Why China is Closer Than Chicago, but Hawaii Further Away
How far away are Japan, China, South Korea, and Taiwan from the United States? If you live on America’s west coast, and are buying or selling goods, China is as close or closer than Chicago.
Factories across the U.S. ship their goods by truck and rail, and compete with goods shipped from manufacturing centers in Asia. Shipping by sea is much less expensive per mile than shipping by truck or rail. However, what U.S. companies can’t do in competing with overseas manufacturers is ship their goods by sea between two U.S. ports.
Below is a picture from February, 2014 of the Yang Ming on its way from Tacoma, Washington up Puget Sound, to Pusan, South Korea, and Shanghai or Ningbo, China (route map above). (Picture taken from my uncle’s house in Burien. Vashon Island and Olympic Islands in background.)
The Yang Ming can’t stop at any other U.S. port, including Hawaii, on it’s way to Asia. Shipping goods between two U.S. ports is blocked by an obscure century-old special-interest regulation, called the Jones Act.
As the Trans-Pacific Partnership (TPP) trade agreement continues being battled over in Congress and on blogs, the Jones Act is likely to continue, raising prices and restricted trade between U.S. ports, firms, and citizens.
While the TPP and TTIP are unlikely to reform the Jones Act due to a strong pro-Jones Act lobby, the these trade talks remind one of the great domestic and international cost of the Jones Act and protectionism in general.
The Jones Act is a protectionist policy that restricts foreign competition from domestic coastal shipping and, in doing so, keeps prices artificially high, especially in America’s non-contiguous states and territories. For goods shipped between US ports, the Jones Act requires that ships be 1) built in the US, 2) crewed largely by American citizens 3) owned largely by Americans, and 4) be registered US vessels.
With up to 90% of goods transported by sea,1 protectionism in the shipping industry can have massive, widespread costs. For America alone, the Jones Act costs “at least $2.8 billion [$4.37 billion in 2014 inflation-adjusted dollars] annually and its removal would lower domestic shipping prices by 26%,”according to a 1995 report from the U.S. International Trade Commission.2 More recent research by Justin Lewis of Tulane University has shown that “a full repeal of the Jones Act would yield economic benefits of up to $682 million per year” with domestic coastal shipping “approximately 61% cheaper.”3
The Jones act hits people in Hawaii hard, raising prices for Hawaiians as well as for tourists. And the Jones Act also isolated Puerto Rico, recently in the news as the government there is about to go bankrupt. Some U.S. territories benefit from Jones Act exemptions:
Hawaii isn’t the only American island wanting out of the Jones Act. A resolution that sought to exempt Puerto Rico from the act was introduced in late April and adopted soon after by the Puerto Rican Senate. The U.S. Virgin Islands have been exempt since 1922. Guam is also partially exempt.
Panos Prevedouros, professor of civil engineering at the University of Hawaii, says selective enforcement of any law is discrimination. Currently, three of the seven non-contiguous U.S. jurisdictions are fully exempt from the Jones Act.
“There’s a double standard,” he said. “American Samoa and the Northern Marianas are exempt. The U.S. Virgin Islands? Exempt — and they are flourishing.”
For debaters researching the NCFCA trade resolution, the listed countries are central to ocean shipping. Here is chart of 2010 container exports from the World Shipping Council. Container import statistics are similar.
The 2014 Heritage Foundation Backgrounder, takes a critical look at the Jones Act: Sink the Jones Act: “Restoring America’s Competitive Advantage in Maritime-Related Industries.” Here is abstract:
The Jones Act drives up shipping costs, increases energy costs, stifles competition, and hampers innovation in the U.S. shipping industry. Originally enacted to sustain the U.S. Merchant Marine, the law has instead fostered stagnation in the U.S. maritime shipping industry. Furthermore, the Jones Act fleet is unable to meet the needs of the U.S. military, which routinely charters foreign-built ships to fulfill additional sealift needs. The U.S. economy and the U.S. military would be better served without the Jones Act.
The economic irrationality of the Jones Act loses in Congress to the Public Choice theory political rationality. That is, benefits of the Jones Act are small, but concentrated to identifiable interest groups who fiercely and financially defend their legal privilege. Costs created by the Jones Act are large, but spread out among millions of consumers who each on their own lack sufficient incentives to create political heat.
Only homeschool debaters can save the day…