The Jones Act, which requires the use of American vessels and crews for all shipping within the United States and its territories, has been on the books for nearly a century. It is a classic case of rent seeking, with benefits concentrated on a few special interests and costs spread widely among consumers, who are often unaware of how the Act affects them. As with most such schemes, the total costs far outweigh the benefits.
This year, a series of hurricanes have brought the Jones Act into the news, creating an opportunity for repeal or reform. After Hurricanes Harvey and Irma, Florida and Texas were granted temporary waivers of the Jones Act to move relief supplies, even though the impact of the Act was minimal, since surface transportation alternatives were available. Puerto Rico’s case was much more serious, since there are no surface alternatives. The President granted Puerto Rico only a ten-day waiver the Jones Act following Hurricane Maria, a window that was too short to organize effective transportation of relief supplies by non-American ships. In some case, complying with the Jones Act can double the price of goods delivered to Puerto Rico.
Of the many commentaries on the Jones Act that have appeared this year, the best economic analysis I have seen is one by Prof. Thomas Grennes of North Carolina State University, published in July by the Mercatus Center. Last week Mercatus published a follow-up in which Grennes replies to critics of the original paper and addresses hurricane-related issues.
According to Grennes,
The Jones Act is a curious survivor from the mercantilistic period when governments heavily regulated most economic activity. . . By reducing competition for shipping services, the Jones Act has imposed large net costs on the US economy. The negative effects of the act on the contiguous 48 states have been reduced somewhat by the development of alternative modes of transportation. However, geography limits the noncontiguous regions from using these substitute modes of transportation, and consequently the act has done the most damage to Hawaii, Alaska, Puerto Rico, and Guam.
In principle, Grennes favors full repeal of the Jones Act. However, he also discusses partial reforms. One such measure would be to permanently exempt noncontiguous regions from all requirements of the Act. Another would be to lift the Act’s requirement that qualifying carriers use only American-built ships, which cost far more than those built elsewhere.