China Closer Than Chicago but Hawaii is Further
Factories across the U.S. ship goods by truck and rail and compete with goods shipped from manufacturing centers in Asia. Shipping by sea is much less expensive than shipping by truck or rail.
Federal regulations make it illegal for U.S. companies to ship to customers by sea between U.S. ports. The Jones Act forces U.S. firms, even coastal firms, to ship by rail and road.
Below from February, 2014 is 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 Burien. Vashon Island and Olympic Islands in background. My big face in the foreground…)
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.
For more, see An arcane American law protected by powerful interests is causing insane traffic jams. Here is video Jones Act story with focus on increased highway congestion caused by lack of competitive coastal shipping:
While the Trans-Pacific Partnership (TPP) was almost passed, the Jones Act is likely to cruise silently on, 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, increasing prices for Hawaiians as well as for tourists. And the Jones Act also isolated Puerto Rico, in the news after hurricane Maria, and before that for the government on the edge of bankruptcy. See The Jones Act, the obscure 1920 shipping regulation strangling Puerto Rico, explained from Vox (October 9, 2017) and Jones Act Is a Swamp Creature That’s Strangling Puerto Rico (Cato Institute, October 1, 2017).
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 federal transportation policy, 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.
Thia 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 the 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 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!