The Jones Act: A Great Protectionist Success

Thanks to the continued efforts of Colin Grabo of the Cato Institute’s Center for Trade Policy Studies, we know of one great breakthrough in American protectionism: the 1920 Jones Act. The act, which replaced a similar earlier measure, protected US shipyards and shipowners from foreign competition: only US-flagged, US-built, and mostly US-crewed and US-owned ships could transport cargo between two points in the US. This act has succeeded so well that there is no foreign competition in inland ocean shipping and no domestic ships are able to do the job at internationally competitive prices. In some cases, there are no Jones Act compliant vessels and thus no vessel legally allowed to carry anything between two American coastal points.

After the rise in (natural) gas prices due to the Russian government cutting supply to Europe, we found a good example of the damaging Jones Act in a recent letter that the governors of six New England states wrote to the federal Department of Energy:

We appreciate that the Biden administration is working with European allies to expand energy exports to Europe. A similar effort should be made for New England. The Jones Act, which restricts the types of vessels that can transport cargo between US ports, effectively prevents all US exported LNG from being delivered to New England. Insecurity in the global natural gas market in 2022 exacerbates the impact of chronic constraints and reduces reliability. We urge that the Biden administration work with the New England states to address the unique energy challenges facing the region, including beginning to explore conditions under which a Jones Act suspension may be appropriate for LNG supplies for part or all of 2022- In the winter of 2023.

In one of his frequent and useful posts on the Jones Act, Grabow recently shared the governors’ letter and wrote:

Although geographically part of the US mainland, New England is almost an island in terms of energy. Lacking pipeline connections to refineries outside the region, it also has insufficient pipeline capacity to transport New England’s dominant fuel — natural gas — to generate electricity from other parts of the United States during winter demand spikes. Instead, the region will have to turn to seaborne supplies of liquefied natural gas (LNG) to meet its needs. means import. Although the United States is one of the world’s top exporters of LNG, New England has no ships to transport it.

More precisely, there are no ships to transport it to comply with the Jones Act.

None of the world’s nearly 600 LNG tankers are US-flagged, US-built, and most are US-crewed and owned. … and such a vessel is unlikely to appear anytime soon, if ever. U.S.-built LNG tankers are estimated to cost more than $500 million at foreign shipyards — though no one knows for sure, since no such vessels were built in this country before the 1980s — an economic case to build and operate. – exists.

(Colin tells me that he has since discovered that the last two of these ships were built in the 1980s, so the “before” in the last sentence should be deleted.)

Not surprisingly, for more than a century, the small and uncompetitive US maritime shipping industry has resisted any attempt to repeal its protectionist privileges. This is a textbook example of the inefficiency of protectionism and the government power that encourages rent seeking. If the government is powerful enough to give you corporate welfare with indirect sanctions on your competitors, and you’re powerful enough to be politically privileged, why wouldn’t you? From the point of view of protecting a small number of people against competition and harming a large number of consumers, the Jones Act was a great protectionist success, although it was mostly true of the first capitalists who received the privilege. Since then, the price of the privilege must have been competed away by other inefficient domestic rent-seekers, up to a normal return on capital.

It is estimated that, in 2018, 3,380 seafarers (or 1/48,000th of more than 163 million US non-farm employment) worked on Jones Act ocean-going vessels. Even if we accept the unrealistic estimate of the Transportation Institute, a defender of the Jones Act, which puts the number of jobs created by the Jones Act at 94,470, that would still correspond to only one job per 1,700 employed people in the United States. They have a broad estimate including “indirect” and “induced jobs” which, if we add up such ghost jobs in all industries, would be several times more employment than exists in our country. However, if the Jones Act is repealed, workers in protected jobs must be able to find jobs elsewhere, as most workers do. Similarly, investors in other industries would receive the same return on their capital, although existing shareholders protected by the Jones Act would lose what they invested.

In 1872, Representative Samuel Cox (D-NY), speaking in the House about the extent of their horse trading on tariffs, announced (quoted from Ida M. Tarbell, The Tariff in Our Times [The Macmillan Company, 1906]and partially quoted in Doug Irwin, Conflict over trade [University of Chicago Press, 2017]):

Let us be each other’s instruments of mutual rapine. Michigan steals on copper; Maine on wood; Pennsylvania on Iron; North Carolina on peanuts; Massachusetts on cotton goods; Hairpin Connecticut; New Jersey on Spool Thread; Louisiana on sugar, and so on. Why don’t the Maryland gentlemen steal the coal from them? True, but the comparative gains some benefit, and it comes out of the human body; True, it tends to high prices, but doesn’t theft encourage industry? Let us, as moralists, if not as politicians, rewrite the eighth commandment: Thou shalt steal; Because stealing is common.

He might add: Washington State steals from New England. Senator Wesley Jones (R-WA), who lent his name to the Jones Act, aimed at protecting Seattle shipping companies. The theft continues even today Excess weight lossA pure economic loss that benefits no one because resources are not allocated in line with consumer preferences and true economic costs.

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