- Since 1920, the Jones Act has mandated that all cargo transported between U.S. ports travel on U.S.-built, U.S.-crewed, and U.S.-flagged ships.
- The law was intended to build up and maintain American merchant marine capacity.
- A hundred years later, the law failed to prevent the contraction of the merchant marine and resulted in high prices for outlying territories, leading to calls for repeal.
- Reforms to the Jones Act should prioritize strengthening the naval industrial base and simplifying compliance.
Every few years, the Jones Act returns to the national spotlight. This obscure shipping provision stipulates that all water-borne commerce between two U.S. points must be conducted on U.S.-built, U.S.-flagged, and U.S.-crewed vessels. New Englanders struggling with high energy prices and Puerto Ricans awaiting hurricane relief have all felt its impact. The Act also has serious national security implications: it affects the nation’s ongoing ability to build, maintain, and crew ships and thus provide critical sealift capability during times of national crisis.
The Jones Act is an outdated industrial policy. It was intended to build up and maintain American merchant marine strength, but a century after enactment, it is clear that the law has failed to accomplish its goals. The domestic shipbuilding industry’s dwindling, high shipping costs, and delayed disaster relief have renewed calls to repeal the Jones Act.
But repealing the Jones Act alone would be shortsighted. Despite its shortcomings, the Jones Act had a worthy goal: ensuring the United States could build and man ships in times of crisis. That objective remains urgent in this time of increased competition with China, a maritime power. Deliberate reforms to the Jones Act could accomplish its original purpose while reducing undue burdens on domestic populations. Done correctly, the Jones Act reform could serve as an important example of effectively deploying industrial policy.
Section 27 of the Merchant Marine Act of 1920 required that vessels transporting cargo between two points in the United States be U.S.-built, U.S.-flagged, and owned and crewed by American citizens. The bill became known as the Jones Act after Senator Wesley L. Jones, the Washington Republican who shepherded it through Congress.
The Jones Act was designed to bolster American economic and military self-sufficiency at a time when naval capacity determined national strength. After suffering from a shortage of commercial ships during World War I, the United States sought to secure a robust merchant marine. A nimble commercial sealift supporting the military sealift was critical to American success in World War I, transporting men and materiel. The country wanted to retain this capacity for future conflicts. In times of crisis, this commercial fleet could prevent economic disruption at home and supplement the military’s need for additional sealift capacity.
The Jones Act had three goals:
- Support domestic shipbuilding and ship-repair capacity;
- Support a U.S.-controlled commercial fleet to supplement the military sealift fleet; and
- Support a U.S. merchant marine workforce qualified to crew reserve military sealift vessels.
Shipbuilding capacity is critical not just to national security but also to domestic commerce. Domestic shipping, known as cabotage, transports vital agricultural and mineral resources throughout the United States. The Jones Act was intended to bolster the domestic steel and iron industry by supporting commerce on the Great Lakes.
The Jones Act a century later
Today, the Jones Act needs to be updated to complete its intended goals. There are five main critiques of its current iteration:
1). Out of date with economic reality
The Jones Act’s economic costs are the primary reason to scrap it. The law became increasingly troublesome with the advent of multinational corporations, offshoring, and deindustrialization. Firms routinely work around its requirements, seeing it only as a burdensome regulation.
2). Does not support the domestic maritime industry
Building ships in the United States is costly due to U.S. labor and safety regulations. These result in higher capital and operating costs, leading firms to prefer foreign-built ships. As it lost global market share, the American shipbuilding industry clung onto Jones Act compliance as a lifeline, albeit one that does little to encourage innovation — or for that matter, new building. With no growth and an exceedingly durable fleet, shipbuilding is effectively a cottage industry focused on maintaining existing vessels and only rarely launching new ones.
3). Fails to advance broader national security goals
One of the Jones Act’s primary goals was to create a commercial fleet and labor pool to supplement a military sealift. As of May 2022, there were 178 U.S.-flagged oceangoing vessels, with 154 considered “militarily useful” for sealift. Only 93 of all U.S.-flagged vessels were Jones Act compliant. “Missing” ship designs, like heavy-lift vessels and liquefied natural gas tankers, hamper the fleet’s ability to provide auxiliary sealift. For context, China – the country with the largest fleet – has 5,357 vessels bearing its flag. The Government Accountability Office earlier this year noted that the sealift fleet’s poor condition and inadequate mariner training would make it difficult for the fleet to perform adequately in a contested environment if one were to emerge.
These problems are already affecting U.S. foreign policy. For example, Rep. Ed Case, a Hawaii Democrat, asked President Biden to issue a waiver to Jones Act requirements for ships delivering oil to the state in the wake of the embargo on Russia, which had been a major energy source.
4). Complicates humanitarian aid delivery during crises
Opponents of the Jones Act call for its repeal on humanitarian grounds. Noncontiguous states and territories like Hawaii and Puerto Rico bear unusually high shipping costs and routinely experience shipping disruptions when Jones Act-compliant vessels are unavailable after natural disasters.
5). Difficult to administer and ensure compliance
A century of administrative reorganization has made Jones Act governance difficult. The Department of Transportation’s Maritime Administration (MARAD) runs all maritime transportation systems; U.S. Customs and Border Protection enforces compliance; and the U.S. Coast Guard sets the standards for what qualifies as an American-made vessel. Unsurprisingly, the standards are highly technical, with formulas to determine compliance that factor in the hull and superstructure components.
Restoring American shipbuilding capacity
Jones Act reform proposals have focused on (1) repeal, (2) creating more workarounds, or (3) subsidizing manpower training while scrapping the aim of boosting industrial capacity. These piecemeal solutions address elements of the problem, but a more holistic approach is needed.
The advent of strategic competition with China – a major maritime power – provides greater urgency to rethink the Jones Act. Going into the 118th Congress, there is an opportunity to continue the bipartisan momentum on industrial policy exemplified by the CHIPS and Science Act.
Rebuilding the maritime industrial base is not a one-time project with an easy fix. There are several levers policymakers could deploy to harmonize the Act with its intended purpose:
1). Create a maritime investment corporation to fund shipbuilding and domestic waterway modernization.
Federally chartered corporations have played a key role in American economic development. These firms invest in critical industries, leveraging their status to marshal private-sector funding. Consolidating funding authority in a single entity would be more streamlined than the current patchwork of loans and grants. A maritime investment corporation would fund shipyards, port modernization, and innovative solutions to address the impact of climate change on domestic shipping.
2). Establish national shipyards to build critical commercial vessels.
A national shipyard (perhaps administered by MARAD) would build critical oceangoing Jones Act fleet vessels, resolving the current vessel shortage and supporting energy independence. Heavy-lift vessels are often used to carry oversized pieces of equipment such as wind turbine parts and are key to moving dredging fleets to project sites. Building LNG tankers would enable Jones Act-compliant vessels to ship gas to New England, lowering prices in that region, and reduce reliance on foreign vessels overall.
3). Streamline Jones Act-related humanitarian aid response.
Establishing a policy similar to Canada’s Coasting Trade Act could prioritize disaster relief from domestic vessels while incorporating foreign vessels as needed. Under the Canadian system, foreign vessels may engage in limited domestic trade after applying for a license. The act gives preference to competing offers from Canadian vessels willing to provide the same service.
4). Update the Jones Act to reflect modern supply chains and defense priorities.
Modernizing the Jones Act compliance requirements to include U.S.-made electronic systems would protect critical ship systems against malign foreign interference. Specifying that critical hardware components must be U.S.-made would prevent structural vulnerabilities from endangering ships. Conglomerates or publicly-traded firms with US operations should be required to certify that an American has operational control of their vessels in order to meet Jones Act specifications.
The Jones Act is the foundation of American maritime industrial policy. Despite its challenges, harmonizing the law’s implementation with its original purpose is a pressing goal. The 118th Congress should harness members’ bipartisan support for industrial policy and confront the China challenge to make those reforms.
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