Make the Jones Act worse?

From Grassroot Institute, August 23, 2019

It’s probably not news to you that the federal Jones Act requires all goods shipped between U.S. ports to be on ships built, owned and flagged in the U.S. and crewed mostly by Americans.

You probably also are aware of the many absurdities it produces — like how it’s cheaper for American livestock farmers to buy grain from Canada than from the U.S. Or how states like Virginia have to bring in road salt from Chile rather than having it shipped from Ohio.

Such stories demonstrate how the Jones Act defies common sense. But nothing compares to what is happening when it comes to the shipment of liquid natural gas. Or how there is a move in Congress to make things worse.

Over the past several years, U.S. exports of LNG have grown dramatically. This year, America became the world’s third-largest LNG exporter, behind Qatar and Australia. But the lack of Jones Act-compliant LNG tankers means that not everyone can benefit from this boom. According to the American Enterprise Institute, Puerto Rico receives less than 1 percent of its LNG from the U.S., instead importing it from countries like Norway, Spain and the United Kingdom — this despite the fact that the average price of U.S. LNG is about 40 percent lower than from Europe and South America.

The fact is that there are no LNG tankers in the current Jones Act fleet, making it expensive or impossible for places like Puerto Rico and Hawaii to benefit from the growth in American LNG exports. This economic reality prompted Sen. Mike Lee (R-UT) to propose a modification to the Jones Act that would eliminate its requirement for LNG tankers.

Sen. Lee captured the absurdity of the Act’s effect on LNG shipping in a hearing where he asked an LNG expert, “In what universe would it make sense for us to keep [restrictive cabotage laws] and not even amend them so as to allow for a commodity that Americans produce in great abundance and rely on in great abundance to be transported from one U.S. port to another without a Jones Act-compliant flagged ship … that doesn’t even exist? What could be the plausible public policy justification for keeping such a law and not creating an exception to a law like that?”

Unsurprisingly, the expert laughed and responded that there is no good answer to a question like that. Yet, some on Capitol Hill think the answer to the lack of LNG tankers is more protectionism. Rather than modify the Jones Act to allow for more ships, they want to extend its provisions beyond its current scope.

The Energizing American Shipbuilding Act (S. 2167 and H.R. 3829), introduced by Sen. John Wicker (R-Miss.) and Rep. John Garamendi (D-Calif.), respectively, would require that a percentage of natural gas and crude oil exported from the U.S. to other countries be on tankers built and flagged in the U.S. The clear intent of the bill is to incentivize U.S. shipyards to build Jones Act-compliant LNG tankers.

The Jones Act is about to celebrate its 100th birthday. It has failed in its purpose to protect the U.S. shipbuilding industry. Instead, the number of ships in the Jones Act fleet has continued to shrink. All the while, American consumers and businesses have had to foot the bill in the form of higher prices.

If a century of protectionism has failed to produce even one Jones Act-compliant LNG tanker — during a boom in LNG production, no less — then more protectionism is not the answer. Instead, we should modify the Jones Act for the 21st century with an update that accepts the changing face of U.S. commerce, trade, and industry.

E hana kakou! (Let's work together!) 

Keli'i Akina, Ph.D.

President/CEO, Grassroot Institute