August 23, 2018 3:00PM

A Feeble Defense of the Jones Act

Rep. Duncan Hunter is not pleased with the Cato Institute’s efforts to repeal the Jones Act. Taking notice of a recent op-ed I penned criticizing the California congressman’s support of this costly law, Hunter took to the pages of the same newspaper last weekend to defend his stance. It’s worth reviewing the piece in full, as it recycles several arguments typically offered in support of the Jones Act—and exposes some glaring weaknesses.

Hunter begins his defense of the Jones Act by disputing accusations that the law negatively impacts Puerto Rico’s economy:

Like many opponents of the Jones Act, the CATO Institute attempts to conflate this 100-year old law with the struggles of Puerto Rico’s economy. They repeat the same tired argument that the Jones Act is responsible for high prices and economic instability, going so far as to make the ridiculous implication that the Jones Act adds $5 to the cost of a pint of ice cream.

A recent economic study disputed these price discrepancies but if concerns remain, it is important to recognize that Puerto Ricans have other options. Most of the ships that call on Puerto Rico are foreign flagged and current law allows them to deliver as many goods from foreign ports as Puerto Ricans can consume. A 2013 Government Accountability Office Study failed to conclude that removing the Jones Act would benefit Puerto Rico and, in fact, acknowledged that the regulation provides a number of advantages. Other studies have found that the Virgin Islands — approximately 100 miles from Puerto Rico — has no Jones Act requirement, but has higher shipping prices than Puerto Rico from the mainland.

There’s a lot to unpack here, but let’s begin by noting that the “recent economic study” Hunter refers to was funded by a pro-Jones Act special interest group with a questionable methodological approach. Pointing out that Puerto Ricans have options for obtaining needed goods that are not subject to the Jones Act, meanwhile, is essentially telling them to eat cake. The rest of the United States is, by far, Puerto Rico’s largest trading partner. Simply doing business with other countries instead of the world’s largest economy with which Puerto Rico shares deep political and cultural links is oftentimes not a feasible option.

But that doesn’t mean Puerto Ricans don’t try to hunt for cheaper alternatives. The 2013 GAO report cited by Hunter highlights numerous examples of this dynamic, including farmers who purchase feed from Canada instead of New Jersey due to lower shipping costs and the sourcing of jet fuel from Venezuela rather than domestically for the same reason.  

As for the fact that shipping rates are higher to the U.S. Virgin Islands than Puerto Rico, this is an apples to oranges comparison. The U.S. Virgin Islands have a population and economy roughly 30 times smaller than Puerto Rico. With its smaller size comes smaller trade flows, smaller economies of scale, and reduced efficiency in servicing this market that is reflected in higher transport costs.

Hunter then pivots from discounting the Jones Act’s economic cost to Puerto Rico to highlighting its alleged national security benefits:

In a time of war, without the Jones Act, quickly rebuilding our shipyard industrial base would be next to impossible and training the American merchant mariners to man ships would take precious time we will not have. Instead, we would have to rely on shipyards overseas to supply our ships and we would likely have to pay foreign mariners to operate those ships. Is this really a position in the best national security interest of our nation?

We can have the strongest military in the world, but without the ships and U.S. merchant mariners to bring supplies to service members overseas, our capabilities would be severely limited, a position acknowledged by Gen. Darren McDew, Commander of U.S. Transportation Command.

The reality is that the Jones Act has presided over the steady decline of the U.S. shipyard industrial base. Since the early 1980s the United States has lost more than 300 shipyards. It’s a statistic Hunter should be familiar with given that it was mentioned on several occasions during a 2013 congressional hearing that he chaired. Furthermore, claims that the United States would be forced to rely on foreign shipyards without the Jones Act overlooks the existing reliance on foreign components and know-how to produce the few and vastly overpriced commercial ships that emerge from American shipyards.

Dependence on foreigners to support the U.S. military, meanwhile, is a description of the status quo. When the United States found itself needing to quickly transport vast amounts of equipment and war matériel to Saudi Arabia following Iraq’s invasion of Kuwait, foreign-flagged and crewed ships played a key role. According to the U.S. Transportation Command’s official history of its role in that conflict, 26.6 percent of total unit cargo was carried by foreign-flagged vessels.

While Jones Act supporters claim that the law assures the United States of ready access to ships and merchant mariners in times of war, the Pentagon found its transport capabilities so strained during that conflict that it twice requested the use of a transport ship from the Soviet Union—and was rejected both times. On the mariner front, the United States was forced to press two octogenarians into service and one 92-year-old sailor. Turning to the present day, meanwhile, the U.S. Maritime Administration published a 2017 report which, in its own words, “documents a deficit of mariners with unlimited credentials to meet the national security and force projection needs.”

Hunter continues in a similar vein:

The Jones Act also improves our safety and security. Rather than having unvetted foreign workers sail ships on our inland waterways, the Jones Act mitigates safety risks by ensuring that vessels are operated by U.S. mariners only.

Pure demagoguery. Foreign mariners already operate in U.S. waters on a daily basis and present no established threat. As a 2011 GAO report noted, overwhelmingly foreign maritime crews already make millions of entries into U.S. ports each year and yet there has never been a reported terrorist attack involving one of these seafarers. What reason is there to think these same foreign mariners would suddenly become a menace if permitted to operate on inland waters?

Furthermore, Hunter is factually wrong. Foreign mariners are already allowed to work on Jones Act vessels, with the minimum number of American crew set at 75 percent, not 100. As for safety, let’s note that it was a Jones Act ship with an American captain, the Exxon Valdez, that is responsible for one of the worst environmental disasters in U.S. history.

Congressman Hunter concludes with some comments about the Jones Act’s economic impact:

The Jones Act also provides significant economic benefits, including here in Southern California. The thousands of Jones Act vessels support nearly 500,000 domestic jobs with nearly $100 billion in economic impact.

The fact is, there are cheaper places to build ships than the United States, and I am sure that there are plenty of Chinese shipyards with cheap Chinese steel eager to undercut ones here at home. I am also sure we could find cheaper foreign workers to operate the ships currently sailed by Americans.

If building the cheapest ship manned by the lowest paid workers is the end goal, then by all means, let’s get rid of the Jones Act. If you are like me, and you value good paying U.S. jobs in American Shipyards and the Americans who can man those ships in times of conflict, then the Jones Act is clearly worth protecting.

By acknowledging that Americans could buy ships at lower cost abroad—as much as eight times cheaper—Hunter essentially concedes that the law imposes a significant economic cost. Paying vastly more to obtain the same good is the path to impoverishment, not prosperity. The secret to economic growth and an improved standard of living lies in increased efficiency and doing more with less. By blocking Americans from lower-cost alternatives, the Jones Act does the opposite.

The national security advantages we allegedly receive in exchange for the Jones Act’s price tab, meanwhile, are a figment of the imagination. If anything, the law makes us less secure, not more.

The Jones Act isn’t working. Its promised benefits have failed to materialize while the law imposes significant burdens on the U.S. economy. The time for its repeal is long past due.