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June 25, 2010

The Jones Act: Lost at Sea

By and

Who would have thought the Gulf oil spill would make a 90-year-old law newsworthy? The Merchant Marine Act of 1920, also known as the Jones Act, was meant to save the merchant marine industry by requiring ships that plied American waters be built in the United States and manned by American crews. After the oil started gushing, lawmakers started demanding that the government waive the law to speed international assistance for the cleanup. What the White House can't waive, however, is the ongoing damage caused by the Jones Act. The policies it embodies are a remnant of a worldview that contributed to economic collapse and the Great Depression.

Like many protectionist policies, the premises of the Jones Act seem plausible: Require goods moving from one U.S. port to another to travel on U.S.-built ships, with U.S. crews, and you will protect U.S. maritime and shipbuilding jobs. Unfortunately, under closer scrutiny it turns out the idea isn't seaworthy. The history of the U.S. merchant marine since passage of the Jones Act has been a story of decline, interrupted only by a massive shipbuilding boom during World War II. In 1920, U.S.-flagged ships carried 52 percent of the nation's seaborne trade. By 1939, U.S.-flagged shipping tonnage had declined by 25 percent and American ships carried only 22 percent of our seaborne trade.

After WWII, the number of U.S.-flagged ships declined rapidly to 1,072 by 1955. By 2005, that number declined to 249. As of December 2007, the U.S. ocean-going merchant fleet consisted of 89 ships engaged in international trade and 100 ships in the ocean-going Jones Act trade.

So much for jobs saved. The last serious review of the Jones Act (from a series of congressional hearings in the 1990s) revealed that more than 40,000 American merchant seamen and 40,000 longshoremen have lost their jobs despite Jones Act protectionism. Over the first 76 years of the act, more than 60 U.S. shipyards had gone out of business, eliminating 200,000 jobs. If the intent of the Jones Act was to save U.S. jobs, it failed.

The Clinton administration asked the International Trade Commission to estimate the number of jobs that might be affected by repeal of the Jones Act. The answer? Repeal of the Jones Act would affect about 2,450 workers in the coastwise shipping trade. In the shipbuilding industry? Repeal would cost 36 jobs.

Who pays the cost of protecting these 2,486 workers? The American consumer, for a start. The commission estimates the annual costs of Jones Act protectionism at between $2.8 billion and $9.8 billion.

The real costs of Jones Act protectionism are even higher when you take into account the distortions of trade that cost American firms and workers the ability to compete fairly for American contracts. For example, U.S. scrap iron, a vital ingredient for American steel plants, is shipped from U.S. coastal areas to Turkey, or to Taiwan, or to China rather than to other U.S. ports, because the Jones Act makes such U.S.-to-U.S. shipping prohibitively expensive.

The Jacksonville, Fla., electric authority has bought coal from Colombia rather than from U.S. mines because international transportation costs are so much cheaper. American livestock farmers find it cheaper to purchase feed grains from Canada or Argentina rather than from U.S. growers because the Jones Act makes shipping inside the United States so expensive. The salt used to clear frozen roads in Maryland and Virginia has been bought from Chile rather than from a U.S. mine in Ohio because transportation is so much cheaper.

On the flip side, these companies find themselves losing American sales to foreign competitors who enjoy cheaper transportation costs - costs that in many cases may be responsible for 50 percent or more of the final price of the product.

It's hard to make a national security argument for the Jones Act, either. Because U.S. warships are American made, and since Jones Act has helped gut the U.S. maritime industry, there is little domestic competition. We are left with very few yards, building very expensive ships. According to Robin Laird, a maritime expert, today it costs a third less to build an Aegis combat ship in Spain than in the United States. American industries thrive when they're exposed to the highest levels of competition. By any objective measure, the Jones Act is a failure and should be scuttled.

Terry Miller is director of the Center for International Trade and Economics at The Heritage Foundation.

First appeared in the Lexington Herald-Leader

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