How Jones Act reform can work for everyone (Oahu presentation)

The Grassroot Institute of Hawaii hosted the nation’s leading critic of the Jones Act in Honolulu and Kahului this week, with the point being to explore “How Jones Act reform can work for everyone.”

The events originally were intended to feature representatives of both sides of the Jones Act debate, who together would explore where common ground might be found. But in the end, it was just Colin Grabow, a trade policy analyst at the Cato Institute in Washington, D.C., a Grassroot Scholar and co-editor of the book “The Case Against the Jones Act,” on hand to discuss the issue.

Asked at the Oahu event by moderator Keli’i Akina to give Jones Act supporters the benefit of the doubt and explain what their best case for the law might be, Grabow said, “I’ll just first say that … this is a recurring theme of not finding Jones Act supporters willing to engage in this kind of back and forth. [But] to try to give a fair shake to the other side, … what I imagine they would tell you is they’d say the Jones Act is for national security. That’s the primary benefit.” 

Specifically, he said, “The U.S.-built requirement [of the Jones Act] means that we have shipyards that can build and repair ships for our military in a time of war. The U.S.-flag requirement means that we have American ships that can transport equipment and supplies for our military, provide sealift in times of war or national emergency. The U.S.-crew requirement means that we have American mariners that we can rely on to crew these ships and operate them in times of war. These are all laudable goals.”

However, he added, “My response to that, taking the side of the opponent, is that none of this works.”

Continuing in a Q&A format with Akina and then later the audience, Grabow highlighted the many costs and harmful effects of the law, while also making it clear that Jones Act reform doesn’t have to be a “binary” proposition.

“There’s a whole spectrum of possibilities between repeal and the status quo,” hesaid. One would be to, “Get rid of the U.S.-built requirement. Let Americans buy foreign-built vessels. Some of the biggest shipbuilders in the world are Japan and South Korea. These are our allies. These are our friends. Why can we not buy our ships from them?”

Another reform that would harm almost nobody would be to let U.S. carriers buy foreign-built ships that U.S. shipyards don’t currently produce, such as livestock, liquid natural gas and propane carriers.

Another would be to grant complete exemptions for noncontiguous states and territories, such as Hawaii and Puerto Rico, that are almost wholly dependent on waterborne imports and bear a greater proportion of the higher costs imposed by the Jones Act, which limits shipping competition between U.S. ports.

As for the political possibilities, Grabow said, “There’s cause for optimism here. There are a lot of people, more than you might suspect, that recognize the shortcomings [of the Jones Act].”

He listed Democrats and Republicans who have stepped forward in recent months to advocate Jones Act reform, including U.S. Rep. Alexandria Ocasio-Cortez — “obviously well to the left than probably everyone in this room” — and U.S. Sen. Ted Cruz, and many others. 

“There’s a very interesting coalition to be built here, that you could imagine we could have Ted Cruz and AOC on the same team. That would be amazing, wouldn’t it? It [the Jones Act] would be the one thing that could bring everybody together.”

Akina added: “Well, thank you for expressing that, Colin. That’s a commercial for what we call at Grassroot, ‘E hana kākou.’ Let’s work together to find solutions.”

To view the Oahu presentation, click on the image below.. A video of the Maui event will be posted on the Grassroot Institute of Hawaii website shortly. Complete transcripts of both presentations will be included soon.

12-7-22 Colin Grabow at Grassroot Institute of Hawaii Jones Act event (Oahu)

Keliʻi Akina: Aloha, everyone, and welcome to the Grassroot Institute. Great to see you today. I’m Keli’i Akina, president and CEO of the Grassroot Institute. And as you know, we are very concerned about issues that have — take a toll upon the people of Hawaii. 

One of those issues has been the weight of something called the Jones Act. Today’s presentation will feature one of the nation’s leading experts on the Jones Act. We’re so delighted to have him with us. 

But before that, I’d like to share with you a presentation put together by the staff of the Grassroot Institute simply to introduce what this 1920 Merchant Marine Act is all about, but in a way that even I can understand it. 

If you’ll direct your eyes to the screen, this is what the Jones Act is all about.

Video soundtrack: What is the Jones Act? And how does it affect Hawaii? 

Americans can buy many products from companies overseas, but they can’t buy foreign-made ships to transport cargo between U.S. ports. It’s all because of a 100-year-old federal law called the Jones Act, which, among other things, requires all goods carried from one U.S. port to another to be on ships built in the U.S.

Unfortunately, American ships cost four to five times more than ships built overseas. This has led to the decline of America’s merchant marine fleet and its shipbuilding industry. 

Meanwhile, the Jones Act has resulted in higher consumer prices. Especially in Hawaii, where the cost of living is the highest in the nation. One new study found that the Jones Act costs the average Hawaii family about $1,800 a year.

Overall, it costs the state’s economy about $1.2 billion every year — including 9,100 fewer jobs, $400 million in lost wages and almost $150 million in lost taxes. 

One reform that would help the shipping industry and consumers would be to let American cargo carriers buy ships from manufacturers overseas. This would make it easier for them to buy more ships, which would expand the U.S. commercial fleet and create more jobs for crews, stevedores and other related maritime workers.

The Grassroot Institute study found that removing the Jones Act’s build requirement alone would save Hawaii’s economy. Let’s update the Jones Act for the 21st century to both revive America’s maritime fleet and lower Hawaii’s cost of living, making it easier for its residents to live and prosper in the islands they love.

Akina: Well, thank you. There’s someone who knows about the Jones Act like the back of his hand. He is of great value to us here at the Grassroot Institute, and we’re so honored to have him serve with us as one of our Grassroot scholars in consultation quite frequently with our team as we’re managing this issue. 

Colin Grabow is the director of Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies. He has degrees in economics and international policy from George Washington University, and you may have read some of his works because he writes prolifically on the subject. He’s given interviews to the major media, and more than that, he’s someone who follows the evidence. 

There’s a lot of emotion on this issue and a lot that’s at stake for people who have historical positions. One of the things that we want to do at the Grassroot Institute is look at what the evidence actually shows and what would be a reasonable response to that. 

Would you please welcome with me Grassroot scholar and friend of our institute, expert in Jones Act studies, Mr. Colin Grabow.

[applause]

Akina: Colin, thank you for flying all the way out here to Hawaii. I’m sorry we had to persuade you with our beautiful weather and tradewinds and so forth. Aloha and welcome. Please take a seat.

Colin Grabow: Alright, twist my arm.

Akina: Yes, absolutely. At the very start, I just want to ask you if you’d share with our members here a little bit about your background and how you ended up doing what you do today. Maybe when you were little, you said, “When I grow up, I want to be a Jones Act reform expert.”

[laughter]

Grabow: Close. Actually, when I grew up, my father was, he would give occasionally to the Cato Institute, and they would send us copies of their studies. And I would read these studies, and I thought, “That makes a lot of sense,” and I thought, “That would be a really cool job. Wow! Imagine working at the Cato Institute.” 

And five years ago, I got that opportunity. And my boss at the time, when he hired me said, “Colin, one thing we want to do here is we want to highlight the cost of the Jones Act. You know, occasionally, people write an op-ed about it or a blog post, something here and there, but we really need a sustained effort to discuss and highlight the cost of this law to the country and raise awareness.” 

I thought, “OK. Great,” and I started work September 25th, 2017. September 20th, Hurricane Maria hit Puerto Rico, and one of the first op-eds I ever wrote was about the Jones Act’s impact on Puerto Rico. 

And at the time, admittedly, my knowledge was fairly superficial. I was against the Jones Act at gut-level. You know, just it ran counter to what I believed in as a libertarian advocate for limited-government free markets. 

But then I really started to dig into it. And the more I dug into it, the crazier it got. And I’ve been saying that to myself for five years now: “The more I dig into it, the crazier it continues to get.”

Akina: Well, a lot of people are surprised that the Jones Act is a hundred years old, started in the 1920s. But in reality, when you go back even further and look at economic history — and I know you have a little bit of background there — the roots of what we see as the protectionism of the Jones Act have been around for quite a while. 

Why don’t you share a little bit about what you’ve learned of those origins.

Grabow: That’s right. I think a lot of people think that the Jones Act was passed in 1920, and prior to 1920, we had this free-market, laissez-faire environment, and nothing could be further from the truth. 

In fact, restrictions very similar to the Jones Act go back to the country’s founding: 1789. We had a Tariff Act that [said] you could use foreign ships back then, but [they had] very heavy tariffs on their…

Akina: I’m going to just interrupt a second. Could you put the microphone closer to your mouth?

Colin: Sure. OK.

Akina: Perfect. We absolutely want to hear what you’re saying. Move it a little bit closer.

Grabow: So, yes. So, go back to 1789, the founding of the country, one of the first laws was the Tariff Act that put very heavy duties on the use of foreign ships. 

Now, some people may hear that and think, “Well, wait a minute — the Founding Fathers believed in this, doesn’t that mean it’s a good law?” I think we need to remember, this was an entirely different context. 

We just got through watching a video that talked about U.S. ships being four to five times more expensive to build than those constructed overseas. Back then, American ships were some of the cheapest in the world. This is the era of wooden ships and sail ships, and we had lots of wood. You know, each of the 13 original colonies [were] a big wooded area, so American shipping was some of the best and most competitive. 

In fact, some historians have argued that these restrictions were basically cost-free because people would have used American ships anyway. But we live in a very different world today. And in fact, you know, I talk about 1789, and then in 1817, you could just ban the — we, Congress banned the use of foreign ships entirely. 

But these laws didn’t come out of nowhere. These, in turn, traced themselves back to the Navigation Acts under the British. In fact, Charlie Papavizas, a noted maritime lawyer, he put out a piece a few months ago arguing that basically the lineage of this goes back to the 1500s. 

The world has changed tremendously since then. The maritime world’s changed tremendously since then. Our laws have not.

Akina: That’s right. And in addition to that, the way we do warfare has also changed, and that was one of the original rationale[s] of the current form of the Jones Act. 

Could you explain to us in as, let’s say, as fair a way as possible, why we have the Jones Act? What were the makers of this set of laws trying to achieve? Give them credit for trying to do something positive. If the Jones Act worked out the way they wanted it to work out, what benefits would we have?

Grabow: Well, we go back again to 1789 — the beginning of this country. We were a new country. We were a poor country. We didn’t have a big navy. 

But one way you could compensate for that back then is you could take merchant ships, load them up with  cannon, and you have — you know, presto! — you have an instant navy. You had, this is the era of privateers. Private people would load their ships with cannon and go hunt enemy ships. That’s how you could compensate. 

And who were our No. 1 enemies back then? The British — the Royal Navy, the biggest navy in the world. So having a lot of ships was very important back then. But again, you know, as we can get into, the world has changed, and that’s not the reality we live in anymore.

Akina: What would some of the economic benefits be of the Jones Act if it was everything it was designed to do?

Grabow: Well, you know, I think the Jones Act was primarily designed — well, national security being one primary cause, but also the idea that we’d have a vibrant shipping fleet so Americans could easily transport goods from point A to point B in our country. 

And we don’t have that. We have a very small fleet.

Akina: And we’ll come back to see how well the Jones Act lives up to those goals. But when it comes to the economics, you and I have looked at what happens to nations that practice what is called trade protectionism. 

And the Jones Act itself is not a tariff, it’s not protectionism in that sense. But in some ways, it’s kind of a non-tariff type of protectionism. Could you explain that a bit?

Grabow: Sure. I think a lot of people, when they think about protectionism, the classic example is tariffs — put, you know, a tax, basically, on imported goods. But the Jones Act is a non-tariff barrier, and there are other barriers — you know, rules and regulations and laws that keep out foreign products. 

In fact, if we had a tariff on foreign shipping, I think that’d be preferable to the status quo, which is just an absolute prohibition on the use of foreign shipping services or even just foreign-built ships. 

So, it’s — these sometimes get overlooked because there’s so much focus on tariffs. But these are hugely important when we talk about free trade.

Akina: You know, from time to time, you and I have been involved in Jones Act debates, as well as our fellow colleague over there, Ken Schoolland. Let’s give a shoutout to Ken, professor from Hawaii Pacific University.

[applause]

In fact, today, we had hoped to host a debate. And we had gotten a hold of the head of the Maritime Union that supports the Jones Act, as well as the leading figures supporting the Jones Act in Hawaii. And when they heard Colin Grabow was going to be here, they cowered in fear. 

[laughter]

So they’re not here. But, so, I want to be fair to them. In these debates, what are the major arguments put forth on both sides, if you could briefly give us a summary?

Grabow: Well, I’ll just first say that usually in these debates, there’s only one side because this is a recurring theme of not finding Jones Act supporters willing to engage in this kind of back and forth. 

But to try to give a fair shake to the other side: If we had someone here to support the Jones Act, what I imagine they would tell you is they’d say the Jones Act accomplishes, is for national security, that’s the primary benefit.

The U.S.-built requirement means that we have shipyards that can build and repair ships for our military in time of war. The U.S.-flag requirement means that we have American ships that can transport equipment and supplies for our military, provide sealift in times of war or national emergency. And the U.S.-crew requirement means that we have American mariners that we can rely on to crew these ships and operate them in times of war. 

These are all laudable goals. My response to that — you know, taking the side of the opponent — is that none of this works. That’s the theory; the reality is much, much different. 

Let’s talk about U.S. shipbuilding. In an average year, by my calculations, over the last 20 years — since 2000 through today — an average of about three oceangoing cargo ships are built per year in the United States. Last year, there were zero. So far this year, there’s been one.

There’s one under construction right now for Pasha that was supposed to be delivered over two years ago, and that’s it. And next year, we’ll probably see zero, assuming that one for Pasha does get delivered by — Q4 is what they project. So we have, you know, very few, little shipbuilding. 

To put those numbers in context, one shipyard in South Korea can build 60 ships per year. We’re at three for all U.S. shipyards, combined, in an average year.

Mariners. There was, well, let’s go to ships first. Once upon a time, we actually did have hundreds of ships in the U.S. fleet. Today, you know, as recently as 1980, we had 257. We’re down to 93 now. The fleet has more than halved. You have fewer ships, that means fewer mariners. 

There was a government study — a maritime working group commissioned by the government in 2017 — and they found in a best-case scenario, in the event of a sustained sealift operation, the U.S. fleet would be 1,800 mariners short of what’s required.

That’s best case, assuming everyone with licenses shows up. Remember, these guys are not members of the military. They are not obligated to report for duty. That’s not a slight against them. It’s just that they, you know, they’re civilians. 

So by any reasonable metric — shipping, shipbuilding, mariners — the law is not working.

Akina: And in these debates, the national security argument is usually featured the most. And in most recent debates, the proponents of Jones Act have talked about China and our need to be ready for conflict with China. How do you respond to that when that is raised?

Grabow: With amusement. 

[laughter]

There was actually the, another — you know, comparing Jones Act theory to Jones Act reality, Jones Act ships don’t get used in time of war as a general rule, or maybe very seldom. 

In fact, last year, the head of U.S. Transportation Command testified before Congress. He was asked: “Would you use Jones Act ships in time of war?” And he said: “We’d be very reluctant. In our wargaming, we found that we don’t rely on Jones Act ships.”

And that makes sense. Because if you take, say, Matson’s ships away from them, who’s going to transport goods to Hawaii? So Jones Act ships are very rarely used. 

I know, in Operation Iraqi Freedom, I think there was one Jones Act ship I know of. In the Persian Gulf War, there was one Jones Act ship that was pulled out of trade and diverted to transport supplies to the Persian Gulf. So, you know, this — it doesn’t add up.

Akina: So it’s just fallacious to say that the Jones Act protects our national security.

Grabow: Yeah. And then furthermore, with specific regard to China, you know, I mentioned that Pasha is having a ship built, and they actually [already] had one. The one ship delivered this year was for Pasha in July. It uses parts — components — that come from China. 

You go, if you take out your phones right now, go to vesseltracker.com. If you look in the upper right, and there’s a little field you click on, and you can search. You type in “Horizon Reliance” — that’s a Pasha ship.

Right now, it’s on the Yangtze River in Nantong, China, where this 42-year-old ship that was built in December 1980 is getting a new engine, I believe, because it’s going to — which tells me they plan on using this for years to come. 

We’re going to have a 50-year-old ship, and evidently, Jones Act shipping companies think that’s fine. Old ships, they need more maintenance, just send them to China and have them do the maintenance. And then we’re told that this law is needed to fend off China.

Akina: You know, a former U.S. congressman, in a debate that I had with him, asked the audience whether they wanted to have foreign ships, ships of our enemies, floating up the Mississippi River. And he said, “Without the Jones Act, that would happen.” 

Grabow: Yeah, this is one of my favorite talking points you hear. 

In fact, there’s a member of Congress, Brian Babin of Texas — a few years ago, he got on the House floor, and he put up a graphic showing a large container ship with a Chinese flag sailing up the Mississippi [River] with the St. Louis Arch in the background and said, you know, without the Jones Act, this could happen. 

No, it can’t. It physically cannot happen. These ships cannot fit on the Mississippi River. The Mississippi River is only deep enough to support cargo ships as far north as Baton Rouge. Beyond that, it’s too shallow. 

And in fact, we already have foreign ships on the Mississippi River. The lower Mississippi — between the entrance to the mouth of the delta and, again, as far north as Baton Rouge — you can find foreign, you can find Chinese ships on the river right now. U.S. waterways are full of foreign ships.

The Jones Act just means you can’t use them. They’re there. You know, there was a Congressional research service report from a few years ago that referred to these ships as, I believe, a conveyor belt along our coast that Americans can’t use, and I think that’s the correct framing. These ships are there. The Jones Act just means that we can’t take advantage of them.

Akina: It’s been said sometimes that in an ideal world, there would be no Jones Act. And I suppose if we were starting from scratch, without laws in place, [but] the Jones Act has been with us for over 100 years now; and, as you pointed out, hundreds of years prior to that there had been various forms of the same kind of protectionism. 

Are there ways of dealing with the Jones Act now, modifying it to some extent, that would be useful to pursue, rather than all-out repeal?

Grabow: Yes. We often talk about the Jones Act in a very binary fashion. Do we keep it? Do we get rid of it? 

And of course, to be clear, I favor getting rid of it. I think that would be the optimal, ideal outcome. But we live in an imperfect world. We do have to make compromises. And I think that there’s a whole spectrum of possibilities between repeal and status quo. 

You mentioned, I think, one very useful one in your video: get rid of the U.S.-built requirement.

Let Americans buy foreign-built vessels, or at least just ones from some of their allies. Some of the biggest shipbuilders in the world are Japan and South Korea. These are our allies. These are our friends. Why can we not buy our ships from them? 

In fact, one of the dirty secrets is our ships already kind of come from them, because these Jones Act ships use components and parts that come from there, and U.S. shipyards basically just assemble them, you know? 

It’s kind of like, you know, I go to IKEA, and I get a kit, and I say, “Well, I built this.” Well, it’s like, sort of, I guess, you know. 

In fact, there was one tanker class built by the Philly Shipyard in 2006. Each one of those tankers required 500 containers [that] were sent from South Korea, along with 25 bulk shipments of things like, you know, the propeller, the engine, bigger things. So the idea that these are U.S.-built, you know, is an illusion to start with. 

But I think we can go even more modest than that. Right now, we have talk in the United States about the fact that New England cannot access American LNG [liquid natural gas]. Why not? There are no Jones Act-qualified ships to transport it. So why not have a rule that says, “If there is no American ship out there, you can use a foreign ship”? 

No one gets hurt. If tomorrow, you know, there was a law passed saying you can use foreign LNG carriers, [the] American maritime industry would not lose a single job. Nobody loses here. The only people who lose are the foreigners that win from the fact we have to import them. 

Hawaii would benefit in that example from propane. I know that Hawaii imports propane from as far away as West Africa. The United States is the world’s leading exporter of propane. Hawaii can’t get it because there are no ships to transport it. It’s absurd.

Akina: Now, one of the arguments that is very common is that we need to preserve the Jones Act to protect American jobs, maritime jobs in particular. And of course, other unions as well join in to protect them because of the fraternity of unions. 

But what are your thoughts about that argument that the Jones Act actually protects American jobs?

Grabow: Well, the Jones Act clearly does not. I mean, the Jones Act is, I think, properly regarded as a tax on American commerce. Remember, it only applies if it’s going from one U.S. port to another U.S. port. And if I want to buy a foreign product, there’s no Jones Act. I can use, you know, efficient international shipping, and that gives an advantage to imports. 

Now, let me be clear here: I’m a free trader. There is nothing wrong with buying imports. I think imports contribute to our economy. But I don’t understand why the U.S. government is placing its thumb on the scale and biasing, you know, purchasing them instead of American products. 

You know, at least let’s have an even playing field here. You know, distance is a barrier to trade. Coming out here to Hawaii yesterday just makes me remember how big a country this is. I took a five-and-a-half-hour flight to San Francisco and then another five-plus-hour flight here, and I’m still in the same country.

Distance is a barrier to trade. Having efficient transportation is a key to overcoming that and enabling Americans to trade and do business with each other. And we’re basically taking that shipping off the table. 

In most countries, most contexts, shipping is an efficient way of moving goods from point A to point B. In the United States, we’ve basically made it an active last resort, and that’s crazy to me.

Akina: You mentioned that you would prefer that there not be any Jones Act at all. But in a world that’s not perfect and there is a Jones Act, what are your thoughts about other measures other than simply changing the U.S.-built requirement? What about exemptions for certain industries or certain areas or waivers?

Grabow: Exactly. So as I said before, I think exempting, say, gas shipments — we have no gas carriers in the fleet. Let us do that. You know, use foreigners for those examples where there are no American vessels. 

I know we have the absurd situation here in Hawaii where we have cows sent on aircraft to the West Coast. And what they tell you, the Hawaii ranchers say, there are no livestock carriers. The ideal vessel for moving cattle is what’s called a livestock carrier. There are none in the U.S. fleet. Allow them to use, you know, foreign-flag vessels in that case. 

Also, certain geographies. Puerto Rico — it’s a territory. It’s not even a state. They don’t have two senators or a member of Congress. They have one non-voting member of Congress to represent them. And they’re one of the poorest parts of the United States.

If Puerto Rico’s a state, it’d be easily the poorest state. You’d trail Mississippi by some distance. And we subject them to some of the highest shipping rates in the world. That’s obscene. That’s not right. 

You know, same thing for Hawaii. In the mainland, we have options. We have trains. We have trucks. That doesn’t work here. I think this is a special scenario. I do think in the non-contiguous states and territories, we should seriously look at just a flat-out exemption for them from the Jones Act.

Akina: What’s it going to take to bring about change to the Jones Act? 

I know that we are gaining in the acceptance of Jones Act reform by local legislators here — Council members and so forth — but they don’t have any legal power. It’s Congress that has to make the change. How’s that going to come about?

Grabow: Well, you know, like you mentioned, I’ve seen, you know, polling on this, and one positive thing is you see a growing recognition, I think, of the Jones Act here in Hawaii. 

You see more people — among people that are aware of the Jones Act, the support for some kind of reform or repeal is overwhelming. So, you know, awareness is absolutely key. But, as I said before, there’s a whole, you know, range of options for reform. I don’t think we’re going to get repeal anytime soon. 

But let’s talk about reform, because here’s another thing: The Jones Act is not working for the U.S. maritime industry. Again, use those metrics. Shipbuilding — it’s not working. The fleet is declining. We have, you know, 42-year-old ships getting life extensions. This is not working. 

So I think there should be some interest by the maritime industry itself in reform. I think there should be a serious look at that build requirement. It’s crazy to me that we try to promote — allegedly, we try to promote the U.S. maritime industry by forcing them to pay outrageous prices for new ships. 

Other countries subsidize their shipping and shipbuilding, and we make it artificially more expensive. That’s so backwards. It doesn’t make any sense.

Akina: Well, you’ve answered some questions that many of us have had. Would you be open to taking questions from the audience? Would you like that, audience?

Grabow: I’d look forward to it.

[applause]

Akina: OK. We’d like to make sure that we get to hear what you have to say, and it’s recorded, because this is going to be an important resource that we put onto our website and send around. So we’ve got a microphone for you. 

Kevin [Takamori], how are we going to do this? Are we going to pass the microphone around?

Kevin Takamori: I’ll stand right here.

Akina: OK. If you’d like to ask a question, would you be so kind as to come up to the stage where Kevin is by the podium, and we’ll be able to hear you from there? Kevin will give you, in fact, give you the microphone to use, right over here. 

Tracy’s there. Tracy, would you be the first one?

Tracy Ryan: Tracy Ryan. I just think you should clarify a few points that the audience might not understand. One is explaining the difference between a carrier and a shipper. Explain the meaning of the word cabotage. And also reinforce the point that the Jones Act is regulating between two U.S. ports, and foreign ships can come directly from a foreign port to a U.S. port.

Akina: OK, here’s the vocabulary: carrier and shipper.

Grabow: Yeah, so a shipper is the cargo owner. It’s the person that’, you know, that has the good that’s being transported. The carrier is the one that does the transportation. So Matson is a carrier and, you know, Walmart, for example, is a shipper that’s sending goods to Hawaii.

Akina: Cabotage?

Grabow: Cabotage is the restrictions on transportation within a country as opposed to internationally. So the Jones Act is a cabotage law because it governs transportation within the United States. This isn’t unique to shipping. There are cabotage laws for aircraft, for trucking and other forms of transportation.

Akina: And Tracy, would you rephrase and ask your last question, the third one?

Ryan: Oh, I just wanted to make sure everybody understands that we’re talking about the cabotage, which is between two U.S. ports, so that you can ship directly from Japan to the West Coast, but then if you’re shipping those goods, like cars, to Hawaii, they have to come on a Jones Act ship from the West Coast to Honolulu, because it’s between two U.S. ports.

Grabow: Yes. Although, so, if a foreign ship went to LA, dropped off the cars, and then you want to take the cars and send them to Hawaii, it would have to be on a Jones Act ship. But that ship could go to LA, drop it off, and then continue on to Hawaii without a problem. Whether that happens in practice, I’m not sure.

Akina: Thank you very much. Professor Schoolland.

Ken Schoolland: Glad to see you, Colin. This is a fantastic topic.

You mentioned how on the mainland, they have alternatives of truckers and railroad companies that can provide an alternative transport. But of course, the Jones Act makes it very difficult for people to ship up and down the coast or even up inland waterways and so on with lower-cost shipping. 

Is there any evidence that the truckers and railroad companies and alternatives are lobbying Congress to keep out their competition from the oceangoing vessels, just as Matson is lobbying the local congressmen and senators in Hawaii to keep out alternatives?

Akina: Thank you.

Grabow: I haven’t seen that, and why would they? The Jones Act lobby is doing their work for them. No need to expend resources when Matson, etc., are lobbying so aggressively in favor of the Jones Act. 

But, you know, I can actually imagine a future in which, rather than thinking of trucking companies or shipping companies, we can think of transportation companies. You could have a transportation company that would have owned ships and trucks and could unlock new synergies between them. 

For example, they could put their trucks on a ship and bypass some of the traffic on 95, the congested Northeast corridor. So I can envision a future in which, you know, trucking can benefit from this.

Akina: That’s right. Google may come up with autonomous ships and autonomous trucks.

Tracy Lawson: Hi. Tracy Lawson. So I think about our cars, and I see foreign vehicles. We drive them all over the place here. That’s great. And I suppose it’d be the same concept if for shipping companies, they could use foreign vessels they could purchase or other foreign companies could do this. 

But can you think of any negative reason why we wouldn’t want foreign vessels or how we could make our shipbuilding more cost-effective to allow American companies to do that?

Akina: Great question.

Grabow: Yeah, so I — it’s difficult for me to think of any downsides. And I also think it’s worth bearing in mind that, of course, we don’t have that U.S.-built requirement for other forms of transportation. 

In fact, if we got rid of the U.S.-built requirement, all we’d be doing is bringing shipping in line with all of our other laws and just adding a layer of coherence there. And I think to myself, you know, my flight yesterday, what would that have cost if there was a Jones Act for flying, you know, if they — you could only buy a Boeing plane and there was little competition?

As far as how to revitalize U.S. shipbuilding, you know, frankly, in terms of large oceangoing ships, I don’t think there’s any way to, for the U.S. to gain significant global share. They’re just so far behind the game.

But shipbuilding, it’s a big industry, and not all shipping is just ships. There’s tugboats, there’s smaller vessels. And I think that, you know, if you look at Europe, maybe they don’t build as many ships anymore, but the components that make these ships work, like MAN, it’s a German company, they make a lot of engines.

I think Americans are, I think  inventive, ingenious people. And I just reject the notion that absent [the] U.S.-build requirement, Americans throw their hands up — we have nothing to offer, we walk away from this entire industry. 

And the one thing I do know that won’t rescue American shipbuilding is more of the same, because after all, we’ve gone to the current status under these U.S.-build rules.

Akina: That’s right. And you’re right, Colin. It’s hard to think of the downside of this form of protectionism. 

There would only be a downside for political and economic players who want an unfair advantage over the consumer, and that’s something that we have to stand against. 

Mr. Wendell Hosea, thank you for joining us today.

Wendell Hosea: Good morning. I wasn’t stalking the other people. I didn’t bring my hearing aids. I’m not Trump trying to stalk Hillary at the big debates. A little prefix. I’ve been a National Defense Transportation Association member since 1976. I’ve been a member of the Hawaii Transportation Association since 1981. So I do have some background. 

I am looking that this Jones Act is not a onefer, it’s a twofer. What you have to do is separate out Puerto Rico from us. I’ve worked for Sea Train. I worked for Sea Land. I went into my own business, and I shipped out 120 40-footers out of Hawaii. So I’m not a newbie.

I don’t see the Puerto Rico market as ever surviving without the Jones Act, unfortunately. But I think we need this Jones Act modified, modified, modified. 

You’re never going to eliminate it. You got to modify it, because we ain’t got the votes in Congress either way. They’re going to have to sit down and be realistic. What is $1.2 billion a year in lost revenue to the state that could go to housing? I’m not being real. Could go to education, could go to health. They’re taking money out of our pocket — $1.2 billion dollars. 

So I say to you, work hard, work long, and be safe. Stay in good health.

Akina: Well, thank you for your insight, Mr. Hosea. Thank you very much.

Grabow: Yeah, I would just like to add that, you know, I think that supporting modification of Jones Act and reform — I think that’s a totally legitimate position to have. In fact, it’s the position endorsed by the Grassroot Institute, and we’re trying to modify this.

Akina: Well, we had a kind of a little bit of fun over that a while back when you invited me to contribute a chapter to a book that Cato was writing. 

And the title I gave you — and thank you so much for keeping it in it, was heresy at the time for Cato — it was “Why It’s Time To Stop Calling for Repeal of the Jones Act.” And it was a provocative title to say there may be other pathways as well. We can call for an updating of the Jones Act in many different ways for the 21st century.

Grabow: Yeah, and that’s a discussion I would love to have. I would love to have a discussion that’s, “OK, how do we change it? What is the best way forward, you know, with, you know, keeping the Jones Act, but with modifications?” You know, I think I would love that. 

The only position I have no respect for is: Let’s keep doing the status quo, everything’s fine, there’s nothing to talk about. I don’t accept that.

Akina: And here, it’s not so much the Grassroot Institute has only one particular modification in mind. More than that, we’re concerned that we bring all the players to the table. We have to bring the military, the unions, the Democratic party, the Republicans as well, reformers as well as those who support the Jones Act. 

And that’s where we can talk about updating it. It’s been a century. Time to move forward, as Mr. Hosea says, with some reasonable reforms. Very good. 

Nalani.

Nalani Jenkins: Aloha, Kevin. Thank you. [I’m] Melanie Jenkins. So, I’m a big fan of deregulation, but as you’re speaking, I am wondering — if there’s one lesson we learned during COVID, [it] was reliance on pharmaceuticals and medical supplies that used to be made here, now are made almost exclusively in China. 

And so, by modifying or doing away with the Jones Act, how do we protect ourselves from those kind of issues becoming a problem, or should we be protecting ourselves from them?

Grabow: That’s a great question. So during COVID, we saw a lot of people say, you know, this shows the need to avoid reliance on foreigners and the dangers that come with that. 

I would also instruct people, however, to think about baby formula — how we’ve made it very difficult to import baby formula. And I think of [how] getting access to foreign sources is kind of a redundancy in the system — more options, more options, more flexibility. 

You know, when I think about no Jones Act — you know, we saw high transportation rates between Asia and the West Coast, and I think there are fears that well, maybe that could happen here, and the Jones Act protects us against that. Well, what the Jones Act ensures is you get permanently high rates. That’s what it does.

Actually, the Jones Act lobby did us a favor recently, and they released a study looking at Puerto Rico and comparing shipping rates between Puerto Rico to neighboring islands that were not covered by the Jones Act.

And they — the headline numbers they used, they said, you know, international shipping rates are 27 times higher for foreign routes than the Jones Act routes. Well, if you dig in to the fine print, what they noted was, that was comparing Puerto Rico against Asia. 

If you actually look to Puerto Rico versus those other islands — kind of similar markets, similar dynamics — the fact [is] that the rates were about the same, the increases [as well]. But the difference is that while the increases were roughly the same, Jones Act rates start from a much higher place. So in absolute terms, it’s even higher. 

Sorry…

Akina: No, keep going, keep going, Colin.

Grabow: Yeah, you know, I do think that, you know, in terms of avoiding reliance on foreigners and some of the dangers that can go with that, you know, if we had access to cheaper ships, that would mean a bigger fleet. 

And let’s also dispense with the idea that the Jones Act protects us against reliance on foreigners. Again, like the LNG example, we’re actually more dependent on foreigners. If we had no Jones Act, it would be easier to access American products, remember?

New England cannot get access to American LNG. We can ship it to China. We can’t send it to other parts of the United States. We can’t send it to Puerto Rico, which also uses LNG. Earlier this year, Puerto Rico imported LNG from Oman — halfway around the world, because they can’t get it from their own backyard. 

So I look at the Jones Act as a way of, you know, breaking down barriers between Americans doing business with each other — actually promoting domestic supply chains and resiliency.

Akina: Absolutely. And that was a very good question, because one of the fears that proponents of the Jones Act try to incite is that if you modify the Jones Act or get rid of it, we’re going to be flooded by foreign influence at every level. 

This is simply not the case, as Colin has pointed out. Most of the protections we have against foreign influence will be in place whether or not there’s a Jones Act. Whether or not you have a Jones Act, you can’t take a foreign ship up the Mississippi River.

Also, let’s look at some of the modifications. Colin mentioned the potential modification of saying “Keep the Jones Act in place, but just modify the plank that says the ship has to be built in the United States.” 

What if we were to buy our ships from our allies and so forth? Those ships would still be American ships. They would still be crewed by American crew. They would still be owned by American companies. They would still be flagged by an American flag. They would still have to obey OSHA laws [and] other laws that have to do with national defense and security.

It’s just like having a watch. You know, I would have a Swiss watch on if I could own one. Instead, I’ve got a Timex. But if I’m wearing a Swiss watch, I, as an American, have been wearing that watch, using it for American purposes and so forth. So that’s one of the things we need to keep in mind. Sorry to take your answer here…

Grabow: Yeah, and I’ll just add one more thing. I can’t help but remark that this fear of a reliance on foreign shipping companies and what could come with that. 

Well, let’s remember when Matson first started serving Hawaii, Matson was a foreign company. They were headquartered in San Francisco, part of the United States — you know, this is before Hawaii was part of the United States. They were considered foreigners. 

And right now, Hawaii — Hawaii’s already dependent on foreign shipping. In the Port of Honolulu, I checked this morning, there’s at least I think three foreign ships there. Most of Hawaii’s — I think the overwhelming amount of [the] majority of Hawaii’s energy comes on foreign shipping. So…

Akina: I’m glad you mentioned a little bit about the Hawaii history. Some of you know I also wear another hat as a trustee of the Office of Hawaiian Affairs. 

One of our beneficiaries approached me once, impressed with the work that is being done here at the Grassroot Institute, and said that if Hawaii becomes its own sovereign nation again, they will allow — if I supported that, they would allow an exemption for the Jones Act. So…

[laughter]

there’s really nothing to be afraid of here. 

Aloha.

Reyn Kalpiko: Aloha. Mr. Grabow, thank you for coming. Dr. Akina, thank you for hosting this event with the Grassroot Institute. My name is Reyn Kalpiko, and you guys basically touched on some of my question earlier. My question is: What does it look like working with these labor unions to make this a reality? 

Because you’ve identified a lot of the problems and the whys this makes sense. I’m asking you, how does this happen?

Akina: Great question, [Reyn].

Grabow: I think that we really need to build some trust here. The fear — in my interactions with people from the labor movement, what they tell you is, they say, well, I say, “Guys, is this law really doing you any favors, you know? Given the decline of the fleet, do you want your mariners, your union employees working on these old ships?” 

And they say, “Yeah, you know, the U.S.-built requirement, I can see modifying that, but our fear is that [if] you get rid of that, the rest of the law comes tumbling down — all the parts we do like come down with that.” 

And, you know, I try telling them, “Guys, you know, we already have this for ….” We’re just — again, it would be bringing the Jones Act in line with other policies we already have, like for airlines.

You know, I’m a libertarian. Of course I’d love to have foreign airlines flying between U.S. cities, but I see no talk about that. I think it’s an extremely — it’s a far, it’s a very remote possibility there, right? There’s no danger of that, you know, happening anytime soon. 

So I just think there needs to be some trust built there. Because I think there’s a perception that, OK, this is the camel’s nose in the tent, and they’re just going to, you know, take the law down wholesale. And there’s a fear that if we give an inch, they’ll take a mile. And so that’s I think what has to happen.

Akina: Thank you. We have time for a few more questions, and we have three people in line. We’ll be sure to include all of them. Go ahead.

David Hardy: I’m David Hardy. I’d like to note that the 100-year history of the Jones Act coincides with the 100-year effort towards one world order. Socialism started with Woodrow Wilson, and I don’t think this is ever going to get repealed. 

And I think we just have to figure out another way to exist with this in effect. That’s my summation because nobody’s proposing in Congress, that I can ever remember, to modify, change or repeal this law. It’s just there — forever. 

So I think it’s rooted in the desire to take down America right now, for one thing, and demote us to just another nation in the world. So thank you very much.

Akina: Thank you, David.

Grabow: I, you know, I would just point out that often there’s a perception that maybe Democrats are the problem here. You know, this was signed by, in 1920, by a Democratic president. Sen. Wesley Jones was a Republican. You look in Congress right now, Rep. Ed Case, he’s a friend on this issue. 

Actually, in September, I believe, there were eight Democratic members of Congress that sent a letter calling for a one-year waiver of the Jones Act for Puerto Rico, including AOC [Rep. Alexandria Ocasio-Cortez]. [She’s], you know, obviously, well to the left of probably everyone in this room. And, you know, Rep. [Tom] McClintock and Rep. or Sen. [Mike] Lee, you know, Republicans, they’ve introduced — so, I think, legislation to repeal the Jones Act.

You know, we’ve seen other people like Rep. [Scott] Perry of Pennsylvania. He introduced a bill early this year to suspend the Jones Act or exempt LNG shipments from it. Sen. Ted Cruz introduced legislation this year that would have exempted LNG shipments. 

So there’s a very interesting coalition to be built here that you could imagine. We could have, you know, Ted Cruz and AOC on the same team. That would be amazing, wouldn’t it? It would be the one thing that could bring everybody together. Repeal…

Akina: That’s right.

Grabow: You know, modification of the Jones Act. So that’s my — that’s not a prediction, but see there’s cause for optimism here. There are a lot of people — more than you might suspect — that recognize the shortcomings. 

And I’ll also add, actually, Rep. Matt Gaetz, a couple weeks ago, he was asked a question about energy. He said, “Well, to fix energy, we need to repeal the Jones Act.” So there’s more appetite out there than you might suspect.

Akina: Well, thank you for expressing that, Colin. That’s a commercial for what we call at Grassroot e hana kākou: Let’s work together to find solutions. Well, we have a couple more people.

Speaker 7: Aloha, and thank you for this platform, gentlemen. I have one question and one point. The question for you, sir, is cabotage laws. Most countries that we conduct business, commerce with have their own cabotage laws, and I’ve seen that restriction play not in our favor for DOD shipments, for example. 

How are they effective for other countries and ineffective for the United States, or is it similar in our partner nations?

Akina: Thank you.

Grabow: Yeah, so this is a great point. This is something you hear from time to time, that Jones Act is a cabotage law. Most countries have cabotage laws. And I’m not putting words in your mouth, but some people say, you know, “Colin, what’s the big deal here?” 

Well, the big deal is, there are cabotage laws and then there are cabotage laws. There’s a lot of variation between these cabotage laws. The World Economic Forum, a few years ago, ranked — said that Jones Act was the most restrictive example of the cabotage laws in the world.

So if we’re going to be guided by what other countries are doing, then let’s bring our, you know, the Jones Act more in line with the international norms. 

I can’t think of a single country in the world that requires all vessels using domestic trade to be built in that same country. None. I think back, you know, a few years ago, there were maybe three that had some element of that — very, very few. And to me, that speaks to a lot of people recognizing how counterproductive this is.

So I think it would be a huge step forward if we just brought the Jones Act in line with what other countries are doing. I think it’s very instructive that we’re such an outlier there. 

And further, you know, but also say, you know, just me — I don’t care what other countries are doing. I want to do what’s best for the United States. And I think the best for the United States is no Jones Act. But I’m very open to, you know — that is a good point that other countries have these. But let’s look at what they’re doing.

Last thing I’ll say: New Zealand, actually, they modified their own cabotage law, and they allowed foreign ships that come in to do one cabotage movement, like, for example, from the North Island to the South Island, and then they have to go someplace else. And they saw freight rates drop, I think, 20%, something like that. 

So let’s look at other countries and learn from them.

Akina: Very good.

Speaker 8: And the point that I’d like to make, gentlemen, and to highlight what our very — our distinguished and very festive elder statesmen pointed out earlier in terms of the Jones Act needing to be revised as opposed to being abolished. 

In 2021, the National Defense Authorization Act — so our defense bill — it was modified and was made even more restrictive. So it is being modified. People are actually doing things, and they’re actually hurting us in the process.

In personal experience with this, working with DOD, is it made it more restrictive for us to move our own military. We actually have a tough time using our own ready reserve fleet, so U.S.-flagged, U.S. contract-operated but foreign-built. 

So now I am restricted for how I can use those vessels to move military cargo in between the United States. So to your point, gentlemen, sir — we need to modify this law.

Grabow: That’s a great point. One thing I’ll mention: I actually have…

Akina: Thank you.

Grabow: A copy of a letter from the U.S. Navy in, I think, 1994, and they mention the high cost of shipping goods to Hawaii and Guam as being a real problem for them. 

They said shipping was so expensive — and remember, Matson goes to Guam, too — that they were considering moving military personnel from Guam to Japan to save on shipping costs. 

It’s a big problem, and we talk about this is all for national security. Forcing our military to use obscenely high shipping rates is not benefiting our national security.

Akina: Thank you. And one last question.

Lynn Mariano: Yeah, my name’s Lynn Mariano, and thank you for coming and hosting this, and I agree with the gentleman that just spoke. One of the things I was going to mention: Hawaii’s unique because we’re an island state where we have to sustain ourselves independently. Modifying the Jones Act will do just that. 

I’m kind of optimistic that you’re having movement for awareness to move this thing forward. I would like to have you also consider using the governors and also military organizations — retirees — and other organizations that will benefit not just for the state of Hawaii, but for the entire country, by modifying the Jones Act. 

Because Hawaii’s been a state since 1959, and so if we are a state, then we need to be treated as such. And as a result, you know, it’ll also help reduce our costs, it’ll grow productivity, create competition, and then we can be one of the economic beacons of hope in here.

So I’m optimistically encouraged that you’re taking on this task. And if there’s anything — I know here, some of the audience as well, myself included, would be willing to help and assist — all you have to do is tell us what we need to do. 

Because it’s vitally and is important for us to be sustained and independent. And as the 50th state, we’re really proud of that. We don’t want to be at the bottom. We want to be at the top. Thank you.

Akina: Thank you, Mr. Mariano. Appreciate that comment.

[applause]

Any last word, Colin?

Grabow: I’ll just say, you know, thanks again for coming out. It’s great to see so many people that are interested in this issue that’s so important. 

A lot of people make the mistake of thinking this is a Hawaii issue, it’s a Puerto Rico issue. No, this is an American issue. This affects all of us, and clearly on the mainland. It’s just the most visible here. 

So I think there were some good comments made there that, you know, people need to get active — especially if you have a national security background, former military — and say, “No, this isn’t working for us. This is hurting us.”

And again, I think it’s perfectly healthy and reasonable to favor modification changes. But what’s unacceptable is the status quo, and something needs to change. And it’s good to see all these engaged people, because that’s how change is going to happen.

Akina: Thank you. And I want to thank all of you for being here today. Your questions were excellent. And I, more than that, appreciate the fact that you care about the future of Hawaii and the future of our country. That’s so important. You’re a unique group of people. 

But don’t you think that Colin has done an outstanding job of explaining the Jones Act?

[applause]

Great job today and great job that you carry out day after day in your regular work, informing the nation of something that really needs to change. Colin, thank you for being with us today.

Grabow: Thanks for having me.

Akina: Appreciate it.

[applause]

And before we all go, I want to wish all of you a wonderful holiday season as we go to the end of the year and start another year that I hope is great and productive for you. Please know how much the staff and the board of the Grassroot Institute appreciate you. We can’t do what we do without you.