Thanks to the continuing efforts of Colin Grabow of the Cato Institute’s Center for Trade Policy Studies, we know of a great success in American protectionism: the 1920 Jones Act. This law, which replaced similar previous measures, protects US shipyards and ship owners from foreign competition: only US-flagged, US-built, and mostly US-crewed and US-owned vessels may transport cargo between two points in the United States. This legislation has succeeded so well that there is no foreign competition in domestic maritime shipping and no domestic ship is able to do the job at internationally competitive prices. In some cases, there is no Jones Act compliant ship and thus no ship at all legally available to carry something between two American coastal points.
Following the increase in (natural) gas prices due to the Russian government cutting supplies to Europe, we find a good example of the detrimental Jones Act in a recent letter that the governors of the six New England states wrote to the federal Department of Energy:
We appreciate that the Biden Administration has been working with European allies to expand fuel exports to Europe. A similar effort should be made for New England. The Jones Act, which restricts the types of ships that may transport products between US ports, effectively precludes all US exported LNG from being delivered into New England. The insecurity of global natural gas markets in 2022 exacerbates the long-standing ramifications of the restriction and undermines reliability. We request that the Biden Administration work with the New England states to alleviate the unique fuel challenges that the region faces, including beginning to explore the conditions under which it might be appropriate to suspend the Jones Act for the delivery of LNG for a portion or all of the winter of 2022-2023.
In one of his frequent and useful posts on the Jones Act, Grabow recently shared the governors’ letter and commented:
Although geographically part of the U.S. mainland, in terms of energy New England is almost an island. Lacking pipeline connections to refining centers outside the region, it also has insufficient pipeline capacity to transport natural gas—New England’s dominant fuel for electricity production—from other parts of the United States during wintertime spikes in demand. Instead, the region must turn to marine deliveries of liquefied natural gas (LNG) to meet its needs. That means imports. While the United States is one of the world’s top exporters of LNG, there are no ships to transport it to New England.
More accurately, there are no ships to transport it that comply with the Jones Act.
Of the world’s nearly 600 LNG tankers, none are U.S.-flagged, U.S.-built and mostly U.S.-crewed and owned. … And such a vessel isn’t likely to appear anytime soon, if ever. With U.S.-built LNG tankers estimated to cost over $500 million more than those from foreign shipyards—although no one knows for sure, since no such vessel has been constructed in this country since before 1980—the economic case for building and operating one is non‐existent.
(Colin tells me that he has since discovered that the last two of these ships were built in 1980, so the “before” in the last sentence should be deleted.)
Not surprisingly, for more than a century, the small and non-competitive US maritime shipping industry has been fighting against any attempt to cancel its protectionist privileges. It is a textbook example of the inefficiency of protectionism and of the rent-seeking that government power encourages. If the government is powerful enough to give you corporate welfare, including indirectly by banning your competitors, and you are politically powerful enough to get the privilege, why wouldn’t you? From the point of view of the small number of people protected against competition and the large number of consumers harmed, the Jones Act is a great protectionist success, although this is mostly true for the first capitalists who obtained the privilege. Since then, the value of the privilege must have been competed away, up to a normal return on capital, by other inefficient domestic rent-seekers.
It is estimated that, in 2018, 3,380 mariners (or 1/48,000th of the US nonfarm employment of more than 163 million) worked on Jones Act oceangoing ships. Even if we accept the unrealistic estimates of the Transportation Institute, a defender of the Jones Act, which puts the number of jobs at 94,470, this would still correspond to only one job for every 1,700 employed persons in the US. They have a much wilder estimate that includes “indirect” and “induced jobs” which, if we added such ghost jobs over all industries, would give us several times more employed people than there are in the labor force. (The Transportation Institute’s report, which it apparently doesn’t want to go public, has been reproduced on the website of the Grassroot Institute of Hawaii, which opposes the Jones Act.) Anyway, were the Jones Act repealed, workers in protected jobs could of course find employment in other industries, as nearly all workers do. Similarly, investors would find an equivalent rate of return on their capital in other industries, although the current shareholders protected by the Jones Act would lose what they have invested.
In 1872, Rep. Samuel Cox (D-NY), speaking in the House about what their horse trading on tariffs amounted to, declared (quoted from Ida M. Tarbell, The Tariff in Our Times [The Macmillan Company, 1906], and partially quoted in Doug Irwin, Clashing over Commerce [University of Chicago Press, 2017]):
Let us be to each other instruments of reciprocal rapine. Michigan steals on copper; Maine on lumber; Pennsylvania on iron; North Carolina on peanuts; Massachusetts on cotton goods; Connecticut on hair pins; New Jersey on spool thread; Louisiana on sugar, and so on. Why not let the gentleman from Maryland steal coal from them? True, but a comparative few get the benefit, and it comes out of the body of the people; true, it tends to high prices, but does not stealing encourage industry? Let us as moralists, if not as politicians, rewrite the eighth commandment: Thou shalt steal; because stealing is right when common.
He can add: Washington State steals from New England and many other states. Senator Wesley Jones (R-WA), who gave his name to the Jones Act, aimed at protecting Seattle shipping companies. Today, the ongoing fruit of the theft is a continuing deadweight loss, a pure economic loss that benefits nobody because resources are not allocated in conformity with consumers’ preferences and real economic costs.
READER COMMENTS
john hare
Sep 18 2022 at 5:46pm
This should be used with all the numbers to fight excessive occupational licensing, zoning, and a few other sins.
Mark Barbieri
Sep 18 2022 at 6:00pm
I completely agree that the Jones Act is one of the most powerful economic sanctions currently imposed on the United States. But it takes a lot of chutzpah for New England to complain about the difficulty of getting natural gas. They would get pipelines if they stopped blocking those pipelines from being built.
Pierre Lemieux
Sep 18 2022 at 8:32pm
Mark: A letter to the editor of the Financial Times made that point too.
Jose Pablo
Sep 18 2022 at 10:06pm
Specially so in some regions of the US. The Grassroot Institute of Hawaii estimates that the Jones Act cost the average Hawai family around $1,800 a year.
The impact on Alaska should be significant too.
Adding insult to injury in 2012 three Jones Act suppliers pleaded guilty to fixing prices in their Puerto Rican trade. Apparently, non competing quickly becomes an habit.
https://www.wsj.com/articles/the-jones-act-has-enabled-price-fixing-in-recent-past-1509399868
Puerto Rico is an interesting case. Estimates of the cost of the Jones Act to the island are around $1 billion per year. An amount that should be send to the territory federal aid. As Pierre points out frequently, intervention foster more intervention.
Thomas Grennes
Sep 19 2022 at 11:46am
It was encouraging to see Colin’s work recognized in Peter C0y’s NY Times newsletter. Coy has identified repeal of the Jones Act as a supply side reform that some Democrats and Republicans could support. Support for repeal of Jones by New England governors is also encouraging.
Thomas Grennes
Pierre Lemieux
Sep 19 2022 at 1:01pm
Thomas: Thanks for the note of optimism and the idea that there may be some libertarian measures that could gather support from both Democrats and Republicans. However, I don’t think (correct me if I am wrong) that the New England governors have asked for anything like the repeal of the infamous Jones Act. In their letter linked to in my post (and in Grabow’s Cato post), they only ask for a waiver, which the Department of Energy said they could not grant.
Mark Barbieri
Sep 19 2022 at 2:01pm
Not to get too far off topic, but it is weird that people say that banning other countries from supplying ships for our use or transporting our goods will make our maritime industry stronger. At the same time, many of them say that banning other countries from supplying airplanes to Russia will hurt them. I’m not bothered by the Russians facing international sanctions, but it upsets me that the US faces international sanctions imposed by our own leadership.
Jon Murphy
Sep 19 2022 at 2:12pm
Yup, that’s one of the great paradoxes of protectionism/economic nationalism.
nobody.really
Sep 19 2022 at 9:05pm
Henry George, Protection or Free Trade? (1886), chap. 6.
Pierre Lemieux
Sep 19 2022 at 9:50pm
nobody: Great quote! The whole book is easily available online. The quote with a few preceding sentences:
Greg Staff
Sep 19 2022 at 5:08pm
Of course, if New England would have allowed pipelines, they would have natural gas. If the government allows this Jones Act exception, New England will want a “fair” price… lower than that paid by Europe, thus creating another problem to be “solved” by our whack-a-mole government.
Whitehall
Sep 21 2022 at 5:58am
I distinctly remember Senator Markey of Massachusetts opposing export of American LNG arguing that its export would result in higher domestic prices.
Maybe so but another effect of his proposal would be to deny export profits from producers in Texas and Louisiana. I don’t think that the supply curve is very steep in the intermediate term.
This is something like a reverse Tariff of Abomination from the Antebellum period. What if the Yankees had banned the export of cotton?
And just how welcoming have the New England states been to the alternative to natural gas, nuclear power?
So, cry me a river.
Pierre Lemieux
Sep 21 2022 at 10:50am
Whitehall: Indeed, forbidding or limiting exports is as much protectionism as interfering with imports. What is important for liberty and prosperity is not exportation, but recognizing the freedom of individuals to trade, that is, to buy and sell. I elaborate on these points in a my EconLog post “Export Protectionism: Back to the Future?” and the links therein (note, in my Regulation article, how the consistent collectivist would favor the freedom of imports but would ban all exports).
Craig
Sep 21 2022 at 10:01pm
I wonder if its possible to try to make a personal estimate for what the Jones Act may have cost me? When I moved from North Jersey to South FL, I could’ve gone with a moving company and just moved everything but I would’ve been spending more money than much of the stuff was worth. My wife and I rented a 20′ truck from Penske on a one way which is about half a container +/- and we drove down whatever we could fit into that truck down. Everything else we gave away, threw away or sold at a firesale garage sale.
Would North Jersey to Port Newark and then float the container down to Ft Lauderdale have been cheaper than driving the truck?
In theory I guess that could be calculated by calculating what it would cost to send a container from Port Newark to either Bermuda or Nassau?
Pierre Lemieux
Sep 22 2022 at 12:34pm
Craig: Colin Grabow points out to me the following quote from a New York Fed report (https://www.newyorkfed.org/medialibrary/media/regional/PuertoRico/report.pdf — my emphasis):
Colin also mentions that replying to your question would further requires to take into consideration the American port fees.
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