BOHANON & CUROTT: Little-known Jones Act is outdated and ripe for repeal

Economic Analysis by Cecil Bohanon & Nick CurottEarlier this week, Utah Sen. Mike Lee introduced a bill to repeal the Jones Act. The act, passed in 1920, stipulates that cargo shipped between domestic ports must be transported by ships that are domestically built, flagged and crewed. These restrictions prevent foreign competitors from shipping goods across our inland waterways, significantly increasing transportation costs. Consequently, U.S. consumers pay unnecessarily high retail prices.

Americans living in Hawaii, Alaska and Puerto Rico, who are reliant on waterborne transportation, are harmed the most. In addition to burdening these places with inflated prices, the Jones Act keeps foreign ships from bringing life-saving humanitarian aid in the wake of natural disasters such as Hurricane Maria.

Supporters of the Jones Act claim it is necessary for a vibrant U.S. shipping industry and a merchant marine necessary for national defense. But the effect of the law has been the opposite. U.S.-built coastal and feeder ships typically cost more than $190 million, versus $30 million for a similar foreign-built ship. The higher cost means fewer ships are bought. This partially explains why the active number of U.S. shipyards has declined over time. It also helps explain why the number of large, militarily useful merchant marine ships has dwindled and the remaining fleet is decrepit. The average U.S. ship (excluding tankers) is 30 years old, compared with an average of 19 years for the 36 countries in the world trade group Organization for Economic Cooperation and Development.

The argument that the merchant marine is necessary for national defense is simply untrue. The percentage of military cargo deployed by civilian ships in recent military engagements was small. During the Gulf and Iraq wars, foreign-flagged ships transported almost three times more.

The real motivation behind the Jones Act is special-interest politics. Outlawing foreign competition creates a special privilege for domestic shipping interests that they lobby hard to retain. And while the costs to consumers and other businesses outweigh the benefits to the domestic industry, these costs are spread over millions of consumers and firms. To no surprise, most voters are unaware of these costs and have little incentive to oppose them.

There’s always something sad about an inefficient domestic industry struggling for relevance in a global economy after it’s no longer competitive. We’d almost shed a tear, if it weren’t for the rapacity with which the industry clings to its special protections and the audacity of the politicians bestowing such privilege under the thin veneer of national defense. The Jones Act damages the U.S. economy. Its repeal is long overdue.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to [email protected]

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