How an obscure, 100-year old law is disrupting U.S. energy

A little-known U.S. law called the Jones Act shapes climate tech in weird ways — like hindering offshore wind deployment and pushing up energy prices.

The law, part of the Merchant Marine Act of 1920, requires all cargo shipped between U.S. ports to be carried by ships that meet strict standards. Those ships must be built in American shipyards, owned by an American company, registered in the U.S., and crewed by a majority American crew. As a result, building cargo ships in the U.S., and operating them between U.S. ports, is way more expensive than building and operating ships in other countries — and relatively few get built.

So what are the impacts on climate tech?

In this episode, Shayle talks to Colin Grabow, research fellow at the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies. They cover topics like:

• How the Jones Act increases the money and time required to deploy offshore wind turbines
• Why it costs less to ship U.S. oil and gas abroad than to domestic markets
• How it pushes domestic shipping to rely on trucks and trains instead of ships
• The history of the act and potential ways it could change

Recommended resources

• WIRED: The US Has Big Plans for Wind Energy—but an Obscure 1920s Law Is Getting in the Way
• Cato Institute: Jones Act Leaves New England Vulnerable to Wintertime Calamity
• Cato Institute: Environmental Costs of the Jones Act

Are growing concerns over AI’s power demand justified? Join us for our upcoming Transition-AI event featuring three experts with a range of views on how to address the energy needs of hyperscale computing, driven by artificial intelligence. Don’t miss this live, virtual event on May 8.

Transcript

Announcer: Latitude Media, podcast at the frontier of climate technology.

Shayle Kann: I'm Shayle Kann, and this is Catalyst.

Colin Grabow: A few years ago, the Wall Street Journal estimated that to build an LNG tanker in the United States cost around $700 million, whereas at that time, you could buy one for, I think, less than 200 million in South Korea. So you're looking at a $500 million delta for one ship, and that's just the capital cost without even getting into operating costs.

Shayle Kann: The BuzzFeed headline for this podcast would be, "That one weird US law that distorts shipping, costs Americans billions of dollars a year, and makes the offshore wind industry even harder than it otherwise would be." It'd go viral, I'm sure.

I'm Shayle Kann. I invest in revolutionary climate technologies at Energy Impact Partners. Welcome. Okay, so I was at dinner with a bunch of climate tech people a while back, and somebody brought up the Jones Act. Everybody at the table immediately became ridiculously animated as they talked about all the ways that this generally obscure century-old maritime law in the United States distorts the energy market among many other sectors. I can't think of another law that was passed over a hundred years ago and still is on the books today that would've generated anything like this kind of reaction from this crowd.

And if I'm being totally honest, I was a little confused because I'd heard of the Jones Act, but honestly, I had no idea why I should care about it. But no longer. I've effectively been Jones Act-pilled. And if you haven't, you're about to be. It's pretty crazy. So we're not normally in the business of dedicating an episode of this podcast in particular to a policy that's been on the books more than, I don't know, a year, let alone a hundred years. But we're making an exception. So here's the conversation that I had with Colin Grabow from the Cato Institute about the Jones Act.

Colin, welcome.

Colin Grabow: Well, Shayle, thanks for having me on.

Shayle Kann: Let's talk about the Jones Act, starting with a history lesson. So give me the background. Why did we pass the Jones Act, when, and what was happening at the time that made it worthwhile politically?

Colin Grabow: Yeah, so the Jones Act is formally Section 27 of the Merchant Marine Act of 1920. But it bears mentioning that laws like the Jones Act, the Jones Act wasn't the first time we imposed restrictive laws on shipping, and I should get into what the Jones Act is. So the Jones Act basically mandates that if you're going to transport something by water within the United States, you have to use a vessel that meets four conditions. The vessel has to be flagged and registered in the United States, it has to be at least 75% owned by American citizens, it has to be crewed by American citizens, and it also has to be built in a US shipyard. But again, so 1920, this is passed, but this doesn't mark the advent of these type of restrictions. It's not as though pre-1920, you could use whatever ship you wanted, built wherever, crewed by whoever. These types of restrictions go back to the country's founding.

So this brings up an obvious question. Well, if these laws have always been around, what was the point of the Jones Act of 1920? Well, if you go back to the country's founding, these laws were put in place basically to try to ensure the United States had ships that could be relied upon in times of war, national emergency. It is worth keeping in mind that the British were big rivals back then. They had a big Navy. We didn't want to be dependent on British shipping, and these ships could form a naval auxiliary. Also, this wasn't some big expensive imposition. At the country's founding. The United States has some of the world's best shipbuilding. That's not a huge surprise because the 13 colonies or 13 states all along the ocean, these are the days of wooden ships. We had plenty big forests, a nearby supply of wood to build those ships and sail.

And so the US was very competitive at this. But as time went on, that changed, and people started looking for ways around these laws. And it got to the point, this especially accelerated when we get to the age of steel and iron and steamships. And it got to the point whereby I think the late 1800s that there was this court case where someone wanted to send 250 kegs of nails from New York to California, and the way they did it was not put on American ship, just go to California. No, no, no. They put it on a foreign ship and it went to Belgium and they transferred it from that ship to another foreign ship and went from Belgium to California because these guys did the math and figured that was actually cheaper than using an American vessel.

So Congress changed the law, said, "No, you can't do that anymore." But there was still one more loophole, and this was you could send goods over land to a foreign port, and then from that foreign port to another part of the United States. So people living in Alaska, this is how shipping was done. Things would go up to Vancouver, then from Vancouver up to Alaska and the reverse.

Well, shipping companies in Seattle, Washington hated this. They said, "This is unfair foreign competition. This should be our shipping done on American ships." And they were represented in the Senate by Senator Wesley Jones of Washington State. Well, in 1920, the Merchant Marine Act is passed. The impetus for this was after World War I, the United States built a lot of ships during the war. Most of them were delivered after the war was over with. The government found– had hundreds of ships on its hands they didn't know what to do with. So they passed the Merchant Marine Act, primary objective is dispose of those ships, but also it comprised of 30-some sections, and Section 27 was basically, it changed the law, tweaked it, so that you couldn't use foreign ships going to and from Alaska. So Alaska was kind of the impetus for this law that brings us to where we are today.

Shayle Kann: It's funny as you described this. So, okay, so Jones Act was effectively closing a loophole on a series of policies that already existed, closing the final loophole. It's reminding me, a lot of our listeners will probably be more familiar with all the import duties that the US has been trying to impose at varying degrees of success on solar imports, solar panel imports from China, where there was an original set of import duties imposed, and then the entire supply chain shifted from China to Southeast Asia as a result, so then there was a new case, that was gone to do that. So similar kind of thing.

So, okay, in 1920, thanks to Wesley Jones of the state of Washington, we get the Jones Act that closes the final loophole, and now it's pretty airtight. And basically, to ship anything over water within the United States, it needs to be an American crewed vessel, owned by Americans, constructed in the United States of America. Let's sort of accelerate the history lessons. So since 1920, at that point that that was happening, as you said, it was relatively easy to comply, we had a big shipbuilding industry, there's a lot of reasons to do it militarily. What has happened since 1920 to intra-United States shipping and to the shipbuilding industry here?

Colin Grabow: So both have gone into pretty pronounced declines. If you look at the shipbuilding industry. So back I think in 1922, there's a government report that said around that time, a US-built ship was roughly 20% more expensive than one built abroad. And that, you can find similar stuff from the late 1800s placing it like 20 to 50%, somewhere in that range. Well, by the 1930s, it was up to a 50% premium for US-built ships. 1950s, the US-built ship was double the cost of one built abroad. By the 1990s, it was triple the cost of one built abroad. And today, a US-built container ship is somewhere around five times more expensive than one built abroad, while a tanker, which may be for interest to your audience, with the energy angle, a tanker is about four times more expensive than one built abroad. So for example, a medium range tanker built overseas is somewhere around $50 million, where you're looking at at least 200 million to build one here in the United States.

Shayle Kann: Can we pause on that for one second? I want to come back to the energy angle to this, but why?

Colin Grabow: Why? Yes.

Shayle Kann: Is it material costs? Is it labor? Is it lack of capacity? Is it all those things?

Colin Grabow: Yeah, that's a pretty logical question, because we can build lots of things pretty competitively. Commercial aircraft, we're an aerospace leader. We have a pretty big auto industry. So why is it when it comes to ships that Americans are so uncompetitive? And shipbuilding is a lot about economies of scale. So you consume huge amounts of steel, all kinds of inputs that go into these things. And there's big capital investment. The way ships are built today, for example, they're basically assembled in blocks. It's kind of like Legos. You take big blocks and you lift them and you put them all together. Well, you need big, huge cranes to lift these big heavy blocks into place. Well, you buy one of those huge cranes, and if you're spreading that cost over, say, you're building 50 ships a year, well, that's one thing. Well, American shipyards typically build two ships a year, something like that. So you're spreading capital costs.

For example, when American shipyards, they go to buy steel, well, if you're building 50 ships, the steel plant's going to quote you one price where if you buy enough steel for two ships, you're going a different price. Same thing with the engines, all the components, things like that. And so it's this kind of vicious cycle where US shipyards, they don't build large quantities, so the price goes up, which means in turn there's even less demand. So demand goes down, which means the quantities decline, which means that the costs further increase. So that's kind of where we're at.

Shayle Kann: Right. It's this classic chicken or egg problem that gets worse as time goes on once the cycle starts.

Colin Grabow: So one interesting thing is a lot of people assume that there's a wage angle, that the reason is Americans, they're well paid, and that's why, say, more ships are built in China. Well, the data suggests, actually, that workers in South Korea and Japan and Europe, they make more than Americans, and yet the ships are still significantly cheaper. So that's interesting.

Shayle Kann: So you've got this vicious cycle, but the point of the Jones Act and all the other policies that preceded it, presumably, I think the underlying assumption was, well, look, we're going to want the United States. It's a big country, it's an economic powerhouse. We have a lot of waterways through which we're going to want to ship things. So at a bare minimum, because of the restrictions we're placing here, there's going to be enough of a US shipbuilding industry and shipping industry to serve our own domestic needs. There will have to be. Is that not true? Or I guess we didn't get to the other side of the equation. We talked about the shipbuilding part of it. What about shipping? How much are we doing now?

Colin Grabow: You bring up a great point. So I think on the surface that makes a lot of sense. If you just look at the geography of the United States, you would think, yeah, this is a country that requires a lot of ships, for no other reason than say we have places where it's really only economical to ship with waterborne transport. I'm thinking the non-contiguous states and territories, Hawaii, Alaska, Puerto, Rico, Guam. But in addition to that, we also have thousands of miles of coastline. We have the Great Lakes, we have the Mississippi River and other important river systems. You would think that this just geographically lends itself to a lot of water transportation.

But basically, what's happened is we've made water transport so expensive and uncompetitive in this country that we've shifted towards other modes of transport, trucking, rail, pipeline. If you look at the data, something like only 2% of freight in the United States is transported by ships. You add in barges, that's like another 4%. So we're well under 10% for water transport in the US. So I think it's a combination of A, that our shipping has become very uncompetitive, and then also we have the development of the interstate highway system, our railroads are some of the best in the world. So some of these others are very attractive, and also shipping has become very unattractive.

Shayle Kann: I'm curious if you... I don't know if have this data on hand, but purely from an emissions perspective, the greenhouse gas emissions per ton mile transported on a boat, on large boats in particular, tend to be lower than, for example, trucking. Now I think rail is a little bit more complicated, but to the extent that what we ended up doing was mode shifting from at least some of what would've been transport over water to instead transport over roads, that probably had a fairly significant emissions impact.

Colin Grabow: It certainly stands to reason, as you pointed out, if you compare CO2 emissions, ships, they blow trucking away. And then the data I've seen suggest it's better than rails, not massively better than rail. There's some difference. There's an advantage to using water transport versus rail. But yes, it's absolutely more advantageous from a CO2 perspective. Also, I think it's worth considering that shipping obviously takes place over water on the coast, whereas trucks can be going right through populated areas. So beyond CO2, just other forms of pollution. Yeah, so we've taken what is a very CO2-friendly means of moving goods around the United States, and shipping today in the United States, in terms of actual ships, it's basically done for two reasons. Number one, you're sending something to, again, the contiguous states and territories, Alaska, Hawaii, Guam, Puerto, Rico, or you're transporting energy products, either oil or refined products to places that aren't served by pipelines. So basically, we only use shipping as a general rule when there's no other alternative. It's become so uncompetitive.

Shayle Kann: Well, so that's a good segue. So let's talk about the impacts on energy, which is the main reason I wanted to have this conversation of the Jones Act and all the surrounding policies. Let's talk about fuel. You mentioned sending fuel to places that don't have pipelines. So high level, what is the impacts on the world of fuel supply, thanks to all the rules that we've imposed about shipping in the United States?

Colin Grabow: Yeah, so the Jones Act makes it often, usually, more attractive to send US oil to foreign countries than other parts of the United States. So for example, East Coast refineries, say in the Mid-Atlantic, they import more oil from places like Libya or the Middle East or Nigeria than they do from Texas, from the Gulf Coast. So we have this bizarre situation where the Gulf Coast is exporting their oil to, say, Latin America, and the refined products internationally, and instead of other parts of the United States, and then those other parts of the United States, say the East Coast, they will import oil from Africa or the Middle East, or they'll get the refined products from Europe instead of other parts of the United States. Because once you factor in the cost of transportation, it doesn't make sense to buy American. So they can come from thousands of miles further away, and yet economically, it still has a logic to it because of the transportation costs involved.

Shayle Kann: You talk about what that has resulted on the LNG side as well. I think that's another place that this is sort of like a weird, twisted outcome.

Colin Grabow: Yes. So the United States, we are the world's leading exporter, I believe, of liquefied natural gas, and yet we are in this bizarre situation where we can't transport it by water to other parts of the United States because there are no LNG tankers that comply with the Jones Act. So as a result, New England, they import a few cargoes a year, and that's all international, typically comes from Trinidad and Tobago. And then Puerto Rico, they import a lot of LNG, because they use natural gas for something like 40% of their electricity generation. And again, that all their bulk LNG imports are foreign, they can't get any of it from the US mainland. So for example, last year, I think their number one supplier was Nigeria, number two is Trinidad, but then they'll pull occasional cargoes from as far away as Oman. Meanwhile, Elba Island LNG terminal near Savannah is like a three-day sail away from them.

So we export LNG all over the world, 30-some countries, we'll send as far as China. We can't send it to other parts of the United States. One bizarre thing is Puerto Rico also imports from Spain. I know last year there's one situation where they were importing from Spain at the same time there's an LNG tanker going from the Gulf Coast to Spain. So these bizarro outcomes. Now I imagine some people listen to this and think, "Well, this seems like an easy problem to solve. Build the ship, put an American flag on it, crew with Americans, and you're in business." The problem is that there is no economic case for building that ship.

A few years ago, the Wall Street Journal estimated that to build an LNG tanker at the United States would cost around $700 million, whereas at that time, you could buy one for I think less than 200 million in South Korea. So you're looking at a $500 million delta for one ship, and that's just the capital cost. We're not even get into operating costs. So there's just no economic case for building that ship. So here we are. And one other note, there's the same dynamic that goes on with LPG, Liquefied Petroleum Gas. Hawaii uses LPG, and they import it from as far away as West Africa because they can't get it from the US mainland because, again, there are no ships to transport it.

Shayle Kann: Yeah, I mean it seems like this has impacts everywhere, but places like Puerto Rico and Hawaii are clearly the worst off as a result of this, because they have to import everything, and they basically can't import anything from mainland United States.

Colin Grabow: Yeah. You can make a strong case for Hawaii and Puerto Rico, but also, we need to remember Alaska because they're in the other position where they're exporting this stuff. And so they have high Jones at cost to send all that oil from Valdez Alaska down to the West Coast. In fact, back in the late '90s, the GAO did a study and they found Jones Act shipping was so expensive that it was actually cheaper to send Alaska oil on a foreign tanker down around the tip of South America and to the US Virgin Islands, which at the time was home to a massive oil refinery, and the Virgin Islands is exempt from the Jones Act. It was cheaper, it was like one third the price to do that than to send that same barrel of oil to the US Gulf Coast. Even though the journey was half the length, it was still one third the cost to go to Virgin Islands, US three times further, I'm sorry, twice as far.

Shayle Kann: Wait, you breezed past that. The Virgin Islands is exempt?

Colin Grabow: So the Virgin Islands is exempt from the Jones Act. There are a few places that are exempt. It's American Samoa, the Virgin Islands, the Northern Mariana Islands, and Guam is nominally exempt from the build requirement of the Jones Act. Now on a de facto basis, it's still subject to the Jones Act because anyone going to Guam passes by Hawaii on the way, and so you're going to stop in Hawaii, and Hawaii is subject to the Jones Act. So they sort of have an exemption, but the US of Virgin Islands is exempt while Puerto Rico, 60 miles away or whatever, very close by, is fully subject to it.

Shayle Kann: Fascinating. So weird. Okay, so we talked about fuel. I mean the other more nascent but possibly more existential challenge posed by the Jones Act in the context of energy has to do with the emergent industry of offshore wind. So what's the deal there?

Colin Grabow: Yes, you're right. The United States is trying to launch an offshore wind industry. It's pretty small, but there plans to ramp up significantly. And the Jones Act is an obstacle here, not surprisingly, given that this is all taking place offshore. So for example, one key vessel needed to install offshore wind turbines is wind turbine installation vessel. This is a vessel that has a giant crane on it for lifting up the different turbine components and assembling them. So typically the way that this works overseas is that a wind turbine installation vessel goes into port, loads up with components, and then goes offshore to do the installation. But in the United States, we can't do that, because we don't have any vessels, wind turbine installation vessels that comply with the Jones Act.

So the workaround here is... There's two possibilities. One is that you position the installation vessel, the foreign installation vessel, because they're all foreign, at the installation site, and then you load the components onto a barge and the barge goes out to where the installation vessel is, because that way the installation vessel doesn't engage in transportation, which is the thing prohibited by the Jones Act.

And then the other alternative is you can just operate out of a foreign port. So you load all the turbine components in, say, Canada, and then do the installation down in the United States. And in fact, this is what Dominion Energy did for their offshore wind demonstration project off the coast of Virginia a few years ago. They installed, I think, two turbines, and they ran the whole thing out of Canada, I think St. John Canada. New York Times actually had a big article about this, and they quoted the project managers saying that his biggest hassle in the whole thing was the Jones Act. That basically, what a process that normally would've taken a matter of weeks over, say, in Europe took the better part of a year because of all these delays introduced by the fact they couldn't operate out of, say, Virginia Beach or Norfolk. They had to operate out of a foreign port.

Shayle Kann: Okay, so if I step back, I hear all these ways in which the Jones Act has twisted the world of shipping and impacts energy amongst, I'm sure, many, many other sectors. And I would think there's basically two things that could be done about it. One is the government could put all of its efforts into mobilizing the US shipbuilding industry. As you said, the problem appears to be lack of volume. It's this vicious cycle. You can theoretically turn around that vicious cycle. We could have demand-side incentives, we could subsidize US shipbuilding for some number of years until we get up to scale. There's lots of different things you could do to just revitalize that industry, or you get rid of the Jones Act, you say, "Okay, we're going to cede shipbuilding, or at least some portions of this industry, but in exchange, we'll stop perverting trade flows and probably save a bunch of money for Americans on various things, including fuel." Am I right that those are kind of the two really high-level options at the table, and how do you think about the tradeoffs between them?

Colin Grabow: Yeah, I think those are both solutions that have been put forward. So obviously, I'm definitely in the Jones Act repeal camp. I think the most straightforward, logical approach is to get rid of this law. But yes, other people have said, "Well, I think a better approach would be just to fix US shipbuilding. So yeah, they get those volumes so they can get competitive, and then this is less of an imposition. The problem with that, in my opinion, is that past efforts at that, because this has been tried before, it hasn't worked out that well. So for example, from 1936 until 1981 or so, we had what were called construction differential subsidies. These were subsidies for US-built ships, up to half the cost of the ship versus what it would cost to build abroad.

Now, these were ships only that were used in foreign trade. These were not Jones Act ships. So if you wanted to operate internationally, you could get one of these subsidized ships to encourage people from buying from US shipyards instead of foreign ones. But again, even then, US shipyards never got close to being competitive. They were still, as evidenced by the fact we needed these subsidies and they were discarded early in the Reagan administration because they were not making US ship shipbuilding competitive. And I think it's also worth bearing in mind that we have had, during wartime, massive ramp up in the construction of ships, neither World War I nor World War II, each of which saw thousands of ships built in US shipyards, left a legacy of competitive US shipyards in their wake. And US shipbuilding has been uncompetitive literally since roughly the end of the Civil War. So 150 years, something like that.

So this is longstanding. The delta has been getting worse. And I think we should just step back and say, "Well, the one constant here has been that we've had this protected shipbuilding industry." And I think as long as American shipbuilding isn't forced to compete internationally, they have this captive market, plus they have Navy contracts, this is unrelated to the Jones Act, but they also have Navy and military contracts are really their bread and butter. Jones Act is kind of a sideshow for most of them. Majority of revenue is from government contracts. As long as they have that, what's their incentive to go out there and try to find a specialized niche and become competitive? I don't find that coincidence that we've protected these guys from competition and that they've also become grossly uncompetitive.

Shayle Kann: I think you mentioned we've tried various things. What are the political dynamics around the Jones Act? I think you're alluding to the constituency in support of it, which is probably whatever remains of the US shipbuilding industry. But given that this thing has been in place since 1920, and given the dynamics you described around what's happened to the industry and all the ways in which it has changed our shipping, why haven't we repealed it, or at least significantly changed it?

Colin Grabow: Right, right. I think that's perhaps the bigger puzzle here is not only we haven't repealed it, but it's basically been left in place without any significant modifications. So why is this? And I think it's a classic case of dispersed costs and concentrated benefits. So we have organizations like, unsurprisingly, the Shipbuilders Council of America that love the Jones Act, that endorse... You can go to their website and they have a section devoted the Jones Act and why it's a great law. And then of course, the people that operate ships, they also favor keeping it. The people that work on these ships, on these vessels, they support the Jones Act. So you have numerous organizations out there like the American Maritime Partnership, which is here in Washington, D.C. You have the American Waterway Operators. These are guys that work on inland waters, on tugs and barges. You have the Offshore Marine Service Association that works out in the Gulf of Mexico. You have the Lake Carrier Association for the Great Lakes shipping and on and on, and they're out there every day making the case for the Jones Act, for why we need it.

It's pretty obvious why. For them, they consider this as an existential issue. This is the ball game right here. So they devote a commensurate level of resource to that, whereas the costs, it hurts numerous industries, but is it a top three concern for them? Most industries, no. Furthermore, they know there's going to be a lot of blowback if they go after the Jones Act, so they don't touch it.

I think what's really instructional here about the cost of Jones Act and the dynamic here is that you would think, if you have just a superficial understanding of the Jones Act, that the biggest opponents are going to be folks that live in Alaska, Hawaii, and Puerto Rico for obvious reasons, and you might suspect that the political dynamic is their members of Congress and senators show up in D.C. and they bang on the table about the Jones Act, "We got to do something about this. It's killing us," and members from the other 48 states go, "Whatever. Not my problem. Actually, we have a shipyard in my district, so suck it up." And it's true. The people in these parts of the United States, they don't like the Jones Act. Alaska, in 1984 passed a referendum that made it a duty, it's one of the governor's duties to lobby Congress for repeal of the Jones Act. And yet-

Shayle Kann: Wait, still, today, that is a duty of the governor?

Colin Grabow: It is written into Alaskan state law, it is the duty of the governor to lobby for the Jones Act's repeal, and yet all three members of the Alaska delegation are pro-Jones Act. Well, why is that? How does that work? Well, places that are disproportionately affected by the Jones Act, harmed by the Jones Act, are also disproportionately home to maritime interest groups that lobby in favor of it. Hawaii, for example, it's Matson, which is the largest Jones Act shipping company for container shipping, they're headquartered in Honolulu. You can bet they're out there every day. The Hawaii delegation, three of the four members are pro-Jones Act. And the one member who supports reform of the Jones Act, Ed Case, he gave an interview a few years ago and he said, "Look, I was a member of the state legislature, and I just said, 'can we just study the Jones Act?'"

He wasn't even making the case for repeal. "Can we just look at this and see what the effects are?" And he said people lost their minds, and it's been really tough for him. Last election, for example, he had a primary opponent who staked a lot of his opposition, his run, his candidacy, on support of the Jones Act. Then the general election, the other guy was also bankrolled by Pro Jones Act interests. So this is the dynamic that legislators face when they come to Washington. If you support the Jones Act, you'll get votes, you'll get campaign contributions, you'll get endorsements including from unions, and if you oppose it, all those interest groups will be against you. So the path of least resistance is just go with the flow. And all they're asking is keep things the way they are.

Jones Act folks, they're not saying "Go out, we want you to introduce this ambitious new bill" or something. They're just saying, "Keep things the way they are." And your average person, they have no idea that Jones Act even exists, so I don't think they're going to a lot of hate mail over the Jones Act. So just the political logic lends itself to maintain the law the way things are.

Shayle Kann: You mentioned the possibility of the government studying the impacts of the Jones Act. I presume lots of third parties and think tanks have analyzed this. Has there ever been anything, or in recent years, has there been anything from the government that has attempted to quantify the impacts of the Jones Act?

Colin Grabow: No. So the government, they used to. The US International Trade Commission back in the '90s, they put out a report periodically about the impact of various trade restrictions on the US economy. So for example, the US Sugar Program, which raises, doubles, triples the cost of sugar in the United States, they would assign a cost to that, and they looked at the Jones Act, but they haven't done that analysis of the Jones Act. The last time they did that was 2002. And the GAO, they did a study back in the '80s about the cost to Alaska with the Jones Act. They concluded that it cost Alaskans, it was something like the equivalent of 2% of the state's income was the cost of the Jones Act. In 2013, the GAO did a study on the Jones Act's impact in Puerto Rico, and they basically kind of threw up their hands and were like, "Well, this is too hard, we can't figure it out."

So, unfortunately, no, there hasn't been a good quantitative effort. And then as far as USITC studies back in the '90s that ended in 2002, their original report back in, I think, 1993, something like that, said it was around $10 billion, and then their final report said it was $656 million. And the reason for this, I looked into it, it's like, "Well, why would the cost keep getting smaller?" And their methodology was they said, "Well, what was the difference between US and foreign shipping?", and you take that delta and you multiply that by the amount of shipping. Well, if you take that kind of logic to its conclusion, if the Jones Act succeeded in killing shipping entirely in the United States, well then by that logic, there would be no cost to the Jones Act. Because much of it is an opportunity cost, opportunities that we have to forego. So that, I think, accounts for why that last number of 656 million was so modest.

Shayle Kann: All right, so final question for you. Clearly you have a view on this, and you'd like to see this repealed or significantly changed, but it also seems politically to be challenging, and that is buttressed by the fact that it has been on the books for over a century and has survived this long. Are you just shouting into the wind about this? Or do you see a path?

Colin Grabow: I do think that there is a path forward. Traditionally, the Jones Act, it's an irritant, right? It's annoying, but not to the extent that it prompts congressional action. But I think we're an interesting moment right now where there's an increasing recognition of the shortcomings of the US maritime industry. So part of this is driven by the sense of a growing competition with China and the fact that any conflict with China would have a strong maritime element to it, take place in the maritime domain, just given the distances and the Asia-Pacific. Shipping is obviously required in a scenario like that, but it's also cropping up in things like the Baltimore Bridge collapse of a couple of weeks ago. The fact that numerous observers have pointed out that we don't really have the capabilities to do the salvage stuff, that, for example, foreigners have much bigger cranes and more capable vessels for doing that kind of work than we do.

So it is starting to crop up more and more, and I think as people probe and ask questions, they go, "Well, why is our maritime industry in such a mess? Why is it so uncompetitive?" I think you can't really have that conversation without examining the Jones Act, without the Jones Act figuring into that examination, into that conversation. I don't think that anybody that does an objective analysis well come to any positive conclusions about the Jones Act. So I think that's one vulnerability. And then also these situations, like with LNG, I mean this is obviously absurd and insane that Americans cannot get access to American energy. And I think the more stuff like that crops up, it is bad news for the Jones Act. You don't have to do a deep dive in the weeds to understand how absurd this is, and this is obviously a ridiculous situation that demands some kind of resolution.

Now this is not a prediction on my part, but I think these are kinds of things, if you look forward, what are possible reasons for optimism. And then just lastly, I'll say anecdotally, I've noticed, I've been at this for a few years, and I increasingly feel less like I'm shouting into the wind, that more people are paying attention, and the issue does seem to crop up more and more, and there's just a growing recognition, at least here in the D.C., like policy circles and the think tank community, of the Jones Act is a classic example of a policy failure. So I take some comfort from that. So I think, again, not a prediction. I'm not saying that in 20 years we have this conversation, there'll be no more Jones Act. But there's certainly, I think, increasing recognition of the shortcomings of this law, and a recognition of the need to change course, that the current policy is not meeting our needs either from a commercial perspective, economic perspective, or from a national security perspective, which is supposed to be what the Jones Act is all about.

Shayle Kann: All right, Colin. Well, we're going to ship this podcast off to Oman, and then maybe to Spain, we'll send it back. People will start listening to it here in the US soon enough. But in the meantime, thank you so much for your time.

Colin Grabow: Well, thank you, Shayle.

Shayle Kann: Colin Grabow is a research fellow at the Cato Institute's Herbert Stiefel Center for Trade Policy Studies. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more about their portfolio and investment strategy at preludeventures.com. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquand, theme song by Sean Marquand. I'm Shayle Kann, and this is Catalyst.