Topic: Trade Policy

New Report Exposes Jones Act’s Flaws

Evidence of the Jones Act’s failures continues to mount. Just weeks after the release of an OECD study predicting substantial gains from the law’s repeal, the Congressional Research Service (CRS) has a new report out which places the law’s shortcomings in sharp relief.

The report’s description of U.S. shipbuilding is particularly eyebrow-raising. Rather than bolstering this sector through the Jones Act’s domestic build mandate, the CRS notes the sector has experienced a steady deterioration in competitiveness since the law’s passage:

A 1922 government report on shipbuilding indicated that U.S.-built ships cost 20% more than those built in foreign yards. The cost differential increased to 50% in the 1930s. In the 1950s, U.S. shipyard prices were double those of foreign yards, and by the 1990s, they were three times the price of foreign yards. Today, the price of a U.S.-built tanker is estimated to be about four times the global price of a similar vessel, while a U.S.-built container ship may cost five times the global price, according to one maritime consulting firm.

Unsurprisingly, this loss of competitiveness has translated into commercial ship output that amounts to barely a rounding error in total global production:

The Merchant Marine Act of 1970 (P.L. 91-469) added as an additional objective of U.S. maritime policy to have a merchant marine “supplemented by efficient facilities for building and repairing vessels.” U.S. shipyards typically build only two or three oceangoing ships per year, and none for export, so they do not achieve economies of scale. There may be gaps of several years in between orders for container ships. In recent years, the demand has been sufficient to sustain one shipyard that builds only commercial ships. However, this yard stated that its employment had fallen below 100 people and that it had no vessels under construction or on order as of March 31, 2019.

The relationship between the Jones Act and the commercial shipbuilding sector’s travails is almost certainly causal. Drawn to a captive domestic market, U.S. shipyards have not sought to compete internationally and thus cannot achieve scale. This focus on the U.S. market means fewer opportunities for specialization and related productivity gains, while the lack of international competition reduces the need for improvement and innovation.

The result is spiraling costs and decreased demand for U.S.-built ships, leaving shipyards with less output to spread their fixed costs across. It’s a vicious cycle that shows no sign of ending. 

These spiraling shipbuilding costs aren’t just an economic problem. While the Jones Act is often justified on national security grounds, the high cost of domestic shipbuilding encouraged by this law has also impaired the military’s ability to source its sealift ships from U.S. shipyards: 

The cost differential is also an issue for Department of Defense officials in charge of military sealift ships. As discussed later in this report, the military has modified a plan to build sealift ships domestically, finding it unaffordable, and instead will buy more used foreign-built cargo ships. Since U.S. shipyards do not build vessels for export, they are not required to compete with foreign shipyards on price or vessel characteristics.

Indeed, just last week the Secretary of the Navy said that he “can’t really afford a lot of $400 million ships when I can go out and buy used [roll-on/roll-off ships] for $35 to $40 million.” And if high ship costs are a deterrent to notorious spendthrift Uncle Sam, the effect is surely no less pronounced within the broader maritime industry.

These high ship acquisition costs, as well as operating costs at least 2.7 times those of foreign-flagged vessels, help explain why demand for U.S. coastwise shipping has declined despite the many advantages of ocean transport:

While domestic ships are carrying fewer tons of freight today than they did in the 1950s, their most direct competitors, railroads and pipelines, are carrying more. Domestic ships have lost market share to land modes even though ships have economic advantages. Ocean carriers do not need to acquire and maintain rights-of-way like railroads and pipelines. They can move much more cargo per trip and per gallon of fuel than trucks and railroads. Although ships are slower than truck and rail modes, many shippers are willing to sacrifice transit time for substantially lower costs, as long as delivery schedules are reliable.

Also seemingly explained is the lack of coastal shipping to transport containers arriving aboard large cargo ships from abroad. Instead of being placed on smaller ships as part of a hub-and-spoke system, they are placed on rail and roads, with the latter leading to increased highway congestion:

Transshipment of international containerized cargo by feeder ships is prevalent abroad, but the practice does not exist in the United States. The Jones Act would require such ships be U.S.-built, -crewed, and -owned. Lack of transshipment services increases demand for rail and road connections to ports, as smaller feeder container ships do not play a role in distributing international containerized cargo among U.S. ports.

Not everyone, however, can take refuge from the Jones Act through the use of overland forms of transportation, and the CRS report notes that the Jones Act fleet tends to “operate in markets where shippers have little alternative.” This means the non-contiguous states and territories of Alaska, Hawaii, and Puerto Rico which have little choice but to suffer the law’s exorbitant costs. 

Meanwhile, high ship acquisition costs also undoubtedly play a role in the absence of entire ship types from the Jones Act fleet, and the advanced age and insufficient quantities of those that do exist:

Not all ship designs are represented in the Jones Act fleet. “Project cargo” or “heavy-lift” vessels are often used to carry oversized pieces of equipment such as smaller vessels, ship engines and modules, wind turbine parts, and power generation equipment. They would be useful for moving dredging fleets to project sites. There have not been any such vessels in the Jones Act fleet in recent decades. The Department of Defense has used “national defense” waivers of the Jones Act to move radar systems and newly built vessels on foreign-flag heavy-lift vessels. This type of cargo typically does not generate regular shipments in any one region; thus these ships would likely need to extend their market reach beyond the United States to include the international market. However, the higher cost structure of Jones Act operators is an obstacle to competing for international shipments.

Two dry bulk ships are in the oceangoing Jones Act fleet, and they appear to be mostly inactive, possibly because they are nearly 40 years old. This is twice the economic life of a ship in the global fleet (where ships are typically sent for scrapping between 15 and 20 years of age). The sole Jones Act-qualified chemical tanker was built in 1968. No LNG tankers are in the Jones Act fleet despite new domestic markets as a result of the shale gas boom. The lack of sufficient Jones Act-qualified tanker capacity to move booming shale oil production coastwise added to pressure for lifting the crude oil export ban in 2015.

One result is that despite the economy’s continued expansion, and thus increased transportation needs, the number of ships and amount of cargo they carry are in long-term decline:

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cargo

The report is rife with examples of the Jones Act’s inability to meet its stated aims. It points out, for example, that the law “has not succeeded in meeting the stated policy goal of sustaining a growing merchant marine that carries an increasing proportion of the nation’s commerce.” The objective of “providing shipping service on all routes essential for maintaining the flow [of commerce] at all times” and having the “safest” types of vessels are similarly unmet, with the CRS stating that “the Jones Act fleet does not appear to achieve either of these goals.” The report adds that “One can also question whether the policy objective of having ‘the best equipped and most suitable types of vessels’ has been achieved.”

The failure of protectionist policy is one of the world’s more predictable phenomena, and prior to its passage some appeared to foresee its problems and urge a different course. As the CRS report points out, the minority report to a 1919 House committee report to the bill that would become the Jones Act called for an approach based on competition and the removal of restrictions:

…in order to build up and sustain an American merchant marine it is absolutely necessary to remove every restriction against American merchants acquiring ships, whether built in the United States or out of the United States, at the lowest possible price, in order to enable them to compete with other nations in the transportation of the commerce of the world…Our American iron and steel manufacturers were unable to compete until they had to. When they had to they did compete successfully. Our shipbuilders can and will do likewise.

And more than 50 years ago the Lyndon B. Johnson administration accurately stated that protectionism and federal largesse would not reverse the U.S. merchant marine’s dwindling fortunes:

At a 1967 congressional hearing, Alan Boyd, Secretary of Transportation in the Lyndon B. Johnson Administration, testified that the U.S. merchant marine was “too small, too old, and too unproductive,” and stated, “you do not revitalize an industry by flooding it with Federal dollars and imprisoning it within a wall of protection.”

These voices, however, have been consistently ignored in favor of those advocating yet more protectionism and government intervention, the very policies that led to the U.S. maritime sector’s current predicament. But their record of failure has never been starker or more plain to see. It’s time for a new approach based on the principles of free markets, openness, and competition whose record of success is unsurpassed. It’s a plan just crazy enough to work.  

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Chinese Ships on the Mississippi River: Just Another Jones Act Tall Tale

Did you know that the Jones Act prevents Chinese ships from sailing on the Mississippi River? That, at least, is what Rep. Brian Babin (R-TX) claimed in a recent speech on the House floor. For dramatic effect the congressman used a picture of a ship flying an oversized Chinese flag with St. Louis’s Gateway Arch prominently displayed in the background:

Babin

“This is a hypothetical picture, thank goodness,” said the Texas congressman. “A Chinese-built vessel, subsidized by their communist regime, operated by the Chinese and delivering Chinese goods all in the very heartland of the United States of America. But this could easily become a reality if the Jones Act is waived.” 

Other Jones Act supporters have made similar warnings. Clay Maitland, the chairman of the Merchant Marine Policy Coalition, stated last week that his support of the Jones Act was “all about preventing the Chinese government from getting control of our inland waterways,” while in 2017 the president and CEO of Jones Act carrier Tote Inc. said that the law’s repeal could result in North Korean barges and tugboats operating on the Mississippi River. And just last year the American Maritime Partnership, a Jones Act advocacy group, ran the following internet ad:

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Leaving aside the desirability of foreign ships operating on the Mississippi River, does the Jones Act actually prevent this from happening? Well, no. The Jones Act restricts the domestic waterborne transport of goods to vessels that are U.S.-flagged, U.S.-built and at least 75 percent U.S.-crewed and owned. It says absolutely nothing, however, about the ability of foreign ships to operate on inland waterways. 

In fact, there are foreign ships operating on U.S. inland waterways at this very moment. Indeed, a quick peek reveals numerous such vessels on the Mississippi River as far north as Baton Rouge and still more on the Delaware and Columbia Rivers headed to and from Philadelphia and Portland. 

That foreign ships are not more prevalent on inland waterways is a matter of simple physics: they’re too large. The ship used in Rep. Babin’s hypothetical picture, the CSCL Africa, has a draft of 11 meters (36 feet). The Mississippi River around St. Louis lacks the depth to support such a vessel. This helps explain why the U.S. Army Corps of Engineers only maintains a 9-foot shipping channel north of Baton Rouge but a 45-foot shipping channel south of it. 

But even the idea of smaller-sized foreign vessels on the country’s inland waterways is largely a figment of the Jones Act lobby’s imagination. A 1999 U.S. International Trade Commission report which examined the Jones Act’s economic impact said that it did not bother including inland waterways in its analysis because U.S. operators there “do not appear to be significantly vulnerable to foreign competition that may occur in the absence of Jones Act restrictions.”

This is in large part because foreign vessels would still have to comply with U.S. laws and regulations unrelated to the Jones Act. As Michael Hansen of the Hawaii Shippers Council points out:

…[T]he inland waterways barge industry is the least threatened by Jones Act reform or outright repeal. Even a full national repeal of maritime cabotage would be an insufficient condition for achieving continuous employment of foreign flag vessels operating in purely U.S. domestic trade. This is especially true for foreign shipping to displace purely domestic inland waterways traffic. This is primarily due to the extra-cabotage legal and regulatory web enveloping the inland waterways – from immigration, customs, taxation, business registration, labor, health and safety, to wage and hour – which would prevent a foreign flag vessel from being continuously employed in domestic service.

In addition, U.S. builders of smaller vessels such as barges are much more internationally competitive. This means that inland waterways operators are able to purchase vessels at prices similar to those found overseas, thus boosting their ability to compete. As the USITC states, “…operators in the inland trade acquire vessels from the internationally competitive U.S. barge and smaller shipbuilders and so have substantially more competitive capital costs.”

Jones Act or not, Chinese ships or North Korean barges cruising the American heartland’s innermost waterways isn’t going to happen. The American people deserve more facts and less scaremongering. 

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Huawei’s Blacklisting a Great Leap Toward Economic Decoupling

Huawei has been in the U.S. government’s crosshairs for over a decade. In 2008, U.S. policymakers convinced the Committee on Foreign Investment in the United States to block the Chinese technology firm’s acquisition of U.S. software company 3-Com on the grounds that the deal would threaten national security. For many years, I have suspected that the U.S. campaign against Huawei was motivated less by concern over specific security threats than by the desire to respond to China’s aggressive, discriminatory industrial policies in the technology space. If Beijing was going to subsidize indigenous innovation, favor companies that registered intellectual property in China, and encourage Chinese companies to “borrow” U.S. technology in a push to challenge American firms at the technological fore, then the U.S. response would be to inhibit the commercial success of the beneficiaries of those industrial policies. Huawei‘s emergence as a global competitor made it an obvious target.

Although it is certainly plausible that Huawei presents a security threat to the United States, that conclusion has never been demonstrated convincingly in any public forum by anyone with access to the information upon which such a conclusion should be based. There have been closed door hearings in which classified information was discussed and generated, which—if declassified and shared with the public—might convincingly corroborate these threat claims and maybe even justify the administration’s decision to put Huawei on the U.S. Commerce Department, Bureau of Industry and Security’s  “Entity List,” a move that could starve Huawei of needed inputs from U.S. companies. But it shouldn’t come as a surprise that policymakers who sit on intelligence committees or who serve in security-oriented federal agencies are probably predisposed to see security threats where others don’t or to discern nefarious intentions where the evidence is benign or even to interpret the absence of evidence as proof of the perpetrators’ craftiness.

Then again, when the standard of proof is the precautionary principle, the evidentiary thresholds aren’t especially rigorous. A threat possibility, however remote, tends to suffice.

Protecting national security is a legitimate function of government. Fulfilling that responsibility sometimes requires that international trade and investment be restricted. Since determinations of threats to national security often are based on classified information, the public has to trust that policymakers have reached the right conclusions and that the prescribed remedies are necessary and appropriate.

It is difficult to trust the Trump administration in this regard, as it has already demonstrated itself an unreliable arbiter of national security threats. President Trump has made a frivolity of the national security rationale for restricting trade. Last year, Trump invoked threats to national security to justify his tariffs on steel and aluminum imports. This year he concluded that U.S. security is threatened by imports of automobiles and auto parts. In those cases, the data and analyses “supporting” the national security threat conclusion were not classified, but publicly available. And you can count on your fingers and toes the number of people convinced that steel, aluminum, and auto imports present such threats.

Based on information that the U.S. public hasn’t seen, the Trump administration has deemed Huawei a national security threat. That may well be the right conclusion, but the U.K., German, and other governments that the administration has been pressuring to purge their networks of Huawei gear, seem unconvinced, and have resisted.

The Trump administration’s latest move to blacklist Huawei escalates already rapidly escalating tensions in the U.S.-China relationship. Putting the company (and 68 affiliates) on the Entity List means that U.S. firms can no longer do business with Huawei without first obtaining a special license, which can only be done after overcoming “a presumption of denial.” Earlier today, Google, Intel, Qualcomm, and other prominent suppliers announced plans to discontinue their current commercial relationships with Huawei. It doesn’t take a creative imagination to foresee worsening troubles ahead for U.S. businesses operating in China and, well, a deepening process of economic disengagement.

The bottom line is that when U.S. economic policy toward China could be successfully sequestered from the geopolitics, the relationship could be managed. Now our economic problems are viewed and magnified through a geopolitical prism and, for many, the calculations suggest that disengagement and decoupling is the optimum. But that, too, will be enormously costly.

To reiterate a conclusion from a recent op-ed:

By banning Huawei gear and putting pressure on third countries to do the same, the United States is effectively saying that a huge swath of 21st century trade—an estimated $12.3 trillion in sales activity across multiple industries involved in developing 5G infrastructure and producing 5G enabled products by 2035, according to the Congressional Research Service—will not be subject to the disciplines of the global trading system. If that doesn’t consign the WTO to insignificance, the ensuing race to carve up the world into spheres of influence based on competing 5G standards will.

In what will look like a replay of the Cold War, Beijing and Washington will compete for the loyalties of the rest of the world by offering carrots and threatening sticks to countries to adopt their respective 5G standards. Dividing the world into these technology blocs will deprive the technology ecosystem of global economies of scale and open the door to bloc-based tariffs and other forms of protectionism, making the world a poorer place. Creation of the open global trading system induced a steady climb in global exports from 4% of GDP in 1947 to 26% of GDP in 2015. Erecting tariffs and non-tariff barriers through that system would undoubtedly cause a decline in global trade and output.

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A Truce In One of the Tariff Wars

On Friday, we had an event that is rare in trade policy these days: Some tariffs were reduced. As the Washington Post reported:

Trump did something unusual on the trade front: He removed a tariff

The United States agreed Friday to lift its tariffs on industrial metals from Mexico and Canada, clearing a major obstacle to congressional passage of President Trump’s new North American trade deal.

During the Trump administration’s time in office, there have been many excuses to raise tariffs, but few reasons to lower them, so this was good news. Of course, the administration’s actions don’t count as actual liberalization, because this wasn’t some long-standing tariff that had been bothersome for decades and we finally got rid of it. Rather, this was a tariff Trump himself had imposed on steel and aluminum imports in 2018 under Section 232 of the Trade Expansion Act of 1962, ostensibly on the basis of “national security,” but without evidence supporting that. Imposition of these tariffs led to retaliation from many of our trading partners, including Canada and Mexico. Rather than being new liberalization, Friday’s actions just get us back to where we started. 

Nevertheless, the decision to remove these tariffs on imports from Canada and Mexico is a welcome one. And the result is better than many people were hoping for. A few weeks ago, my colleague Inu Manak and I worried that the tariffs would be replaced by a formal regime of quotas, which can be worse than tariffs. Instead, the tariffs will disappear completely, although there is the possibility that if a surge of imports of these products occurs, the Trump administration could quickly reapply tariffs on certain products. The agreement is better than expected, but not perfect, and some details about “monitoring” imports still need to be worked out.

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Are Republicans Still the Party of Free Trade?

Politico reporters recently sat down with Senator Chuck Grassley (R-Iowa), and asked his opinion about the future of the world trading system and what might be going on in President Trump’s head with regard to the increasing recourse to tariffs as a policy tool. Here’s what he said:

Grassley on Trump: “He believes in tariffs as a tool to get a negotiation as opposed to being an end in themselves. Then he hasn’t changed anything. If he has used tariffs because he believes they’re good, and I know he says that, but I don’t believe he actually believes that. I don’t see how he could believe it.”

“[H]e hasn’t changed the Republican Party. We’re still a party of free trade … I surely hope that he has learned from history that lower tariffs are good.” 

The first claim, that Trump is using tariffs as a negotiating tactic, was generally accepted when he first started applying tariffs. For example, the imposition of Section 232 tariffs on steel and aluminum in the name of national security were thought to be temporary, or at least, countries could negotiate exemptions. Korea, for instance, agreed to steel quotas as part of the renegotiated Korea-U.S. Trade Agreement (KORUS). Brazil and Argentina agreed to quotas as well. Australia is the only country that has secured a full exemption from both tariffs and quotas. Canada and Mexico were led to believe tariffs would be lifted at the conclusion of negotiations of the U.S.-Mexico-Canada Agreement (USMCA), but even after the agreement was signed last November, the tariffs have remained in place. While the parties appear to be getting closer to a resolution on this, it may just end up resulting in trading the tariffs for quotas, which can be an even worse outcome than tariffs themselves, depending on how high the quota amounts are.

As it turns out, there does not seem to be an end in sight for these tariffs, as President Trump has claimed they are responsible for a booming steel industry:

But the steel industry is far from thriving. Despite evidence that only a handful of firms are benefitting through increased prices, steel consuming industries are picking up the tab, and hiring has stagnated, Trump continues to laud his policy. And when the lion’s share of imports come from our closest allies, Canada, Mexico, and the European Union, the national security rationale for these tariffs makes little sense.

If this were only about steel, perhaps we could be convinced that the use of tariffs as a tool to gain trade concessions from other countries may be a limited exercise. However, in addition to steel and aluminum tariffs under the cover of Section 232, Trump has also imposed tariffs through Section 201 on washing machines and solar products, which impact $1.9 billion and $5.2 billion of U.S. imports in these products, respectively. In addition, Section 301 tariffs have been imposed on China, and are being steadily expanded to include more products and at higher rates.

Nothing President Trump has said seems to suggest these tariffs will be going away anytime soon. In fact, he seems to accept tariffs as an end in themselves, contrary to what Senator Grassley claims. While it may be easy to brush off Trump’s tweets as bluster, he has continually shown he is willing to put his money where his mouth is (especially when U.S. consumers are paying for it):

 

Not only is he factually wrong that tariffs will make the country rich, what’s worse is that he actually does believe this. The last tweet even reveals his preference for tariffs over trade liberalization “of the traditional kind.” In his recent book, Bob Woodward has noted that President Trump wrote “Trade is Bad” in the margins of a speech, and when asked by former advisor Gary Cohn why he espouses such views, Trump responded “’I just do,’ Trump replied. ‘I’ve had these views for 30 years.’” A video of Trump appearing on the Oprah Winfrey show in 1998 that has been circulated on Twitter adds further evidence.

And despite all of this, Senator Grassley claims that the Republicans are “still a party of free trade.” Sure, he may have asked for Section 232 tariffs to be removed from Canada and Mexico before the USMCA can go up for a vote in Congress, but what about all the other countries affected? What, in fact, has the “party of free trade” done to combat the protectionist instincts of the president? While there have been a limited number of bipartisan efforts to limit the president’s ability to levy tariffs, none of these actions have borne any fruit. Senator Grassley has not endorsed bills from Sens. Pat Toomey (R-PA) and Rob Portman (R-OH), though he has vowed to put forward his own legislation.

The U.S. Constitution vests Congress with the authority to regulate commerce, but over the years it has ceded that authority. If the current environment does not invigorate Republican members of Congress to work to take back this responsibility, it is hard to take claims that they value trade as a benefit for Americans seriously. Meanwhile, polls suggest that most Americans support free trade, and Democrats have surpassed Republicans as its most ardent supporters. We have yet to see whether Democrats will take up the mantle of free traders, but in the meantime, the Republicans certainly can no longer claim that title, as they continue to make excuses for the president’s actions. The party of free trade? No. More like the Grand Old Protectionists.

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We Need More Objectivity About China’s Ambitions

In a recent Washington Post op-ed calling for more funding for U.S. diplomacy, Kori Schake and Brett McGurk said this:

President Xi Jinping has declared that “it is time for China to take center stage in the world”

Their link goes to a BBC piece, which provides additional words that seem very relevant:

“It is time for us to take centre stage in the world and to make a greater contribution to humankind,” 

And for even more context, the official translation of the full context of the remarks is as follows:

This new era will be an era of building on past successes to further advance our cause, and of continuing in a new historical context to strive for the success of socialism with Chinese characteristics. It will be an era of securing a decisive victory in building a moderately prosperous society in all respects, and of moving on to all-out efforts to build a great modern socialist country. It will be an era for the Chinese people of all ethnic groups to work together and work hard to create a better life for themselves and ultimately achieve common prosperity for everyone. It will be an era for all of us, the sons and daughters of the Chinese nation, to strive with one heart to realize the Chinese Dream of national rejuvenation. It will be an era that sees China moving closer to center stage and making greater contributions to mankind.

We checked the original Chinese version, and this translation appears to be accurate.

So we’ve gone from “it is time for China to take center stage in the world,” to “It is time for us to take centre stage in the world and to make a greater contribution to humankind,” to “It will be an era that sees China moving closer to center stage and making greater contributions to mankind.”

We don’t think we should always take the Chinese government at its word, but if you are going to cite to those words as evidence, you should do so accurately. In this case, there are very different meanings to the various versions of the statement. The first one seems designed to be inflammatory, evoking the idea of a Great Power competition that China is trying to win, with the prize being world dominance. It does not go as far as Steve Bannon (“the goal of the radical cadre running China — the Chinese Communist Party (CCP) — is to be the global hegemonic power”), but it strays from objectivity in ways that are dangerous, and puts us at risk of a conflict that can be avoided. It is true that China is an economic rival, that it does not respect many of the rights that Americans hold dear, and that there are even some real security conflicts. But the relationship is manageable and a full-on confronation can still be avoided. Exaggerating the threat and using inflammatory rhetoric will make the conflict worse, not better.

New Study Sees Major Gains from Jones Act Reform

Last year, the Cato Institute released a policy analysis highlighting the often-overlooked costs of the Jones Act to the American economy. Far from just raising transportation costs, the policy analysis argued that there are a whole host of indirect costs that are ultimately born by U.S. consumers and businesses.  A new study from the Organization for Economic Cooperation and Development (OECD) provides further evidence for such claims. It estimates that repeal or even partial liberalization of the law could produce economic gains of up to $64 billion. As the report states:

The total U.S. economy may benefit from an increase in final demand in the range of USD 22 billion (scenario 1 [in which the Jones Act’s domestic build requirement is eliminated]) and USD 74 billion (scenario 2 [assuming full repeal]) which represent a rise between 0.12% and 0.39 percent in the long-term. U.S. total output is likely to increase between USD 40 billion (0.1%) and USD 135 billion (0.4%). In terms of domestic value added the results amount to around USD 19 billion and USD 64 billion, making up an increase of around 0.1% to 0.36% for the total U.S. economy.

These figures are significant. To place them in perspective, the U.S. International Trade Commission estimated the 15-year increase in U.S. GDP from joining the Trans-Pacific Partnership agreement to be $42.7 billion. In other words, simply by removing the Jones Act, the United States could realize potential gains in excess of ratifying a major trade deal with eleven other countries including the world’s third-largest economy. And it wouldn’t require negotiations with other countries to do so.

Furthermore, the economic benefits estimated by the OECD do not include secondary effects such as reduced highway congestion, less pollution, or the removal of an irritant from U.S. trade relations. The OECD’s numbers, in other words, are perhaps best viewed as a conservative estimate of the gains that could be unlocked by Jones Act reform.  

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