The Absurdities of the Jones Act

I recently had the opportunity to sit down with Colin Grabow to discuss the Jones Act. Colin is Associate Director at the Center for Trade Policy Studies at the Cato Institute, a policy think tank focused on promoting the values of free trade and individual freedom. 

Last December, we published a piece on the Jones Act suggesting the creation of a government program to boost American shipbuilding productivity before exposing the industry to foreign competition. In his writing, Colin has pushed for different types of solutions, preferring a more free market approach to fixing the ailments of American shipping. We wanted to have a conversation to understand his perspective and benefit from his vast study of the subject.

Colin has been a prominent advocate for reducing, and even potentially repealing, America’s protectionist shipping policies, which he believes is exacting an enormous cost on the American economy.

This century-old law, which restricts domestic water-based shipping to vessels built in the U.S., registered in the U.S., owned largely by Americans, and crewed by Americans, is the current iteration of a protectionist stance with respect to domestic shipping (also known as cabotage) that the U.S. adopted from its founding. Its proponents claim that such protectionist policies enable the U.S. to maintain a robust native commercial shipping and shipbuilding sector, which is useful for national security purposes. Critics argue that the law has actually destroyed American shipbuilding by making it prohibitively expensive to transport goods via that mode. 

The empirical results seem to favor the critics; American shipbuilding is anemic relative to the rest of the world, a topic we covered extensively in our conversation. A running theme throughout the conversation was the absurd behaviors caused by America's hyper-protectionist stance on shipping. We discussed stories of ships being diverted through foreign countries just to avoid specific bans, or American customers buying from distant foreign suppliers instead of American suppliers because of prohibitive costs. 

We also discussed the history of the Act, its ramifications through time, and potential solutions. Some of the more unique highlights include:

• Diving into the history of the evolution of America’s protectionist policy, and the murkier details of how the Jones Act came to pass, which deviate from the standard narrative on the topic. (1:29 min)
• How the Act squanders some of America’s natural competitive advantages. For example, Puerto Rico imports most of its natural gas from foreign countries, despite the fact that the U.S. is the world’s largest producer of natural gas, because there are no domestically built LNG tankers to transport the fuel. (26:30 min)
• Busting the impression that American shipbuilding is too expensive because labor is too expensive. In fact, the lack of scale and specialization, driven by a lack of buyer demand, seem to be at the heart of America’s unproductiveness in this arena. (36:44 min)
• Colin’s proposed solutions to reduce the cost of the Act (45:32 min)

You can watch the full interview here

EastView

We also asked Colin to do his best to steelman the opposing point of view. He mentioned that the national security argument remains the most prominent argument on the other side. Here is an excerpt from that portion of the discussion where he lays out the hypothetical argument:

“Look, the Jones Act is not just protectionism. This is about the country’s national security. The maritime industry plays a vital role in that. We have a history of making sacrifices for our country, most notably during World War II when thousands of mariners lost their lives because they were sunk by German u-boats or Japanese submarines, some of them.

We support our military and are you gonna outsource this to foreigners? Are you gonna trust foreigners to transport our goods, to build our ships?

That’s ultimately what’s driving this…Basically, the national security thing…is more or less the argument that [pro-Jones Act advocates] would give you.”

The EastView is a feature of our Discourse segment where we ask any writer or speaker to submit their understanding of the worldview of people who disagree with them. You can read more about this feature here.