The Sinking Cost of Protectionism: Why America Needs a New Course on the Jones Act

The Trump administration’s decision to waive certain provisions of the Jones Act has brought long-overdue attention to this anachronistic piece of legislation. Passed in 1920, the Jones Act is a relic of a bygone era designed to support domestic shipbuilding and protect American mariners at all costs. However, its consequences have been far from benign.

While one might expect a president as protectionist as Donald Trump to be thrilled with the Jones Act’s strict regulations on foreign trade, his recent decision to issue waivers for shipments of energy-related products and fertilizer – and possibly extend them further – suggests he has come to realize that the act’s costs outweigh its benefits. This is not just a pragmatic decision but also an acknowledgment that the Jones Act’s impact has been far from beneficial.

The law’s effects are a prime example of what social scientist Mancur Olson called “policy concentrated benefits, diffuse costs.” While American shipbuilders and owners reap lucrative rewards from this legislation, the rest of the country bears the burden of higher shipping costs, reduced competition, and an unsustainable environment. The Jones Act has transformed itself into a hidden tax on American consumers – a burden they often don’t even realize they’re paying.

The law dates back to an era when naval capacity was seen as crucial for national defense and security. Its intended purpose is straightforward: support a robust domestic shipbuilding industry capable of constructing battleships and cruisers, and maintain a strong merchant-marine fleet that can transport goods and people. However, its actual impact has been far from the mark.

In reality, the Jones Act has become an inefficient jobs program for American mariners at the expense of consumers. It’s protected U.S. shipowners from international competition, allowing them to charge higher rates than they would otherwise – a classic case of concentrated benefits and diffuse costs. While it’s helped maintain a reasonably strong industry building barges and tugboats, its national-defense rationale is more applicable to oceangoing vessels.

The Jones Act’s inability to adapt to changing global economic circumstances has been particularly damaging. The U.S. domestic shipbuilding industry has shrunk dramatically over the decades – even with this law in place – due largely to competition from countries like China and South Korea, which enjoy lower costs and better production methods. America’s labor costs and regulations may not be solely responsible for this decline; other countries with similar characteristics have managed to maintain greater shipbuilding capacity.

As a result, the ships that can transport goods within the U.S. – let alone between American territories like Hawaii or Alaska – are old and few in number. The Jones Act has effectively stifled innovation by insulating domestic-shipping costs from competition. This protectionist law has even encouraged the importation of foreign goods.

The recent waiver of certain provisions has been particularly beneficial for Americans outside the continental U.S., who have long suffered from high shipping costs and supply-chain problems without access to more affordable alternatives. For those living in Alaska, Hawaii, or Puerto Rico – areas that are disproportionately affected by the Jones Act – this reprieve has come as a welcome respite.

However, it’s time for America to rethink its maritime policies. The majority of voters still remain oblivious to the Jones Act’s existence and impact, while shipbuilders and owners reap the rewards of this outdated legislation. Given the significant costs it imposes on consumers, it’s imperative that Congress begins to question whether such a policy is truly necessary in today’s globalized economy.

The recent waiver has shown just how effective a more flexible approach can be – allowing tens of millions of gallons of domestic oil to stay within the country instead of being shipped abroad. American farmers have been able to buy more domestic ammonia for fertilizer, and Puerto Rico has had increased access to domestic oil and propane. The experience of these past few months should serve as a stark reminder that America’s maritime policies must evolve in line with its changing economic realities.

The Jones Act is not just an outdated relic; it’s also an example of how protectionism can backfire in spectacular fashion. As the U.S. continues to grapple with issues of trade and competition, it’s time for lawmakers to consider reforming – or even repealing – this antiquated piece of legislation. The future of America’s maritime industry depends on it.