From colonial navigation acts to the Jones Act

by Michael Hansen, Hawaii Shippers Council, June 6, 2017

The Roubini EconoMonitor Blog published on May 30, 2017, an opinion-editorial, “The Navigation Acts Are Still Alive: A Century of the Jones Act.”

The piece describes how the American colonists in part revolted against the imposition by the British of navigation laws on the colonies and during the first congress after ratification of the Constitution imposed an American version of those laws. The thrust of those protectionist laws continue today with the Jones Act and other maritime cabotage laws of the U.S.

The author is Thomas Grennes is professor of economics emeritus at North Carolina State University and affiliated with the Mercatus Center at George Mason University.

Roubini’s EconoMonitor blog is described as a place for informed commentary on economic, financial and geopolitical developments around the world. It is operated by EconoMonitor LLC, a joint venture formed in mid 2015 by Roubini Global Economics (RGE) and the Ashmore Media Group. RGE, founded in 2004 by Dr. Nourial Roubini, is a global economic and financial analysis firm based in London, UK. In 2016, RGE merged with 4CAST (the world’s leading supplier of online financial analytics) to become 4CAST-RGE Ltd. headquartered in London. Dr. Roubini, currently Chairman of RGE, was a senior economist for the Council of Economic Advisers during the administration of President William J. Clinton and later became a senior advisor to Timothy Geithner, who in 2009 became Treasury Secretary in the administration of President Barak H. Obama.

Key excerpts:

American colonists resented the British Navigation Acts. Colonists smuggled, protested, and eventually revolted against the restrictions on trade. John Hancock, the most prominent signer of the Declaration of Independence, became one of the richest men in the Colonies by smuggling (John Hancock-Heritage). However, in 2017 in the independent United States of America, the Navigation Acts are not dead. They survive in the form of the Jones Act, which is approaching its 100th anniversary.

The Jones Act of 1920 denies Americans from having access to the best shipping services in the world. Specifically, merchandise shipped by water from one US port to another must use a ship that was built in America, owned by Americans, operated by Americans and flies the American flag. Ships that satisfy these Jones Act conditions are much more expensive than foreign-flag vessels, and the higher costs get shifted on to American consumers. The American-build requirement is particularly onerous, as many types of American ships cost five times as much as foreign ships.

Outlawing the use of foreign ships on domestic routes is equivalent to imposing a prohibitive tariff or an import quota of zero. It is well-known that tariffs impose a net loss on an economy as the losses to consumers exceed the gains to protected producers.

Ostensibly the Jones Act contributes to national security by aiding the foreign operations of the US military and by contributing to speedy and effective responses to domestic emergencies. Unfortunately, contributions of Jones Act ships to foreign military operations have been found to be negligible (Quartel). For domestic emergencies, the Jones Act has had a negative effect.

If the Jones Act has net costs and provides negligible national security benefits, how can it survive for nearly a century? The answer is a common one in the economics of public choice. The benefits are concentrated but the costs are diffuse. The beneficiaries know who they are, how they gain, and they have mobilized a durable and effective coalition. Conversely, most of those who bear the cost are not aware of the act, and they have weak incentives to participate in a coalition.

The Jones Act is also being discussed in the context of the default on bonds by the government of Puerto Rico. The problems of Puerto Rico are much broader than shipping costs, but the Jones Act contributes to the island’s economic problems

The time has come for fundamental reform of the Jones Act. Complete repeal would generate the greatest gains to the US economy. However, congressional support for the Jones Act remains strong.

More moderate reforms have considerable economic merit. Waiving the American-build requirement for ocean-going ships on trips to the non-contiguous regions of Hawaii, Alaska, and Puerto Rico would provide many of the gains that would result from complete repeal of the Act (Grennes 2017a). Reform of the Jones Act could simultaneously achieve (1) a reduction in excessive economic regulation, (2) provide access to better shipping infrastructure at lower cost for American businesses, and (3) reduce barriers to American energy production, without an additional cost to the Federal budget.

---30---

LINK: “The Navigation Acts Are Still Alive: A Century of the Jones Act.”