Skip to main content
Menu

Main navigation

  • About
    • Annual Reports
    • Leadership
    • Jobs
    • Student Programs
    • Media Information
    • Store
    • Contact
    LOADING...
  • Experts
    • Policy Scholars
    • Adjunct Scholars
    • Fellows
  • Events
    • Upcoming
    • Past
    • Event FAQs
    • Sphere Summit
    LOADING...
  • Publications
    • Studies
    • Commentary
    • Books
    • Reviews and Journals
    • Public Filings
    LOADING...
  • Blog
  • Donate
    • Sponsorship Benefits
    • Ways to Give
    • Planned Giving
    • Meet the Development Team

Issues

  • Constitution and Law
    • Constitutional Law
    • Criminal Justice
    • Free Speech and Civil Liberties
  • Economics
    • Banking and Finance
    • Monetary Policy
    • Regulation
    • Tax and Budget Policy
  • Politics and Society
    • Education
    • Government and Politics
    • Health Care
    • Poverty and Social Welfare
    • Technology and Privacy
  • International
    • Defense and Foreign Policy
    • Global Freedom
    • Immigration
    • Trade Policy
Live Now

Cato at Liberty


  • Blog Home
  • RSS

Email Signup

Sign up to have blog posts delivered straight to your inbox!

Topics
  • Banking and Finance
  • Constitutional Law
  • Criminal Justice
  • Defense and Foreign Policy
  • Education
  • Free Speech and Civil Liberties
  • Global Freedom
  • Government and Politics
  • Health Care
  • Immigration
  • Monetary Policy
  • Poverty and Social Welfare
  • Regulation
  • Tax and Budget Policy
  • Technology and Privacy
  • Trade Policy
Archives
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009
  • July 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • February 2009
  • January 2009
  • December 2008
  • November 2008
  • October 2008
  • September 2008
  • August 2008
  • July 2008
  • June 2008
  • May 2008
  • April 2008
  • March 2008
  • February 2008
  • January 2008
  • December 2007
  • November 2007
  • October 2007
  • September 2007
  • August 2007
  • July 2007
  • June 2007
  • May 2007
  • April 2007
  • March 2007
  • February 2007
  • January 2007
  • December 2006
  • November 2006
  • October 2006
  • September 2006
  • August 2006
  • July 2006
  • June 2006
  • May 2006
  • April 2006
  • Show More
June 25, 2020 11:57AM

Has the Federal Government Preserved U.S. Shipbuilding Vitality? Or Sapped it?

By Colin Grabow

SHARE

A recent New York Times feature about the construction of containerships contains the following passage regarding the state of the U.S. shipbuilding industry:

In the United States, large shipyards have been on the decline for decades, losing out on orders for massive commercial ships to cheaper foreign competition. Today, more than 90 percent of global shipbuilding takes place in just three countries: China, South Korea and Japan.

What industry does remain in the United States is supported by the federal government, which orders American‐​made ships of all kinds, from Coast Guard cutters to naval aircraft carriers. The industry is also protected by a century‐​old law, the Jones Act, which requires that people and goods moving between American ports be carried on ships owned and operated by U.S. citizens and built domestically.

The federal involvement has helped to preserve the vitality of the 124 remaining active American shipyards, which, according to government estimates, contribute more than $37 billion in annual economic output and support about 400,000 jobs.

According to the article, domestic shipbuilding is “protected” by the Jones Act and “supported” by the federal government. This federal involvement, the article adds, has “helped to preserve the vitality” of remaining U.S. shipyards. But the reality is closer to the opposite. Rather than vitalizing U.S. shipbuilding, the federal government has helped vitiate it. Washington’s meddling in this sector has contributed mightily to its downfall.

Efforts by the federal government to boost the fortunes of U.S. shipbuilding are longstanding. For most of U.S. history, even before passage of the 1920 Jones Act, waterborne domestic commerce has been restricted to vessels built in the United States. And until 1912 even U.S.-flagged ships engaged in foreign commerce had to be domestically built. Yet U.S. shipbuilding has been uncompetitive and in decline since the mid‐​1800s.

This is not a coincidence.

The foundation of competitiveness is competition, but protectionism thwarts competitive pressures and incentives to improve and innovate. A sector shielded from foreign competition will not be competitive almost by definition.

The U.S. shipbuilding industry offers a textbook example of this dynamic. So long as ships were made of wood and powered by sail, American shipbuilders—with easy access to ample supplies of timber—found themselves able to compete. Once such vessels gave way to a new era of iron and steam, however, domestic firms failed to keep pace.

Evidence of this inferiority abounds in the historical record. One government report, for example, notes that while England and Scotland were developing more efficient screw propellers for ocean ships in the 1800s, Americans were still using “paddle wheelers” of the type that used to be common on the Mississippi River. By 1900, when countries such as the United Kingdom, the Netherlands, Germany, and Spain had at least 70 percent of their shipping tonnage under steam power, a majority of the U.S. fleet was still under sail. At the turn of the century, nearly 80 years after the first sea voyage by an iron steamship, fully half of the U.S. fleet was still built of wood.

The high prices charged by these protected shipyards surely served as an obstacle to a modernized fleet. As a 1901 government report points out, one shipping firm that had identical vessels built in U.K. and U.S shipyards were charged $1,419,120 in the former and $1,846,800 in the latter—a price 30 percent higher.

None of this should surprise. Why would U.S. shipyards strive to build the most technologically advanced ships at the lowest prices when handed a captive market? Why try to be the best when not forced to compete against the best? Writing in the maritime publication Proceedings in 1882, Lieutenant R. Wainwright of the U.S. Navy clearly identified the counterproductive role of protectionist maritime laws forbidding the use of ships built abroad:

Some [of these laws] are injurious without any apparent excuse for their existence, such as those preventing the investment of foreign capital in American vessels. Others have been passed in order to benefit some other business; such as prohibiting the American flag to any but American‐​built ships. This was done in the interest of the shipbuilders, and has aided in crushing them (emphasis added).

The protectionist smothering of U.S. shipbuilding continues today. Even more uncompetitive than when the Jones Act was enacted, U.S. shipyards currently produce a mere handful of commercial ships at prices up to 400 percent higher than those built in other countries. As discussed in a November 2019 policy analysis, this is a predictable result of maritime protectionism under the Jones Act. By building for the small, captive U.S. shipbuilding market rather than the much larger international market, U.S. shipbuilders are incentivized away from specialization and economies of scale. High costs and technological inferiority are the inevitable consequence.

That the federal government offers a steady stream of shipbuilding contracts—accounting for 70 percent of industry revenue in 2015—only compounds matters. As then‐​Secretary of Transportation Alan Boyd testified before Congress in 1967, “you do not revitalize an industry by flooding it with federal dollars and imprisoning it within a wall of protection.”

U.S. commercial shipbuilding offers an object lesson in the dangers of protectionism and a reminder that such policies are not only bad for consumers, but often also the very industries they are ostensibly meant to help. These federal interventions are not a vitalizing force, but a corrosive one that undermines invention and promotes complacency. No revival of this sector will be possible until Washington’s role in the downfall of U.S. shipbuilding is properly recognized.

Related Tags
Jones Act, Trade Policy, Herbert A. Stiefel Center for Trade Policy Studies

Stay Connected to Cato

Sign up for the newsletter to receive periodic updates on Cato research, events, and publications.

View All Newsletters

1000 Massachusetts Ave. NW
Washington, DC 20001-5403
202-842-0200
Contact Us
Privacy

Footer 1

  • About
    • Annual Reports
    • Leadership
    • Jobs
    • Student Programs
    • Media Information
    • Store
    • Contact
  • Podcasts

Footer 2

  • Experts
    • Policy Scholars
    • Adjunct Scholars
    • Fellows
  • Events
    • Upcoming
    • Past
    • Event FAQs
    • Sphere Summit

Footer 3

  • Publications
    • Books
    • Cato Journal
    • Regulation
    • Cato Policy Report
    • Cato Supreme Court Review
    • Cato’s Letter
    • Human Freedom Index
    • Economic Freedom of the World
    • Cato Handbook for Policymakers

Footer 4

  • Blog
  • Donate
    • Sponsorship Benefits
    • Ways to Give
    • Planned Giving
Also from Cato Institute:
Libertarianism.org
|
Humanprogress.org
|
Downsizinggovernment.org