American Shipping Law Raises Consumer Costs

NCPA February 3, 2015

While politicians are discussing the benefits of new trade deals, they're forgetting about an important aspect of U.S. law that does a lot to hamper trade: the Jones Act. Jared Meyer of Economics21 at the Manhattan Institute says the 1920 law hurts the American economy, raises prices and harms the American shipping industry.

In short, the Jones Act requires all goods shipped between American ports to be carried by American-made, American-owned ships and crewed by American residents. Doesn't that help American companies? A few -- but at the expense of American consumers:

• Because there is no foreign competition with American shippers, domestic shipping prices are higher than they would otherwise be. Shipping crude oil from the Gulf to New England costs $6 per barrel, three times what it would cost for that same oil to be transported to Canada on a foreign ship.
• American states such as Hawaii and Alaska, which are unconnected to the mainland and must rely more on shipping than their peers (who can use trucks and railroads for transporting goods), face especially high costs. Hawaii's cost of living is the highest in the nation.
• American crews cost 4.5 times more than do foreign crews.

Meyer makes an important analogy to the airline industry -- he asks, what if all flights in the United States had to be American-owned, American-made and American-crewed? Consumers would see the clear link between higher flying costs and the protectionist policy. Cargo ships raise the prices of goods transported by water, but consumers don't see that link as clearly.

Meyer notes that Senator John McCain (R-Ariz.) introduced an amendment to the Keystone XL pipeline bill that would repeal the Jones Act.

Source: Jared Meyer, "The little-discussed policy that's a major problem for international trade," Washington Examiner, January 22, 2015.