The Jones Act: Another Form of Economic Repression

As a transportation expert, the Antiplanner was invited to join a radio show about the effects of the Jones Act on Hawaii. I’m not an expert on the Jones Act but was able to do some quick research.

The Jones Act gives Matson, which has regular service between the San Francisco Bay Area and Hawaii, and Horizon an oligopoly in shipping to and from Hawaii. Wikipedia photo by Aykleinman.

For those who don’t know, the Jones Act, officially known as the Merchant Marine Act of 1920, requires that any waterborne shipments between two U.S. ports must be done on ships built in the United States and at least 75 percent owned and crewed by U.S. citizens. The law’s goal of protecting the U.S. merchant marine fleet has largely failed: when the act was passed, the United States had thousands of large cargo vessels plying the seas; today it has less than 200.

About 45 countries have similar laws, though none are as strict as ours. Many require that ships be owned by residents of their nations, but few if any require that the ships actually be built in their nations. The problem with the built-in-the-USA requirement is that ship construction in the U.S. is so expensive that only about two large cargo ships a year are built here.

According to Michael Hansen, of the Hawaii Shippers Council, new container ships built in the United States today to meet the requirements of the law can cost more than $200 million, while nearly identical ships built in South Korea–one of the world’s leading ship-building nations–can cost less than a fifth as much. Hansen wants Congress to exempt Hawaii, along with Alaska and Puerto Rico, from the built-in-the-USA requirement of the law. He thinks this is the most costly part of the law and that rescinding it alone will save the average Hawaiian family thousands of dollars per year.

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While anyone who lives on in a coastal state could probably benefit from reduced shipping costs if the law were repealed, Hawaii, Alaska, and Puerto Rico are the hardest hit by the law, as the rest of the states can turn to trains, trucks, and other shipping methods as alternatives to waterborne traffic. I don’t know about Puerto Rico, but residents of Alaska and Hawaii take it for granted that everything in those states is more expensive than in the lower 48 because of high shipping costs. What most don’t realize is that those shipping costs could be a lot lower if the Jones Act were repealed or, as Hansen wants, partially reformed.

Grocery shoppers in the 48 states can buy apples grown in New Zealand for far less than Hawaiian shoppers have to pay for apples grown in the United States. Unfortunately, Hawaii has such a small population that it isn’t worth it for foreign shipping companies to try to serve it by connecting it to New Zealand, so even New Zealand fruit costs more than twice as much in Hawaii as on the mainland.

The Jones Act not only increases the costs of consumer goods in Hawaii, it increases the costs of exporting goods to the rest of the United States. The production of sugar, pineapple, and other agricultural crops in Hawaii has declined by more than 80 percent. One reason is the Jones Act, which meant that other tropical nations could import their crops to the United States for less than Hawaii. Another reason is Hawaii’s strict land-use regulation–which, ironically, was designed to protect ag lands but has made housing so expensive that farmers can’t pay workers enough money for the workers to live here without making their products so expensive that few will buy them.

The main beneficiaries of the Jones Act are Matson and Horizon, the only major shipping companies that regularly serve Hawaii. The law increases their costs, but it also keeps competitors out, making Hawaii a captive of their prices. Union members also think they benefit, but the number of people in the nation’s merchant marine fleet has declined by so much that it is entirely possible that repealing the law could lead to more jobs for American seafarers.

Even if the cost is less than estimated by the Shippers Council, I see little reason for keeping the law on the books. This is a clear case of narrow special interests working hard to maintain failed policy that hugely benefits them at a relatively small cost to everyone else. I suspect that a realistic analysis would find that the law costs consumers more than the workers whose jobs are protected by the law actually get paid.

We are reaching the point where ending such favors to special interest groups is critical for the survival of the United States and the freedom and justice that it represents. While Hansen’s goal of partially reforming the law may be more politically feasible than complete repeal, I suspect that only a complete repeal would bring Hawaii, Alaska, and Puerto Rico that full competition necessary to significantly reduce shipping costs.