out that we have more shipbuilders, earning comparable salaries, versus Japan and South Korea who produce all the ships. He suggests various reforms to allow us to be more productive, with the focus on Navy ships. Again, this shows how profoundly behind and unproductive our shipyards are after 100 years of extreme protectionism, although it also points to other causes as well.
An Argument That We Were Always Uncompetitive
Brian Potter of Construction Physics makes a strong case that American shipbuilding has been structurally uncompetitive since the Civil War, when the rest of the world transitioned away from wooden ships. Since then, our costs have always been too high. We’ve produced a lot of ships when we needed to, for WW1 and WW2 and then one more time later, by spending a lot of money, but that was it.
In a world without the Jones Act, America would instead have simply bought our ships. Our shipyards would have had a lot more repair work, because there would have been a lot more ships to repair. Would we have also, faced with this competition, gotten our act together and become price competitive? That is unclear. The story Potter tells seems to involve a lot of path dependence – if we’d invested at various points we could have had a shipbuilding industry that could compete, but we chose not to.
The thing is, it seems that choice makes perfect economic sense. There is a lot more value in having ships than there is in building ships. The only non-political reason to build the ships ourselves is in case of a prolonged war in which we no longer can access foreign shipyards, but could access our own. How much is that worth to us, given the extent of the extra lead time involved if we have to start from scratch again like we did in WW1 and WW2?
That is the question we have to ask. If we want that capacity enough, then there are ways to get it – we can combine subsidies with a lack of accompanying restrictions, and do various forms of permitting and regulatory reform. It can be done, for not too much money, alongside a Jones Act repeal. But we have to want it. Right now we don’t.
What About John Arnold’s Case That the Jones Act Can’t Be Killed?
On Odd Lots, an excellent podcast, John Arnold of the Arnold Ventures talked about why it’s so difficult to build things in America. In particular, he also discusses the Jones Act. He’s all for its repeal, don’t get him wrong, but he doesn’t see it as viable politically to push for it. He wants to give up on this one and fight other battles.
John Arnold (39:14): Unions are very much against repeal of the Jones Act. And I think there’s a sense that we need a shipbuilding industry for national defense purposes, for unforeseen events in the future. And therefore, in order to have one, you have to kinda subsidize one because we are not competitive building ships in America vis-a-vis rest of the world. So therefore we can either create large subsidies or mandates and we’ve chosen to do the latter and create this mandate that any intra US shipping has to be on a US flag vessel and a built in the US and therefore we have some resemblance of a ship building industry in the country.
Joe Weisenthal: We have more success if we paired that mandate with subsidies or maybe just like a big public program or using the Navy or whatever to just construct more Jones Act compliant ships?
John Arnold: It would, it would be difficult. I mean like a lot of things now the federal government has decided just to subsidize. And again, like you can either use sticks or carrots in order to change behavior. And you know, IRA was a great example where 99% of the provisions in there are carrots. There’s a methane fee that’s a stick. But on the Jones Act, it’s tended to be on the stick side given where the federal debt and deficit are and the long-term risks associated with that. I’m not a strong advocate of doing more subsidies to industry.
John offers two concrete arguments: Unions and the need for a national shipbuilding industry.
The second one we have discussed extensively. Aside from Navy ships, which we are welcome to keep buying here, what shipbuilding industry?
We don’t build oceangoing ships here. The Jones Act has had 100 years to do this job, and it has done exactly the opposite. When we do build such a ship, we use so many overseas components that if we needed to use only our own shipyards, we’d have to start from scratch anyway.
John doesn’t explain why stick is better than subsidy here. The opposite seems very clearly true. The stick has wiped out our ability to trade goods between ports and to maintain a merchant marine, and hasn’t gotten us the shipbuilding industry we want. The cost has been orders of magnitude higher than any carrot might plausibly be. So why not pull out the carrots instead? Even if the carrots did nothing except pay off current stakeholders and keep a bunch of shipbuilders employed on standby, that’s mostly all we do now, so it would be way better than the status quo.
I see a lot of arguments of the form ‘you can’t simply write giant checks to the shipyards,’ to which I say I do not believe you have done the math. I am rather certain that we very much can write giant checks to shipyards. Ideally they’re structured well to give everyone incentive to become competitive again, but that’s bonus. It’s not required.
That leaves the unions. And yes, the unions are strongly opposed to Jones Act repeal. And yes, this is the primary practical barrier to repeal.
I see several ways to overcome this problem.
The plan I like most is to convince unions to change their minds, and support repeal.
Union support for the Jones Act is based upon it ‘protecting good union jobs.’
The thing is, there really are not all that many of them. Even if you counted every job at every shipyard, and every job aboard every Jones Act ship, and assumed all of them would be completely lost, it simply is not that many union workers.
So you would have at least two excellent options.
The first is to point out that the unions, as a whole, would very much stand to benefit from the increased amount of trade. The obvious reason is that the ports are fully controlled by unions. That means two things.
One is that even if the Jones Act is repealed, the ships will still need to use union labor, and the other is that we’d need far more union labor at the ports.
What do you think would happen if you loaded a ship in Savannah with non-union labor, and took the goods up to Boston? You think those goods are going to get unloaded? How? By who? Good luck with that.
The result would be a lot more trade, on a lot more ships, employing a lot more dockworkers, and I predict a net large gain in union labor even aboard ships. It’s not quite as obvious as with the Dredge Act of 1908, where the European dredgers already have contracts with our existing union workers, but it’s close.
There are various ways that the government could ensure that the status quo union workers are protected through this transition. Given how many there are, ‘offer to pay them two million dollars each if they aren’t offered a new superior union job, or maybe even if they are’ would be acceptable.
Outright ensuring the employment of all current shipyard employees would be even easier. We’re going to need them anyway, to repair all the new ships. Whatever capacity is left the Navy can use, or we can offer them huge subsidies to compete to build commercial ships. It’s all good. Whatever they want. Make them more than whole.
This would barely put a dent in the next benefits of Jones Act repeal. With the unions onboard, the rest should be easy.
Also, the economic benefits from Jones Act repeal would improve living conditions for everyone across the country, including all union workers. The cost of living will go down while real wages rise. That should matter.
And of course, if they refuse to play ball at any price, there’s always waiting for a Republican trifecta, or simply not letting the unions dictate terms. There is too much at stake.
We should be taking a similar approach to modernizing and automating our ports. The unions are vehemently opposing such actions, because by making the ports more efficient they would endanger future union jobs. But the number of endangered union jobs from such automation pales in comparison to the economic gains at stake.
So the government should once again be doing its level best to pay off everyone involved in cash and ‘jobs’ as needed. Those are cheap. Do whatever is necessary. But once again, if they won’t listen to reason and won’t take even a stupidly oversized check, then there’s only one other alternative.
What About the Foreign Dredge Act of 1906?
I stand by my previous thesis that The Foreign Dredge Act of 1906 is even more the Platonic ideal of stupid than the Jones Act, with an even larger ratio of losers to winners, an even clearer case for repeal, and that there is a lot more value there than one might think.
Alas, Jones Act defenders defend the Dredge Act in order to protect the Jones Act.
I have concluded there is no reason not to first hunt the bigger fish.
If we repeal the Jones Act, repealing the Dredge Act becomes vital so we can expand our ports and take full advantage of the new opportunities for trade. The good news is that once the Jones Act is repealed, the Dredge Act loses most of its defenders, so we likely get to repeal it, along with the Maritime Passengers Act, ‘for fee’ at that point.
Colin Grabow: Incredible: “Ultimately, Washington State Ferries cut off negotiations when Vigor said the first ferry would cost more than $400 million — more than double the state’s [$191 million] estimate.”
“…federal restrictions on intl boat building, combined with state requirements for ferries to be built in WA, meant the state couldn’t look elsewhere. By contrast, @BCFerries, in Canada, received 18 bids for its hybrid-electric Island Class vessels in 2019—all from overseas.”
R Street (April 1, 2024): R Street Institute is excited to launch the Center for the Seven Seas. This new policy center will work to re-establish letters of marque and reprisal, support the free flow of goods through international shipping routes, and repeal the Jones Act.
AMP Maritime: It says a lot about this organization that we can’t tell if this was an April Fool’s Day joke or not…
This all seems great. We need more Letters of Marque.
For many months Cato’s Patrick Eddington and Colin Grabow have been collecting internal emails from the U.S. Maritime Administration (MARAD) obtained via the Freedom of Information Act (FOIA) process.
…
After months of appeals, repeated missed deadlines to provide promised information, and threats of legal action on our part, MARAD finally sent the required materials last month.
After reading through what MARAD sent, we now can understand why the agency was so reluctant to comply with the law.
Almost at the end of the 41‐page document is what appears to be a set of recommendations related to a March 2020 meeting of the Marine Transportation System National Advisory Committee (MTSNAC)’s International Shipping Subcommittee. Among them: “Charge all past and present members of the Cato and Mercatus Institutes with treason.”
If these rent-seeking gangsters think this is going to dissuade Cato and Mercatus scholars from continuing to attack the awful Jones Act they are very much mistaken.
One big political problem is that Trump campaigned on "Make in America" so, convincing Republicans under his watch of just replacing the Jones Act is hardly possible.
Maybe the policy positions should be: "Tariffs are great if you want 'Make in America', repeal the Jones Act and replace it with a 100% tariff on foreign build ships (with the president having the ability to change the tariff as needed)".
If you decrease ship costs from 4-5x to 2x of what it costs outside of the US, you might still get a renaissance of ships and you have a bunch of money that you can use to pay off people.
Thank you for this post and your work on the Jones Act!
Sorry this is my only further comment, but below are you conflating the reduction of cost for a barrel of oil vs a gallon of gas? There are 42 gallons in a barrel of crude oil, which google tells me corresponds to around 20 gallons of gas once refined.
Eliminating the Jones Act would have reduced average East Coast gasoline, jet fuel, and diesel prices by $0.63, $0.80, and $0.82 per barrel, respectively, during 2018–2019, with the largest price decreases occurring in the Lower Atlantic. The Gulf Coast gasoline price would increase by $0.30 per barrel. U.S. consumers’ surplus would increase by $769 million per year, and producers’ surplus would decrease by $367 million per year.
As in, the price of gasoline on the east coast would be $0.63 lower without the Jones Act. That’s insane. Can you imagine what voters would do if they realized they were paying that much extra for gas?
