President Trump is reportedly considering issuing a Jones Act waiver. He should do so.
The Jones Act is a 1920 law that requires goods transported by water between U.S. ports to be carried on ships constructed in the United States and operated under the U.S. flag. It is dripping in crony capitalism.
As is typical with cronyism, the law creates diffuse costs and concentrated benefits. In this case, consumers bear the costs through artificially high prices. Prices are higher than they would otherwise be because the Jones Act makes it more expensive to transport consumer goods from point A to point B in the U.S.
Part of this expense is driven by bizarre situations created by the law. For example, a foreign-flagged ship can’t deliver part of the same cargo loaded onto the ship in, say, Kyoto to Newark, and then the rest to Philadelphia, because shipments viewed as originating in Newark and arriving in Philadelphia must be carried on U.S. flagged vessels. The ship must instead unload all its cargo in one U.S. city, and land-based transportation picks it up from there.
So the Jones Act also increases traffic congestion, and wear and tear on U.S. roads. Goods that would be transported over water in the absence of the cronyist regulation are instead transported over land. The next time you’re stuck in traffic, thank crony capitalism.
The benefits of the Jones Act accrue, naturally, to U.S. shipbuilders.
The waiver being debated inside the White House would ease the flow of U.S. natural gas to the northeast, which isn’t served by enough pipelines, and would lower energy costs in Puerto Rico, which is seeking a ten-year reprieve from artificially high energy prices cause by the Act. Puerto Rico would like to receive deliveries of liquefied natural gas from non-U.S.-flagged ships.
Bizarre and troubling consequences of the Jones Act, from Bloomberg: “Russian [liquefied natural gas] was delivered to Massachusetts last year to help supply consumers in the Northeast U.S. And inland oil refiners argue requirements to use U.S.-flagged vessels boost the costs of obtaining raw crude, effectively subsidizing foreign competitors.” And all this happened during a period of time with U.S. domestic natural gas production has been very high.
The president should grant the Jones Act waiver.