While America has been spearheading free trade agreements all around the world (not without pushback), the country can still boast certain very restrictive trade laws of its own. The Jones Act, a section of the 1920 Merchant Marine Act, mandates that only US-built and -flagged boats can transport goods between American ports. Such a provision has had all sorts of negative consequences. Among them, it has made US shipbuilders less competitive compared to other countries. One estimate notes that US-built vessels cost four or five times more than their Japanese, Korean or Norwegian counterparts. Furthermore, these added costs end up distorting advantages the US enjoys. For example, the discrepancy in costs between the US and Japan continues to exist even though the former can count on both cheaper labor and inputs.
Recently, the Jones Act, however, has attracted attention for its role in the evolving US energy revolution. While there have been recent signs that America’s oil and gas infrastructure has been catching up with increased production, transportation inefficiencies of all sorts have blunted the revolution’s effects, leading to bottlenecks and gluts. Edward Morse, the Global Head of Commodities Research at Citigroup, estimates that the Jones Act adds $6 to $8 to transportation costs per barrel and has called the artificially tight ship supply “a problem.”
As this recent CNBC article suggests, the Jones Act has also made ripples in the downstream aspects of the business. Joe Hemlich, the chief economist of trade group Airlines for America notes that because of the transportation restrictions major airports including Boston, San Francisco and Los Angeles pay a premium for fuel compared to Washington DC and Atlanta. “What this means,” he adds, ” is either a downward pressure on the amount of service we can offer or an upward pressure on price.”
Supporters of the Jones Act argue that the law has served its purpose in maintaining the security of the country’s shores and encouraging the creation of America jobs. As an April Maritime Executive article notes,
Must “free trade” mean total access by foreign carriers to America’s coastlines and inland arteries? Yes, Grandma will pay an extra dollar for the iron at Walmart because freedom is not free and the world is a dangerous place. And these two laissez-faire proponents should do a little more research on world affairs and understand that what America needs now are jobs because the Great Recession is not over.
Thus far, the Jones Act has survived in part because of its obscurity to the general public. But, as America’s oil and gas production increases and the general population fails to enjoy its full advantages, Grandma will not be willing to pay the “extra dollar” at the pump and public furor will shake up the old law.
Image Credit: Jim Champion (CC BY-SA 2.0)