June 15, 2016 | Commentary on National Security and Defense, Economy, Trade

The Jones Act: Protecting Special Interests, Not America

When special interest groups want goodies from Congress, they’ll often cloak their pleas in the garb of “national security.” So nearly a century ago, Congress passed the Merchant Marine Act of 1920. And so it is today, as proponents of that law—which costs the U.S. economy $200 million a year—try to keep it in place. This protectionist measure, better known as the Jones Act, requires that all cargo shipped between U.S. ports be carried by U.S.-built, U.S.-crewed, U.S.-owned ships. Those who defend it argue that banning foreign vessels from intranational shipping helps national security by preserving a domestic shipyard industrial base that can serve national defense purposes when the need arises.

The act gets its nickname from its author, Sen. Wesley Jones. Back in 1920, he and his allies also professed the desired to promote the national defense. But his Merchant Marine Act also had the foreseeable effect of forcing the two Canadian steamship lines serving Alaska to withdraw from the market. And the two remaining steamship lines serving Alaska just happened to be based in Senator Jones’s home state of Washington.

With the Canadian competition sidelined, the Washingtonians reaped a windfall. According to the Juneau Empire, “the Jones Act allowed Seattle business interests to charge much higher than average prices for shipping. This, in turn, raised the cost of living in Alaska and funneled Alaskan dollars out of the territory and into the pockets of Washington businessmen.”

Ernest Gruening, Democratic governor of the Alaska Territory from 1939 to 1953, said: “Senator Jones no doubt assumed, and correctly, that this would be most helpful to some of his constituents there (in Washington), as indeed it proved to be, but at the expense, the heavy expense, from that time on, of our voteless citizens of Alaska.”

Recently, Rep. Gary Palmer proposed exempting another U.S. territory—Puerto Rico—from the Jones Act. Laden with $72 billion in debt, the island commonwealth faces a fiscal crisis. Last month it defaulted on a $422 million debt payment. It is expected to default on another $800 million payment July 1. To help spark commerce and lower the cost of living for Puerto Ricans suffering in their cratered economy, Palmer offered his amendment to the “fiscal rescue” bill moving through the House. And fans of the Jones Act immediately cried national defense. Are they right? Is expensive protectionism necessary to keep the U.S. shipbuilding industry from going the way of the dinosaur?

To answer that, let’s consider the shipbuilding industry relative to other manufacturers of transportation equipment.  No other sector of America’s transportation infrastructure is sheltered from competition in the way the Jones Act shelters the shipbuilding industry by requiring the use of U.S.-built vessels.

For example, the United States does not ban the use of imported planes, trains, automobiles, or trucks. U.S. tariffs on imported transportation equipment other than ships and boats average just 1.2 percent.

There is no evidence that this relatively open treatment has made it difficult for the U.S. military to procure aircraft, trucks, or other vehicles. In fact, the opposite is true. American manufacturers of vehicles other than boats and ships are thriving in their low-tariff environment, employing over 1.2 million people with sales topping $869 billion in 2014.

As my colleague Brian Slattery observed, “Jones Act proponents also argue that America must keep its shipyards in operation in case that capacity and capability is required in times of military buildup. Yet only one of the shipyards that build the Navy’s primary vessels (e.g., carriers, destroyers, amphibious vessels, and submarines) also produces large commercial shipping vessels.”

The Jones Act is not about protecting U.S. citizens from foreign threats. It’s about protecting a politically connected industry from competition. Rep. Palmer’s amendment would give Puerto Rico a welcome break from this special-interest law—and a much-needed economic boost.

About the Author

Bryan Riley Jay Van Andel Senior Policy Analyst in Trade Policy
Center for Trade and Economics (CTE)

Originally published in The National Interest