Jones Act is supported by myths, but its negative impact is very real

This following article was originally published by RealClear Policy on Aug. 31, 2021.

By Josh Mason and Jonathan Helton

The federal Jones Act has shaped — and burdened — maritime transportation in the U.S. for more than 100 years. Officially Section 27 of the Merchant Marine Act of 1920, it dictates that goods transported between two U.S. ports must be carried on ships that are U.S. flagged and built, and mostly owned and crewed by Americans.

This relic of a long-gone era is defended by powerful special interests that benefit from its protectionism at the cost of everyone else.

Five of their most common arguments are that the law protects national security, keeps foreign ships out of America’s inland waterways, contributes to economic growth, protects American jobs and helps states and territories that rely primarily on ocean shipping for imports.

However, a new policy report by the Grassroot Institute of Hawaii,Five myths about the Jones Act,” pits these claims against actual data and proves that none of them hold up.

Perhaps the most persuasive argument is that the Jones Act protects national security. The American Maritime Partnership, one of the most powerful of Jones Act lobbyists, has an entire website page on the issue. A June 2020 commentary in Defense News by a bipartisan group of congressmen said the act “advances our national security by helping maintain a vibrant domestic shipbuilding industry and maritime workforce.”

But as the institute’s “Five myths” report notes, the Jones Act actually endangers our national security. For example, the U.S. is a major exporter of liquefied natural gas, but no Jones Act-compliant ships can carry LNG. As a result, northeastern states and Puerto Rico import fuel from Russia. Nothing says protecting national security like relying on Russia for a basic commodity.

In addition, the U.S. Maritime Administration estimates America is short by more than 1,800 mariners for wartime scenarios, and none of the ships in the administration’s Maritime Security Program are Jones Act compliant.

Jones Act defenders also say the law protects America’s heartland. U.S. Rep. Brian Babin, R-Texas, warned on the House floor in 2019 that without the Jones Act, Chinese ships could go up and down the Mississippi River at will. But foreign ships traverse America’s inland waterways all the time, bringing in goods from foreign suppliers or taking U.S. goods back with them.

Then there are the economic myths. Supporters assert the law generates billions of dollars and thousands of jobs. But what sources do they use to substantiate their claims? Private studies they’ve funded and won’t release to the public.

Meanwhile, publicly available studies show that the law costs U.S. businesses and consumers billions of dollars a year. A 2019 study in Maritime Economics & Logistics found the Jones Act cost the U.S. economy more than $11 billion from 2006 to 2017; a 2019 Organization for Economic Cooperation and Development analysis estimated U.S. economic output could increase by up to $135 billion if the law were repealed.

As for jobs, shipbuilding employment fell by half between 1980 and 2018, from 180,000 to 94,000. Not coincidentally, 300 U.S. shipyards closed between 1983 and 2013, leaving the U.S. with only four shipyards that can construct large oceangoing ships, and only one of those is American owned.

Similarly, the number of Jones Act ships has dropped from 193 in 2000 to 96 as of February 2021, and fewer ships means fewer crews.

Then there’s the absurd argument that the law benefits states and territories like Hawaii and Puerto Rico that rely primarily on shipping for imports. Studies have shown that the law actually hurts such places, but the American Maritime Partnership claims the law has no effect on prices in Hawaii, based on comparisons of online prices at large retail stores in Honolulu and Los Angeles.

Of course, big chain stores can more easily absorb extra costs and offer lower prices than smaller businesses. More important, Grassroot Institute researchers went to the locations listed both in Honolulu and LA and found that the in-store prices were often drastically different than those listed online; in fact, prices in Hawaii were typically much higher. A more methodologically rigorous study commissioned by the institute found that the Jones Act costs the average Hawaii family about $1,800 a year.

Yet the Jones Act lobby persists. It is influential in Congress, with both Democrats and Republicans rising to its defense. But the situation isn’t bleak. There are now many lawmakers, activists and policy groups recommending reform.

One option would be to repeal the U.S.-build requirement so domestic ocean carriers could buy ships built in foreign countries — at one-fourth to one-fifth the cost of a ship built in the United States

If Jones Act defenders want to get serious about strengthening our military and economy, they should gladly accept the growing calls for reform and abandon their outdated notions about this century-old protectionist burden.

Josh Mason and Jonathan Helton are research associates at the Grassroot Institute of Hawaii.

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