POLITICAL OPINIONS# 57: JONES ACT

INTRODUCTION

In recent years, the prevalence of protectionist economic policies has increased with the Trump administration. President Trump campaigned during 2016 presidential election under the slogan of “America First”. Such a broad statement leaves a load desire in a summary of a campaign platform.  However, it is certainly a slogan that is concise and appealing, like most political slogans.  “ America First” is not only a simple saying but reflects a paradigm shift in regards to foreign policy and economics. If interpreted from a superficial standpoint, it could be viewed as a sentiment of supporting American exceptionalism. The cynics in the room would be more apt to be rightfully dubious of such assertions in the absence of concrete evidence. Is it really a substantiation of American exceptionalism to forlorn capitalism for protectionist trade policy? Capitalistic trade between the United States and foreign trade allies is a big part of what has made the United States an economic superpower in the past. Considering the interconnected and global nature of the current economy, it seems unrealistic that isolationist trade policies could be anything but detrimental. In light of the decades of rises in labor costs and production regulations, it was inevitable for globalism to come about. Outsourcing labor has helped facilitate competitive pricing in the market.

 

I understand that many may be disgusted that I am speaking of outsourcing in such a positive light, but there are often two sides to every coin.  As a nation’s economy becomes more technologically advanced certain occupations become obsolete. Many of the manufacturing jobs are outmoded when compared to the skill set of the majority of the United States, keeping these jobs domestic is only increasing the MSRP  of the goods. Many who voted for Trump, rather than adapting to the demands of the market, want to utilize government intervention as recourse to artificially reorient the market. The Trump has attempted to make such corrections through import tariffs. Using such methods will only hurt more consumers when compared to the minuscule number of jobs it will save. I would surmise that the overall cost of living is high enough without artificial measures raising the costs. Merely to appease a minority the American population.

 

Needless to say, I am far from a proponent of protectionist economic trade policies and can see nothing other than peril and illusion in them. They always seem great on the surface; however, they tend to only exacerbate current economic issues. Now that I have demonstrated for purposes of transparency my biases in regard to trade policy, I feel that I can proceed. It is clear that I am a free trade absolutist, however, I will try to provide both sides of the argument for the Jones Act in as impartial of a manner as I have the capacity for. In order to become a better thinker, I will attempt to provide an even account of the positive and negative attributes of the Jones Act. However, I do not see how place economic constraints on the United States is putting “America First”. My instinct is to view such rhetoric as smoke and mirrors, however, it is important I do not let my incredulity override this blog entry.

 

WHAT IS THE JONES ACT?:

 

Many of you who are not privy to contemporary American trade policy may have never heard of the Jones Act.  This piece of legislation has remained relatively obscure and would be a periodical talking point on the Senate floor garnering little publicity. However, since the Hurricane Maria hit the U.S. territory of Puerto Rico and President Trump acted against his protectionist campaign platform and temporarily waived it to assist with disaster relief, the issue has become more prevalent over the past year [1]. While not a typical mainstay on the stage of political commentary the policy is far from new. It harkens back to the isolationism of President Woodrow Wilson. The Jones Act was a subclause of the  Merchant Marine Act of 1920 under the article: (46 U.S.C. § 30104).  The original intent of this article of the  Merchant Marine Act of 1920 was to protect shipping industry of the United States against foreign competition and to provide a provisional naval auxiliary in times of war [2]. The original intentions of this legislation were certainly reflective of the political climate and sentiments of the  Woodrow administration.  It provides a similar purview into the political climate of the time in a similar manner as the Trump admiration’s trade tariffs. Sometimes the policies of a specific era are reflective of the circumstances specific to that time in history. Throughout America’s history, we have gone through several periods of economic and diplomatic isolationism for a litany of various reasons.  In the future, historians maybe expounding the Trump era import tariffs as a reactionary policy to country job outsourcing and lack of domestic production. Analogous to how I am reflecting upon the Jones Act now.

 

While we have above we have an overview of the Jones Acts, but we have not addressed the parameters of the legislation. As implemented how does this act seek to protect the American shipping industry? How this statute works to protect American Shipbuilders and carriers through making it illegal for foreign ships to move American goods from U.S. port to U.S. port. The vessel needs to be American built, be American owned, have American Crew manning the vessel and be masked with an American flag [3]. However, contrary to popular misconception, a foreign vessel can make landfall on one port and then discharge at another if it is all foreign freight. I use to work for a Steamship Line where we had a vessel schedule where the U.S. bound ships would discharge cargo at Port of Long Beach and then move up the coast to the Port of Oakland.  Such vessel rotations are legal by the fact this routing was for the discharge of imported freight.  However, if Matson ( one of the few Steam Ship Lines to service Hawaii, I believe) would be prohibited to move freight from Hawaii to Alaska with a Korean built ship. Please note that the U.S. built a ship and American crew is also applicable to commercial fishing in U.S. waters [3]. While the Jones Act is currently a valid statute, it can be temporarily suspended to assist with FEMA aid in times of emergency [4].

 

 

ARGUMENTS FOR THE JONES ACT:

 

The 2017 Forbes Article, Why Repealing The Jones Act Could Be A Disaster For The U.S., provides 4 core arguments in favor of the Jones Act.

1.       Without the Jones Act, The Navy would need to spend many billions of on New Sealift vessel.

The Author Loren Thompson asserts that the navy would need to invest in more vessels during the time of war. Versus appropriating commercial vessels for the transportation of military cargo. 36 percent of U.S. masked ships are utilized on the Jones Act protected routes. If repealed these ships could be registered in other countries pushing the Navy to obtain new ships.

2.       Without the Jones Act, The Navy would be Hard-pressed to crew the sealift vessels it already has.

While vessels can be commissioned, retired, and re-commissioned, the same cannot be said for the crew. Approximately 90 percent of all mariners work on trade routes supported by the Jones Act. Without the Jones Act, the Navy would not have a trained pool of civilian sailors to assist in times of national emergency.

3.       Without the Jones Act, U.S. Construction of Large Commercial Vessels would Cease.

Per the article, “1981, the Reagan Administration abolished the “construction-differential subsidy” provided to domestic shipyards without seeking reciprocity from other shipbuilding nations.”.  Reducing overall U.S. ship production to 1 percent of all the world’s large capacity commercial ships. Repealing the Jones Act would completely destroy the shipyards in the U.S.

4.       Without the Jones Act, foreign ships and mariners would take over critical U.S. economic infrastructure.

The vast majority of steel is transported via the Great Lakes in the interior of the United States. To relinquish the interior waterways to foreign sailors and ships would posse risks to national security.

 

[5]

 

ARGUMENTS AGAINST THE JONES ACT

 

While many of the concerns expressed in the article mentioned above are valid, there are always two sides two every story. It is reasonable to want to hold national security and domestic job security in high regard. However, do any of these benefits come with any drawbacks and if so are they more costly than the benefits. I will be the first to mention it is hard to get an unbiased answer to these questions from most written sources. The author is either discrediting the Jones Act or sing its praises, neither perspective genuinely neutral. The article I am going to reference the arguments against the Jones Act was written by the Cato Institute. It is a very well researched and extensive article. The one caveat is that it is overwhelmingly in opposition to the Jones Act and is such an extensive article I am only referencing a portion of it. I welcome my readers to view the article in its entirety, just check out the website link in the footnotes.  Just beware the Cato Institute is a libertarian-leaning public policy research organization.  There is a certain pejorative (at least in my eyes) term that can be applied here as well (Think tank,  public policy research organization= think tank). I apologize if my dry attempts at humor are not too captivating.  For the sake of brevity, let’s look at the 4 ways that the article addresses how the Jones Act has been an economic burden to the United States.

 

Prior to getting into the specific ways the Jones Act adversely affects the U.S. economy, we should look at past research done the legislation’s ramifications.  There were a few studies conducted over the 1990’s by U.S. International Trade Commision that estimated that “… $656 million to $9.8 billion…” [6].   U.S. International Trade Commission has not provided any follow-up estimates regarding overall costs of the Jones Act. However,  this only seems to ignore true economic consequences for the United States. The costs impact lost revenue,  Environmental costs, Transportation costs, and Infrastructure cost.

 

  1.  Lost of Domestic Revenue

The decrease in domestic revenue engendered by the Jones Act is evident in several various ways. The emphasis on the utilization of domestic carriers increases costs while diminishing profit margins. Even when the cost of the commodity is approximate to its foreign counterpart it is the costs of the domestic carrier or vessel that makes foreign carriers more advantageous. For example, cattle ranchers in Hawaii route their ocean shipment through Canada and even utilizing air freight solutions. These options may work in the short term they overall reduce potential profits. In general, the costs of using Domestic carriers reduce profits at home.

It also should be considered the amount of oil that the U.S. territory of Puerto Rico, imports from Venezuela versus from domestic oil reserves. It costs a mere $2 per a barrel to ship oil from Gulf Coast to Eastern Canada. In contrast, a Jones Act compliant vessel it would cost approximately $6 per a barrel to ship from the Gulf Coast to Northeastern U.S.  A 1999 study conducted by the Government  Accountability Office found that the Jones Act exempt oil shipping route from Northern Alaska to U.S. Virgin Islands  cost three times less than from the Gulf Coast. Even though this route which encompasses taking a circuitous route which takes twice as long. [6].

 

2. Environmental Costs

The environmental costs of the Jones Act are more oblique and peripheral consideration, but a still valid cause of concern. Many goods that could be transported by ship through interior waterways (for example the Mississippi River) are done so by truck. The World Wide Shipping Council cites that marine transport of goods is the most efficient mode of transport in regards to carbon emissions. Carbon Emission being a major contributing factor to air pollution.  Transportation by ship produces merely:

“….10-40 grams of carbon dioxide to carry one ton of cargo one kilometer. In contrast, rail transport produces 20-150 grams, and trucking — whose tonnage is forecast to grow 44 percent by 2045 according to the Department of Transportation — produces 60-150 grams” [6]

While environmental detriment inflicted by the Jones Act tends to be more of an implicit cost. There are more explicitly monetary costs that result from this increase in air pollution. The cost of carbon emissions from vehicles idling in traffic is estimated reach $7.6 billion dollars by 2030 (from 2013 to 2030). Many of these losses in money and productivity manifest themselves in environmental improvement initiatives and other countermeasures.

[6].

3.  Transportation Costs

It can be said that the Jones Act has artificially increased domestic shipping costs by eliminating competition. The requirements of having a U.S. built a ship, U.S. Manned crew, U.S. Owned, and have the vessel registered in the United States restricts the number of potential vendors. Lifting many of the Jones Act requirements it would increase the number of vendors that could service the interior waterways of the U.S.  By increasing the number of vendors to service  U.S. ports it would decrease shipping costs. Beyond the principles of supply and demand, the costs are also impacted by higher than average operating costs. 2010 study found that the operating cost of U.S. commercial vessels was 2.7 times higher than that of foreign vendors.  The daily operating cost for U.S. Commercial vessel is estimated to be $20,053 per day. It is also surmised that 68 percent of that cost is related to to the crew versus 35 percent of daily operation costs for foreign vessels. [6].

 

4. Infrastructure Costs

Utilizing land-based modes of transportation of goods cause wear and tear on our countries in-land infrastructure. The obvious consequence of this are the costs of maintenance and repair on our roads and railways. Similar the Environmental costs the Infrastructure costs tend to get obscene by some of the more salient repercussions of the Jones Act. Per 2014 Congressional Office Budget Report annual capital spending on highways encompassed $93 billion and $73 billion for operations and maintenance.  The article also mentions how commercial trucks account for 10 percent of total highway traffic, but 75 percent of maintenance costs. It was also suggested that road maintenance amounted to approximately  23 percent of the total federal deficit.  While infrastructure is a necessity, if it is possible to alleviate unnecessary weathering, it would certainly be fiscally responsible and prudent to do so.  [6].

 

DISCUSSION:

 

I apologize for my ire-filled rant spanning two paragraphs in the introduction, it was not based on facts, but rather on my strong convictions on economic policy. I choose to keep those two judgemental and aimless paragraphs in for a reason.  Too often we are susceptible to faulty thinking and faulty logic. In the age of wanton social media consumption, we all have the propensity to be enveloped by our own self-indulgent echo-chamber. However, my diatribe against protectionism does have some truth attached to the visceral reaction. The ” America First” policies are all too often what all political slogans are, a marketing campaign. There is little thought or practical policy data that goes into the formation of these slogans. What is truly vexing about them is that they are often giving the constituency faith in broad abstract ideas that are short-sighted.  These slogans such as ” America First” or ” Change we can believe in” are short and are very salient.  Often the campaign platform for a political candidate represents the vague sentiment but fails to truly demonstrate who these policies will be effective. Nevermind the process of implementation. Personally, I feel that President Trump was merely trying to appease and tap into a forlorn constituency that is looking to survive for today versus contemplating the consequences of tomorrow.

 

When placed in a similar position as the rust belt demographic  Trump voter you do not have the luxury of analyzing the facts nor inoculating yourself against faulty logic.  I personally feel that the “America First” mantra is not inherently pernicious,  but is misguided. While I really attempted to see the value in trade tariffs and Byzantine trade regulations such as the Jones Act, I do not see much value. While such policies are superficially appealing to some they are abjectly shortsighted. When I really look at the significant amount of data in regards to the overall costs to the United States for protectionist policies, such as the Jones Act, it is impossible for me to support such measures. I really attempted to see the other side of the issue, however, I cannot reasonably do so. The opposition to the Jones Act seems to be armed with more hard data in regards to the economic effects. While the proponents tend to base their arguments on the hypothetical. Unless someone can tell me when the provisions of using commercial ships to supplement our naval fleet have been advantageous, I can only see it has a strawman argument. Then again, I could be wrong. That one highly improbable hypothetical consideration is not enough of practical concern to justify the Jones Act. Especially when faced with the significant costs engendered by the Jones Act.

 

In actuality how many American Jobs were precisely preserved by the Jones Act? I tried to find statistics on how many Americans are estimated to work as Merchant Marines. The main occupation that would be preserved by the Jones Act and would speculate that constitutes a small percentage of American Jobs. The jobs that are saved by this legislation is only a minute fraction of jobs, it is a relatively small segment of the job market. I do not see how the gargantuan economic costs are outweighed by the small number of jobs that are saved. I will dedicate an entire blog entry to address whether or not Jones Act achieves its ends as a national security measure.

 

So far we have only examined the broader aspects of the Jones Act that do not directly impact the average person. While conducting my research for this topic I came across a lot of information on how Jones Act has impacted the cost of living in Hawaii. Per the Grassroots the cost of living is 12 percent higher than the average state in the country [7]. In my opinion, is an excellent parable of who protectionism hinders the United States. This policy is making the cost of living in Hawaii artificially more expensive than it needs to be. From my perspective, that isn’t helping the Americans who live in that state it is only hurting them. I would surmise that there are more people who suffer financially living in Hawaii than the number of U.S. Merchant Marines that benefit from the Jones Act.

 

 

[8].

 

 

 

 

FOOT NOTES:

 

[1]. https://newrepublic.com/minutes/145057/waiving-jones-act-wont-solve-puerto-ricos-problems-right-now

[2]. https://www.law.cornell.edu/wex/jones_act

[3]. http://www.maritimelawcenter.com/html/the_jones_act.html

[4]. https://transportationinstitute.org/jones-act/

[5] https://www.forbes.com/sites/lorenthompson/2017/10/17/maritime-security-five-reasons-the-jones-act-is-a-bargain/#7bea525d3d96

[6]. https://www.cato.org/publications/policy-analysis/jones-act-burden-america-can-no-longer-bear

[7]: http://www.grassrootinstitute.org/2017/04/the-jones-act-in-perspective/

[8]: https://www.youtube.com/watch?v=58txZlurgLk

 

 

 

 

 

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Author: invertedlogicblog

In pursuit of liberty, philosophical thought, and Austrian Economics.

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