Economist Thomas Grennes noted in a research paper for the Mercatus Center that by reducing competition, the Jones Act reduces the incentive for U.S. shipbuilders to innovate. More generally, as comedian Adam Carolla observed: “American car companies have never been better, and don’t tell me you … wouldn’t be putting out Matadors and Gremlins 25 years later if it wasn’t for the Camry and the Sentra.”
Protectionist Tariffs Don’t Protect Jobs
There are plenty of examples demonstrating how protectionist policies such as the Jones Act fail to protect jobs. For example, the United States imposes very high taxes on imported clothing. As of 2017, the average U.S. tariff on clothing—technically, “articles of apparel and clothing accessories” —was 13.7 percent, while the U.S. tariff on other goods was less than 1 percent.
These high tariffs didn’t protect the labor‐intensive jobs of clothing makers. Since 1990, U.S. employment in apparel manufacturing dropped by 88.2 percent.
Similarly, as National Taxpayers Union Foundation policy analyst Andrew Wilford has pointed out, the U.S. ban on the use of foreign‐built vessels for domestic shipping hasn’t prevented a decline in non‐military shipbuilding. According to the U.S. Maritime Administration, the United States non‐defense oceangoing vessel fleet declined from 193 ships in 2000 to 96 as of October 2018.
Planes, Trains, and Automobiles (and Trucks and Boats)
Some of the strongest transportation manufacturing industries in the United States operate in a low‐tariff environment. As Table 1 shows, U.S. production of aircraft, railroad rolling stock, automobiles, and heavy duty trucks has been increasing, even though the government does not force Americans to use U.S.-built planes, trains, or automobiles when transporting cargo, as it does with ships.
Table 1: Low Tariffs Do Not Deter Manufacturing Growth
|
Effective Import Tariff
Rate (2017)
|
Change in Annual Production
(2000–2016)
|
| Planes |
0.0%
|
+109%
|
| Trains |
1.4%
|
+62%
|
| Automobiles |
1.3%
|
+44%
|
| Trucks |
0.3%
|
+36%
|
Source: Author’s calculation from U.S. International Trade Commission and Bureau of Labor Statistics data.
Moreover, the effective tariff rate for imported recreational boats is just 1 percent, but 95 percent of the recreational boats sold domestically are made in the USA. Clearly, American manufacturers don’t require high tariffs to be successful—in fact, their success may be contingent upon low barriers that encourage them to innovate and compete.
Shipbuilders Like Imports—Just Not for Their Customers
The Jones Act’s requirement that ships transporting cargo must be U.S.-built is somewhat misleading. In fact, as the Cato Institute’s Colin Grabow has pointed out, ships can be considered U.S.-made even though many of their components are imported.
This turns out to be a loophole big enough to steer a ship through. All the non‐military oceangoing vessels assembled in the United States in recent years relied on imports, ranging from the engines to the very specifications on how to build a ship. Consider these examples of recent “U.S.-built” vessels:
- San Diego’s National Steel and Shipbuilding (NASSCO) partners with Korea’s Daewoo Ship Engineering Company (DSEC) to design its commercial ships. In 2016, NASSCO received a $511 million order to build two new ships. Of this, $120 million reportedly went to DSEC to design the ships and provide supplies.
- VT Halter Marine’s El Coqui containership was built with plans from European‐based Wartsila Ship Design (WSD): Wartsila reported that “WSD has a very professional and dedicated team mainly located in Poland and Norway which is working very closely with VTHM (VT Halter) and CM (Crowley Maritime).” The El Coqui’s engines were also imported.
- Norwegian‐owned Philly Shipyard has produced several tankers based on a Korean Hyundai Mipo Dockyards (HMD) design. Four of the shipyard’s American Class tankers built in 2016 and 2017 rely on imported engines.
Two U.S. companies based in the state of Washington recently ran afoul of the Jones Act. The fishing company Fisherman’s Finest commissioned a new ship from Dakota Creek Industries. However, because 7 percent of the ship’s steel was from the Netherlands, the ship is not allowed to fish in U.S. coastal waters. A coalition of companies is seeking a Jones Act waiver to allow the ship to operate in the United States. A better approach would be to seek a blanket reform of the Jones Act’s protectionist Buy American requirements.
There is nothing wrong with shipbuilders using the highest quality inputs, regardless of where they are made. The problem is that the Jones Act deprives their customers of the same opportunity.
No Legitimate “National Security” Justification for the Jones Act
George Will inimitably wrote: “Fomenting spurious national‐security anxieties is the first refuge of rent‐seeking scoundrels who tart up protectionism as patriotism when they inveigle government into lining their pockets with their fellow citizens’ money.” A recent National Taxpayers Union Report, “Protectionism Will Not Improve National Security,” explains how protectionist policies like the Jones Act make America weaker. Trade barriers undermine U.S. security by weakening the economy and creating conflict with our allies. Earlier this year, more than 1,100 U.S. economists reiterated a call from economists in 1930 who wrote: “A tariff war does not furnish good soil for the growth of world peace.”
Instead of lobbying to maintain government protection from competition, shipbuilders and boat manufacturers should unite to oppose an increasingly costly and dangerous trade war that is driving up their cost of steel and aluminum, while simultaneously reducing the amount of cargo for them to transport. Headlines such as these are appearing with increasing frequency:
The Jones Act is nearing its 100th anniversary. Instead of receiving unending protection from international competition, shipbuilders should operate in the same low‐tariff policy under which manufacturers of trucks, automobiles, aircraft, and other industries are thriving. The Jones Act should not be allowed to inflict another 100 years of damage on the U.S. economy.
The opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cato Institute. This essay was prepared as part of a special Cato online forum on The Jones Act: Charting a New Course after a Century of Failure.