How to end the Jones Act’s protectionism

by Keli'i Akina, President Grassroot Institute, Daily Caller, 07/18/2013

What’s the best way to destroy the economy of an island or largely coastal region? From the Peloponnesian War to the 1960s confrontation between Cuba and the United States, the answer has been to impose an embargo. In effect, that’s what the United States has been doing for decades to its non-contiguous regions such as Hawaii and Puerto Rico as well as Alaska and much of the East and West Coasts. The culprit in this economically self-defeating practice is a little-understood federal statute called the Jones Act. The 1920 maritime cabotage law specifies that ships carrying cargo between two American ports must: 1) be built in the United States, 2) be 75% owned by U.S. citizens, 3) be largely manned by a United States citizen crew, and 4) fly the United States’ flag.

In 2012, the Federal Reserve Board of New York issued a warning to the federal government that, unless Puerto Rico is granted an exemption from these Jones Act rules, its economy would likely tank. Following suit, the World Bank released a statement announcing that it will cut back its financing of projects in Puerto Rico and begin encouraging investors to look to Jamaica as a new international shipping hub. Puerto Rico’s legislature, governor, and resident commissioner in Congress have voiced loud objections. They join a growing chorus of outrage which includes Alaska, whose legislature has passed a law (Sec. 44.19.035) requiring the governor lobby Congress for reprieve from the Jones Act.

The Jones Act creates an artificial scarcity of ships due to the inefficiency and the extraordinary cost of U.S. ship construction, driving up cargo costs and limiting domestic commerce. Through World War II the United States was a leading producer of merchant ships. Today we build less than one percent of the world’s deep draft tonnage, and the ships produced domestically for the commercial market come at a hefty price.

For example, Matson Inc., which has a 70% market share of the domestic container shipping in the Hawaii trade and 100% of the Guam trade, has ordered two new container ships from a U.S. shipbuilder at a cost of $200 million each. That is 4-5 times the cost of constructing comparable ships at state-of-the art shipbuilding yards in the U.S.-allied nations of Japan and South Korea. While the cumulative economic impact upon Hawaii remains the subject of further research, this January Bloomberg  cited estimates that the Jones Act “makes goods in Hawaii a third more expensive than they otherwise should be.”

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