The Jones Act punishes Puerto Rico, allows American shippers to charge more than they could in a free market, and sticks American consumers with the bill.
By John Mozena
It took a natural disaster to show how policies designed to protect an industry from free-market competition end up hurting everybody involved.
The Jones Act is a federal law dating back to 1920 that requires all ships carrying cargo between two U.S. ports to be American-built, American-owned and crewed largely by Americans. In the wake of Hurricane Maria, Governor Ricardo Rossello of Puerto Rico requested a waiver of the Jones Act to provide access to as much shipping capacity as possible to meet the humanitarian needs on the devastated island, which lies 1,000 miles southeast of the American mainland.
While this request was being considered, The Wall Street Journal reported, “President Donald Trump told reporters Wednesday he was considering waiving the act but hesitated because ‘a lot of people that work in the shipping industry… don’t want the Jones Act lifted.’”
Even though the administration did reverse course and later announce that it would be issuing a Jones Act waiver for hurricane response, this was still a missed opportunity for President Trump to fulfill his campaign’s theme of making government work for the average person, not “elites” with powerful lobbyists.
What He Should Have Said:
“A lot of people in the shipping industry don’t want the Jones Act lifted. That’s a sign to me that we should lift it, because any law that makes you do business with one small group of companies is good for them but bad for you. It lets those companies charge more and offer less, which acts as a tax on everything they touch. Why is it the responsibility of the average Puerto Rican family to prop up the owners of American shipping companies through higher prices on everything they buy at the store, especially after a natural disaster?”
By limiting the number of competitors, the Jones Act allows American shippers to charge more than they could in a free market, and sticks American consumers with the bill. The U.S. Customs and Border Protection Service is blunt about the law’s purpose:
…the intent of the coastwise laws, including the Jones Act, was to protect U.S. shipping interests. The coastwise laws are highly protectionist provisions that are intended to create a ‘coastwise monopoly’ in order to protect and develop the American merchant marine, shipbuilding, etc.
It has spectacularly failed to accomplish those goals. Rather than flourishing, the number of ocean-going American-built ships eligible for Jones Act certification shrank from 1,072 in 1955 to just 107 ships in 2011. That’s all the ships that are available for trade between the mainland and Puerto Rico, Hawaii, Alaska and all other non-coastal voyages between U.S. ports.
This means the Puerto Rican sea lanes are served by an aging, insufficient fleet. According to a U.S. Government Accountability Office report on the Jones Act’s impact on Puerto Rico, by 2013 most of the cargo between the island and the mainland was carried by just 17 ships operated by four shipping companies. According to the report, “nearly all of the containerships and several of the barges used by these carriers are operating beyond their average expected useful life, which is about 30 years for a containership and about 27 years for a barge.”
With the Jones Act, we see how nations that turn to protectionism end up doing themselves more harm than good. President Trump made “Buy American” a centerpiece of his campaign, but the higher fees and limited services that characterize Jones Act shippers actually make it harder for American companies to compete in the Puerto Rican market. Meanwhile, foreign competitors shipping their products from non-American ports have a price advantage over American companies, as they can purchase shipping on the competitive global marketplace. According to the GAO report, “lower rates, as well as the limited availability of qualified vessels in some cases, can lead companies to source products from foreign countries rather than the United States.”
The price difference isn’t small, either. According to the New York Federal Reserve,
It costs an estimated $3,063 to ship a twenty-foot container of household and commercial goods from the East Coast of the United States to Puerto Rico; the same shipment costs $1,504 to nearby Santo Domingo (Dominican Republic) and $1,687 to Kingston (Jamaica)—destinations that are not subject to Jones Act restrictions.
The New York Fed concluded, “to the extent that it inhibits free trade, the Jones Act does indeed have a negative effect on the Puerto Rican economy, although the magnitude of the effect is unclear.” For a territory that has been in recession for more than a decade, with a 45 percent poverty rate and 10 percent unemployment, any negative economic impact to Puerto Rico is not justifiable.
But Puerto Ricans aren’t the only ones to pay the effective tax imposed by the Jones Act. When you see the disclaimer, “Prices may vary in Alaska, Hawaii and Puerto Rico” in an advertisement, that’s a signal of the Jones Act raising prices to those shipping-dependent markets. Even residents of the continental U.S. who are far from any ocean aren’t immune to its costs, as the Jones Act also applies to shipping on the Great Lakes, the Mississippi River, and all other domestic waterways. That increases the cost of bulk cargoes such as iron ore, coal, grains, petroleum and other natural resources around the nation, as well as the products made from them.
The Jones Act, like other protectionist policies throughout history, has ended up hurting American consumers and businesses while failing to maintain a healthy domestic maritime industry. It shouldn’t have taken a natural disaster for us to realize it’s a bad idea to replace free markets with favoritism.
John C. Mozena is a communicator working to spread liberty and free markets. He has been a vice president at a free-market think tank, spent two decades in a variety of private-sector marketing and communications roles and began his career as a newspaper reporter and editor covering health care policy. Follow him on Twitter or visit his website.
THE JONES ACT IN PERSPECTIVE: A survey of the costs and effects of the 1920 Merchant Marine Act
Posted April 2017 by the Grassroot Institute of Hawaii. This is a comprehensive academic analysis of the history of the Jones Act, its failure to accomplish its intended goal, and its negative impact on the American consumer.
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