As any follower of Austrian economics knows, lawmakers—in any form—are usually the enemies of free markets and the prosperity that they bring. However, there are times when legislators manage to outdo themselves and pass laws that are absolutely destructive, and the Jones Act is one of them.
A number of people have explained that, with most government programs, “the benefits are concentrated and the costs are diffused,” and probably no legislation better reflects that truism than the Jones Act, which benefits a small number of people but lays costs upon the vast number of Americans that must pay for this legislation. Before going into the problems this law causes, however, I first need to explain this law.
Called the Merchant Marine Act of 1920, the Jones Act was passed shortly after World War I to protect the American maritime and shipbuilding industries. The Jones Act “has restricted water transportation of cargo between U.S. ports to ships that are U.S.-owned, U.S.-crewed, U.S.-registered, and U.S.-built.” Like most laws imposed to protect a segment of the US economy, this law does not stand up to scrutiny but has a powerful bipartisan group of supporters that simply refuse to be honest about the law’s impact.
How does this law work?
According to Will Kenton, the act was introduced by US Sen. Wesley Jones of Washington “to give his state a shipping monopoly to Alaska. It was enacted by the United States Congress to stimulate the shipping industry in the wake of World War I.” The particulars of the law include:
- Ships transporting cargo between two US ports must be owned by US-based companies, with over 75 percent of the ownership stake held by US citizens;
- At least 75 percent of a ship’s crew must be US citizens;
- The ships must be built and registered in the US
When the law was passed more than 100 years ago, it was not difficult for shippers to meet those terms. Before World War I, the US shipbuilding industry lagged behind Great Britain and other European builders as US manufacturers were transitioning from wooden ships to ones made of iron and steel. However, the nation came out of World War I more intact than its European counterparts and emerged with the world’s strongest economy.
In fact, even with the Jones Act, the aftermath of World War I brought a huge surplus of ships, leading to a major depression in the US shipbuilding industry:
Prior to the war, the American shipbuilding industry had been moribund. Shipyards had been busy during and immediately following WWI, but the huge flood of wartime ships greatly reduced demand for new ones, and American shipyards didn’t produce a single oceangoing hull between 1922 and 1928. The onset of the Great Depression only made things worse, and by 1935 annual tonnage produced by US commercial shipbuilders had fallen to its lowest level in more than 100 years.
Because the Great Depression era also was a time when protectionism prevailed, having a large fleet of merchant ships was not a major priority, at least until war broke out in Europe in late 1939. Things quickly changed for the US shipbuilding industry in the manufacturing of both commercial and military ships. During World War II, the US produced about 5,000 military and commercial ships, most of those being the famed “Liberty Ships” that were constructed quickly within a matter of days:
But under wartime pressure, the US scaled up its shipbuilding enormously. While the US built just 1.4 million gross tons of merchant cargo-carrying ships from 1933 to 1939, between 1939 and 1945 the US built almost 40 million gross tons (along with several million tons more of naval vessels). Over the course of the war, the US built more than 3,600 cargo ships, over 700 tankers, and more than 1,300 naval vessels, including 8 battleships, 128 aircraft carriers, and 352 destroyers.
The Jones Act Has Never Given the US a Revitalized Shipping Industry
Of course, this level of shipbuilding could not be sustained once the war was over, but many of the Liberty Ships were sold to private firms and governments around the world, as countries looked to recover from the war. Some of the ships remained in service until the development of faster and more efficient container vessels. However, since World War II, the US has not been a factor in commercial shipbuilding, even with the backing of the Jones Act and other measures to protect domestic shipping. Given US maritime history, this should not be a surprise. Noah Pinion writes:
Commercial shipbuilding in the U.S. is virtually nonexistent: in 2022, the U.S. built just five oceangoing commercial ships, compared to China’s 1,794 and South Korea’s 734. The U.S. Navy estimates that China’s shipbuilding capacity is 232 times our own. It costs roughly twice as much to build a ship in the U.S. as it does elsewhere. The commercial shipbuilders that do exist only survive thanks to protectionist laws like the Jones Act, which serve to prop up an industry which is uncompetitive internationally. As a result, the U.S. annually imports over 4 trillion dollars worth of goods, 40% of which are delivered by ship (more than by any other mode of transportation), but those ships are overwhelmingly built elsewhere.
He continues:
In many cases, American manufacturing woes are a story of dominance (or at least success) followed by decline and stagnation. But with shipbuilding the story is different: U.S. shipbuilders have struggled to compete in the commercial market since roughly the Civil War. Outside of a few narrow windows, the U.S. has never been a major force in international shipping. The situation we face today, with U.S. ships costing at least twice as much to build as ships built elsewhere, is not a recent development; it’s been the norm for at least the past 100 years.
In fact, other than having success a building Clipper sailing ships in the mid-1800s and the period right after World War I when US shipyards were busy building commercial ships, and right after the end of World War II, the US has not been a world shipping leader, as it could not continue the momentum after the war ended:
But the U.S. again failed to transform its enormous shipbuilding effort into a successful commercial shipbuilding industry. The huge fleet of cargo ships was quickly sold off to foreign countries and private shipowners. Within three years, Britain, France, Germany and Denmark had completely or nearly completely replaced their wartime cargo ship losses with U.S.-built ships, and the American-owned fraction of global shipping tonnage had fallen to 48%. While the U.S. could have used the opportunity to jumpstart its commercial shipbuilding industry, it chose not to. Even at peak Liberty Ship production the U.S. had not been able to produce ships as efficiently as Britain in terms of labor hours, and after the war both American steel and American labor were far more expensive than in Britain. The U.S. dismantled or mothballed its emergency shipyards, and shipbuilders mostly abandoned the large-block style construction, returning to pre-war methods. Protected by its generous subsidies and often blocked by union rules, American builders had little incentive to try and overcome its labor and material disadvantages with novel, efficient techniques, and U.S.-built ships remained far more expensive than ships built elsewhere. By 1950, the U.S. was once again a marginal producer of commercial cargo ships.
Lies from the Unions and the US Maritime Industry
We should not be surprised that the chief beneficiaries of the Jones Act—the AFL-CIO, and the maritime-related firms—speak of this law as though it undergirds the entire US economy, as opposed to the truth: it is fleecing taxpayers and consumers to prop up lies. From the AFL-CIO, we are told:
For nearly 100 years, the Jones Act has been an indispensable part of our nation’s economic and national security, ensuring that a cadre of well-trained experienced civilian mariners and a fleet of dependable ships would be available in times of war or natural disasters. It also guarantees that the maritime industry will maintain strong labor standards and protections for its workers.
Congress is just as dishonest. The Committee on Transportation and Infrastructure declaring:
As leaders of the Subcommittee on Coast Guard and Maritime Transportation of the House Transportation and Infrastructure Committee, we are committed to fostering a strong and reliable American maritime base that supports our national defense and strengthens our economy. The Jones Act a century-old law that remains as crucial today as when it was enacted in 1920 requires that goods transported between two points in the U.S. be carried on American-built, American-owned, and American-crewed ships. The Jones Act is quite literally the bedrock and foundation of our nation’s commercial shipbuilding industrial base, and we proudly support it.
So, does the Jones Act really perform the economic miracles that its supporters claim? Hardly. Colin Grabow, Inu Manak, and Daniel J. Ikenson write in a Cato Institute research paper:
While the law’s most direct consequence is to raise transportation costs, which are passed down through supply chains and ultimately reflected in higher retail prices, it generates enormous collateral damage through excessive wear and tear on the country’s infrastructure, time wasted in traffic congestion, and the accumulated health and environmental toll caused by unnecessary carbon emissions and hazardous material spills from trucks and trains. Meanwhile, closer scrutiny finds the law’s national security justification to be unmoored from modern military and technological realities.
They add:
It turns out that, as in so many other cases of rent seeking, there is an asymmetry of motivations among those who benefit from the Jones Act’s protections and the vastly greater number who bear its costs. The protected domestic shipbuilding industry has a captive market from which it benefits handsomely and seeks to preserve by promoting fallacious arguments about the law’s necessity to national security, while the vast costs are dispersed across the economy in the form of higher prices, inefficiencies, and forgone opportunities that few people can even tie to the cause. That so many federal agencies and congressional committees have at least partial jurisdiction over different facets of the Jones Act also helps to explain its longevity.
Because of the law, American firms are unable to ship goods between US ports, which means they must be transported either by rail or truck, which creates its own sets of problems. Cabotage—the shipping between ports—is only two percent of US freight while in the European Union, which has no such laws, it is 40 percent. American consumers and taxpayers, of course, bear the brunt of these policies.
Thanks to US regulations and union-led restrictions, the cost of shipbuilding in this country is prohibitively expensive, and the vast amount of vessels built here are river-based barges and tugboats. When it comes to producing ocean-going ships, the US is irrelevant. Thus, the irony of the Jones Act is that while it transfers wealth to a few, well-connected people, the law itself not only works economic hardships on everyone else, but it hasn’t even resulted in a rejuvenated maritime industry.
Conclusion
The Jones Act is a law supported by much of Congress, President Donald Trump, and former-President Joe Biden, all of whom have lied about what the law does and who it benefits. Ordinary American consumers and workers do not benefit from this law, but instead are harmed and harmed greatly.
If ever a law needed repealing, it is the Jones Act. There is no justifying it and supporters of the law cannot point to one thing it ever did for this country. It is nothing but a naked wealth transfer that works only because of propaganda and outright lies.
