Why Risk “Treason” Charges over the Jones Act?

Colin Grabow

For several years now Cato Institute scholars have been highlighting the costs and shortcomings of the Jones Act, an oft‐overlooked protectionist law that restricts waterborne transportation within the United States to vessels that are U.S.-flagged, U.S.-built and mostly U.S.-owned and crewed. As widely reported on Tuesday, our criticism has been regarded by some within the U.S. maritime industry—perhaps jokingly, perhaps not—as treasonous. Given this recent public attention, it’s worth quickly reviewing why we believe the Jones Act warrants intense criticism, regardless of what the law’s supporters might say or do in response:

• It has failed to produce a healthy U.S. maritime industry: Jones Act protectionism has presided over maritime stagnation and decay. Over the last four decades, the number of Jones Act‐​compliant oceangoing cargo ships has more than halved. That fact is in large part due to U.S. commercial shipbuilding’s staggering lack of competitiveness. A new U.S.-built tanker, for example, is estimated to cost approximately $130 million more ($175 million versus $45 million) than one built abroad. The last Jones Act‐​compliant containership built, meanwhile, cost over $225 million compared to $41 million for a similar‐​sized vessel built in South Korea—a greater than 5x price delta. Unsurprisingly, the astronomical cost of new ships has proven a poor means of encouraging maritime commerce. What it has effectively done, however, is deter the acquisition of new vessels and given Jones Act ships unnaturally long lifespans: the last 15 ships scrapped or removed from the Jones Act fleet had an average age of nearly 43 years, far beyond that commonly found in international commercial shipping.
• It has undermined shipbuilding competitiveness: The Jones Act bears considerable culpability for the shipbuilding industry’s poor state. Building for a relatively small captive domestic market has disincentivized the scale and specialization required for U.S. shipbuilders to compete internationally. As a result, they find themselves caught in a cost‐​quantity trap described by my colleague Scott Lincicome last year: “[H]igher prices for U.S. ships depress demand for shipping services, thereby leading U.S. companies to purchase fewer American‐​made vessels. Producers, in turn, build fewer ships, thus preventing economies of scale and specialization and thereby making U.S. shipyards even less competitive (and more expensive) going forward. Rinse and repeat until you have the zombie industry we see today.” The few cargo ships that are built (an average of just three per year since 2000), meanwhile, are highly reliant on foreign inputs, shattering any notions that the Jones Act has spared the country from dependence on foreigners for its shipbuilding needs.
• It has failed to meet U.S. national security needs: While national security is commonly cited as a reason to retain the law, when called upon in times of conflict the Jones Act has fallen well short. The United States was so bereft of U.S. commercial shipping for its sealift needs in Operations Desert Shield and Desert Storm, for example, that it twice requested—unsuccessfully—the use of a Soviet ship to transport U.S. military equipment. The U.S. ships that were used suffered from mariner shortages, requiring the use of retirees to plug the gap. The law’s contributions to U.S. sealift needs remain sufficiently paltry that a 2020 government report failed to list Jones Act shipping as one of the “primary resources to serve as a naval and military auxiliary in time of war or national emergency.” Last year the head of the U.S. Transportation Command admitted that the Jones Act fleet would be unlikely to be counted upon to meet U.S. sealift needs.
• It impedes domestic commerce, especially for energy: While ocean shipping is typically considered an efficient means of moving goods across long distances, the Jones Act has made such transportation a last, high‐​cost resort in the United States, typically employed in only places like Puerto Rico, Hawaii, and Alaska that have few (if any) alternatives. Even worse, sometimes the Jones Act makes domestic waterborne transportation flatly impossible. The United States is the world’s leading exporter of liquefied natural gas (LNG), yet Puerto Rico and New England must import it because there are no Jones Act‐​compliant LNG tankers to transport it. (Building one here would be mind‐​bogglingly expensive.) Hawaii imports propane despite domestic plenty for the same reason.
• It impedes disaster response: When disaster strikes the Jones Act makes it more costly and difficult to effectively move aid to the U.S. places that need it. In the wake of Hurricane Fiona, for example, a ship transporting diesel fuel from Texas to Puerto Rico had to wait for days until a waiver of the law was issued allowing its cargo to be unloaded. Following last year’s Colonial Pipeline shutdown, meanwhile, the law prevented foreign ships from helping to speed fuel from Gulf Coast refineries to East Coast consumers. The Jones Act means fewer options at precisely those times when maximum flexibility is required.
• It harms the environment: A dearth of competitive shipping options means increased demand for less environmentally friendly means of moving goods, such as trucking. The sky‐​high cost of new ships, meanwhile, deters fleet modernization and the adoption of more efficient and less polluting technologies. According to a Cato Institute paper published by economist Timothy Fitzgerald the total environmental benefits of the Jones Act’s repeal could exceed $8 billion.
• It funds lobbyists, not innovation: The U.S. maritime industry may be woefully uncompetitive in the actual business of shipping but has mastered the art of lobbying, spending almost $10 million on campaign contributions in 2021 alone. Indeed, the Jones Act itself—Section 27 of the Merchant Marine Act of 1920—was the result of Seattle‐​based shipping companies urging Sen. Wesley Jones of Washington state to prevent the shipment of goods to and from Alaska via foreign ships operating out of Canada. A world without the Jones Act would mean less money for K Street lobbyists and increased investment in more productive areas.
• It’s archaic: While the Jones Act was passed in 1920, it is only the latest iteration of restrictions on foreign shipping that date back to the country’s founding. This was a time when, thanks to vast forests useful for constructing the wooden ships of the day, U.S. shipbuilders were some of the world’s best and merchant ships could be repurposed to hunt enemy shipping with the addition of cannons. The country and the maritime world have changed tremendously since then, but U.S. cabotage laws have not.
• It’s unfair: To the marginal extent the Jones Act provides ships, mariners, and shipbuilding to meet national security needs, the burden of doing so is borne in vastly disproportionate fashion by the residents of Alaska, Guam, Hawaii, and Puerto Rico that are highly reliant on ocean shipping. The country’s defense is a classic public good that should be paid for in a transparent and direct fashion, not through protectionism with opaque costs that fall most heavily on the small percentage of Americans who reside in the non‐​contiguous states and territories.

Cato Institute scholars who critique the Jones Act have no objection to ensuring that the country’s national security needs—the ultimate public good—are effectively met. But the Jones Act fails to do so, all while undermining the country’s prosperity. The law is an act of self‐​sabotage that is unfair, outdated, and ineffective in meeting its stated goals. By any reasonable standard, it should have been done away with long ago.

If saying that risks “treason” allegations, then so be it.