George Will writes in his column today about the importance of the Port of Charleston – and by extension, trade – to the economy of South Carolina. Recent completion of the 10-year project to widen the Panama Canal to accommodate more traffic and passage of a new class of container ships with nearly triple the capacity of their immediate predecessors has exposed a logistics snafu that could cost South Carolina’s economy billions of dollars: Charleston Harbor is too shallow to accommodate these much larger, “Post-Panamax” ships efficiently (only limited sections of the harbor are deep enough and only during high tide).
According to the American Society of Civil Engineers, these vessels can lower shipping costs from 15-20 percent, but harbors need to be at least 47 feet deep to accommodate them. The U.S. Army Corps of Engineers reports that only seven of the 44 major U.S. Gulf Coast and Atlantic ports are “Post-Panamax ready.” American ports must be modernized if the United States is going to continue to succeed at attracting investment in manufacturing and if U.S. companies are going to compete successfully in the global economy.
As I wrote in the Wall Street Journal last year:
The absence of suitable harbors, especially in the fast-growing Southeast, means fewer infrastructure- and business-development projects to undergird regional growth. It also means that Post-Panamax ships will have to continue calling on West Coast ports, where their containers will be put on trucks and railcars to get products from Asia to the U.S. East and Midwest—a slower and more expensive process.
The problem can be traced to one major issue: funding. And that issue is made more complicated by another problem: protectionism. Most funding of infrastructure inevitably come from federal and state budgets – taxpayers, who should have a voice in the debate about whether these infrastructure projects constitute wise public investments. But a couple of long-standing, though obscure, protectionist laws have conspired to reduce capacity in dredging services, ensuring that projects take twice as long and cost twice as much as they should.
As I wrote in the WSJ:
This capacity shortage is the result of the Foreign Dredge Act of 1906 and the Merchant Marine Act of 1920 (aka the Jones Act). These laws prohibit foreign-built, -chartered, or -operated dredgers from competing in the U.S. The result is a domestic dredging industry that is immune to competition, has little incentive to invest in new equipment, and cannot meet the growing demand for dredging projects at U.S. ports.
For the next few years, federal, state and local government spending on dredging is expected to be about $2 billion annually. That spending will be supplemented by investments from U.S. ports and their private terminal partners to the tune of $9 billion a year to build and upgrade harbors, docks, terminals, connecting roads and rail, and storage facilities, as well as to purchase cranes and other equipment. There would be a lot more of these job-creating investments if European dredging companies were allowed to offer their services.
The Transatlantic trade talks offer a great opportunity to fix this problem. The best dredging companies in the world are European, mainly from the low-lying countries of Belgium and the Netherlands, where mastery of marine engineering projects has been developed over the centuries.
Industry analysts at Samuels International Associates estimate that European dredgers could save U.S. taxpayers $1 billion a year on current projects, and enable more projects to be completed more quickly. The European Dredging Association boasts that its member companies win 90% of the world’s projects that are open to foreign competition.
In a global economy where capital is mobile, workforce skills, the cost of regulation, taxes, energy costs, proximity to suppliers and customers and dozens of other criteria factor into where a company will invest. And for companies with transnational supply chains, transportation costs are crucial considerations.
Today the U.S. is falling behind…
Over at Café Hayek today, Don Boudreaux assesses Will’s piece and offers an excellent analogy between administrative protectionism (tariffs and the like) and physical protectionism (harbor disrepair), which reminded me of this masterful passage from Fredric Bastiat equating tariffs and physical impediments to trade with sweeping brilliance and simplicity:
Between Paris and Brussels obstacles of many kinds exist. First of all, there is distance, which entails loss of time, and we must either submit to this ourselves, or pay another to submit to it. Then come rivers, marshes, accidents, bad roads, which are so many difficulties to be surmounted. We succeed in building bridges, in forming roads, and making them smoother by pavements, iron rails, etc. But all this is costly, and the commodity must be made to bear the cost. Then there are robbers who infest the roads, and a body of police must be kept up, etc. Now, among these obstacles there is one which we have ourselves set up, and at no little cost, too, between Brussels and Paris. There are men who lie in ambuscade along the frontier, armed to the teeth, and whose business it is to throw difficulties in the way of transporting merchandise from the one country to the other. They are called Customhouse officers, and they act in precisely the same way as ruts and bad roads.