The Jones Act, a 1920 shipping law that costs Puerto Rico and Hawaii

Picture a rule that says a shipment of rice may not travel from Long Beach to Honolulu on the cheapest suitable ship in the world. It must travel on a ship built in an American yard, owned by Americans and crewed by Americans, or it does not travel at all. Now picture the same rule applied to a barge of building materials bound for Anchorage, or a tanker bound for San Juan. You would assume some committee of central planners invented it in a bad year. In fact it has a sponsor, a name and a birthday, and it is still the law of the land.

It is called the Jones Act, and it deserves a hearing in this blog for a reason conservatives should find uncomfortable: it is a protectionist law with a patriotic label, and the label has kept it out of the argument for a century. Let me define the terms, give the other side its best case, and then explain why I think the case does not hold.

What the law actually says

The common name belongs to the Merchant Marine Act of 1920, and the provision that matters is Section 27, now codified in Title 46 of the United States Code. Strip away the legal vocabulary and it sets four requirements for moving merchandise between two points in the United States by water, which the law calls the coastwise trade:

1. The vessel must be built in the United States.
2. It must be documented under American law, meaning registered in the American flag.
3. It must be owned by American citizens, which for a company means a controlling American interest.
4. It must be crewed predominantly by American citizens (under a companion crewing statute, Title 46 section 8103, the master and officers must be citizens, and permanent residents may make up no more than 25 percent of the unlicensed seamen).

Miss any one of the four and the vessel generally cannot carry cargo from one American port to another. The sponsor was Senator Wesley Jones of Washington State, which is where the nickname comes from. The principle behind it is older than his bill. Congress had reserved American coastal trade to American ships since the early republic, and the 1817 coasting law is the usual ancestor cited by maritime historians. The 1920 act arrived after the First World War had shown how many ships the country needed to move an army and how few it owned.

Notice what the law does not do. It does not stop a foreign ship from carrying cargo from China to Los Angeles, or from Los Angeles to Tokyo. It regulates only the leg that starts and ends at American docks. That narrow scope is why the law is so easy to ignore: the container ship that brought your television from overseas is probably foreign-flagged, and nobody on the dock thinks twice. The rule bites only where the cargo has no road to take.

That is the key fact. A shipper in Dallas who wants to move goods to Ohio can pick a truck or a train, and both are open to competition. A shipper who wants to reach Puerto Rico, Hawaii, Alaska or Guam from the mainland has no truck and no train. The water is the only road, and the road has a toll booth built by statute.

The fleet the law was supposed to protect

The 1920 bargain was simple: by reserving the domestic trade, Congress would guarantee American shipowners a market, and the market would sustain American shipyards, American mariners and a merchant fleet that the Navy could call on in war. A reasonable person in 1920 could believe it. The question for any such bargain is whether it delivered.

Measure it by the result. The American yards that build oceangoing commercial vessels have shrunk to a sliver of what the world's leading shipbuilders produce. The largest builders in the world are in East Asia, and they build commercial ships at a scale and a price that no American yard attempts. The reason is not mysterious. A protected buyer does not demand a better or cheaper product, and a protected seller does not have to supply one. The Jones Act fleet is small, old and expensive, and it is small, old and expensive in large part because the law shields it from the pressure that makes shipbuilders improve.

I would put the point this way. A law that exists to build a fleet and has instead produced a very small fleet has had a hundred years to prove itself and has not. The relevant test of protection is not whether the protected industry survives. It always survives, because that is what a monopoly does. The test is whether it grows stronger and more competitive. By that test the Jones Act's own supporters should be uneasy.

Who pays: Puerto Rico, Hawaii, Alaska

Costs do not vanish because a statute hides them. They land on someone. In this case they land on the places that cannot go around the law.

Puerto Rico. The island imports a large share of its food, fuel and consumer goods. Because it is American territory, cargo coming from the mainland must ride Jones Act ships. Cargo from a foreign port can arrive on foreign ships, so a shipper in Puerto Rico sometimes finds it cheaper to buy a product from abroad than from Florida, a short distance away. That should strike you as backwards. A law passed in the name of American commerce steers an American territory's purchases toward foreign sellers. Energy shows it most clearly: the mainland has abundant natural gas, yet the fuel can only reach the island on a limited set of qualifying vessels, and a foreign supplier with a foreign ship often has the easier route.

Hawaii. The state sits at the far end of the longest domestic shipping lane in the country. Almost everything in the stores arrives by sea, so the cost of moving a container is built into the price of milk, lumber and diapers. Hawaii is the cleanest example of how a transportation rule becomes a tax: no resident votes on it, no legislature in Honolulu can repeal it, and it shows up as a line the family never sees, in a grocery receipt that is higher than it would be on the mainland.

Alaska. The state depends on barges and ships for a great deal of freight, especially in communities that no road reaches. The same four requirements apply to each of those shipments.

I will not make up a dollar figure for what the law costs these places. Economists who study it have produced a wide range of estimates, and the honest summary is that serious analysts of different political leanings have found the law raises shipping costs, while they disagree about how much. If you want the exact numbers, check the studies yourself, including the work of the Government Accountability Office and the Congressional Research Service, and be skeptical of any single figure from an interested party on either side.

Here is how the mechanism works, in a labelled example with invented numbers. Say a shipping route on a foreign-flag ship would cost a shipper 100 units per container, and the same route on a Jones Act vessel costs 150. The 50-unit gap is a premium paid on every container. If a store in Honolulu moves ten thousand containers in a year, the premium is five hundred thousand units, and the store passes it to customers, who have no idea they are paying it. Multiply that by every store on the island and you have a hidden transfer, collected without a vote, from families to the owners and crews of the protected ships. The numbers are made up. The arithmetic is not.

What happens when disaster strikes

The best evidence that Congress itself knows the law can hurt is the waiver. Federal law lets the government suspend the coastwise requirements when national defense demands it, and administrations have used that power after hurricanes. After Hurricane Katrina in 2005 the government waived the rules for about two and a half weeks so foreign-flag tankers could move fuel along the Gulf Coast. In 2017 a hurricane season that included Harvey, Irma and Maria brought more waivers, including a short one for Puerto Rico after Maria that lasted about ten days.

Think about what that says. When the lights go out and people are in trouble, the first move is to switch the law off. Nobody proposes waiving the law of gravity. If the rule is so important to the national interest that it must stand through a hundred years of high prices, why is it safe to suspend it the moment the need becomes visible? A rule that must be set aside every time a crisis appears is a rule whose own defenders do not trust it to work in a crisis.

The waiver also exposes a deeper problem. A temporary exemption is a political favor. It goes to whoever asks at the right time, and it leaves the rule intact for everyone else on every ordinary day, when the shipper in Hawaii has no hurricane to point to and simply pays.

The best case for the Jones Act

Fairness requires me to give the other side its strongest argument, in words its defenders would accept.

The defenders say: a country that depends on foreign ships for its domestic commerce is a country that has outsourced its logistics. In a war, the military needs ships, and it needs mariners to crew them. Sealift, the movement of tanks, ammunition and supplies across oceans, depends on a pool of American-flag vessels and trained American crews who can be called into service. Shipyards cannot be built overnight, and a yard that has no commercial work will not be there when the Navy needs it. The Jones Act, they say, is an insurance policy that the country pays a premium on every year, and nobody complains about the premium in the years when the house does not burn.

There is more. Defenders point out that foreign shipping is often subsidized by foreign governments, and that a protected domestic trade keeps predatory pricing from wiping out American competitors and then raising rates. They point out that American crews are paid American wages and are subject to American safety and labor law, while the crews of ships flying flags of convenience may not be. They add that the shipping industry supports jobs in port cities and shipyards across the country, and that a worker in a yard in Mississippi or Virginia is no less deserving of consideration than a shopper in Honolulu.

I take the national-security argument seriously. A country that cannot move its army is a country that cannot defend itself, and Alexander Hamilton made the same point about manufacturing in his 1791 report on the subject. (For the conservative case that protection can be defended on those grounds, see Hamilton's Report on Manufactures and the conservative case for tariffs.) The question is not whether the country needs ships. It does. The question is whether this law produces them.

Why the argument fails

Here is my answer, in numbered points.

1. The law has not built the fleet it promised. If the point of protection is a strong industrial base, then a century of protection should have produced one. The commercial yards that remain depend on a narrow set of customers, and the ships they build cost far more than the same vessels abroad. A national-defense benefit that exists mostly in a statute is not a national-defense benefit.

1. The military's own needs are narrower than the law. The sealift the Pentagon cares about is a specific capability: ships that can carry military cargo, and mariners trained to man them. The Jones Act covers all domestic cargo, including a barge of gravel and a container of cereal. If the real aim is a ready reserve of ships and crews, a direct and visible policy would serve it better: pay for the capability openly, in the defense budget, where voters can see the price and weigh it. Hiding the bill in the price of groceries is the worst way to buy security, because the people who pay it are not the people who decide.

1. The people who pay are chosen by geography, not by principle. A mainland family pays almost nothing for the Jones Act, because trucks and trains compete. A family in an island state pays a premium on everything it buys that comes by water. If national security is a national good, the cost should be spread nationally. Instead it falls on the places with the least ability to avoid it. That violates a principle conservatives defend in other settings: burdens should be visible and shared by the people who benefit.

1. Protection has a poor record of making industries strong. The pattern is familiar. An industry shielded from competition has less reason to cut costs, adopt new methods or deliver better service. We see the same logic in the sugar program makes every family pay more so a few growers earn more, where a program meant to help growers ends up as a bill for every shopper. The shape is the same here.

1. The law cuts against a free-market principle we apply everywhere else. Conservatives rightly argue that a trade deficit is not a loss and that comparative advantage makes everyone better off (see Comparative advantage explained with Ricardo's wine and English cloth and a trade deficit is not a loss, and the accounting identity proves it). If we believe that on a route from Seattle to Shanghai, we should believe it on a route from Seattle to Honolulu. A rule that forbids the cheapest carrier from serving an American customer is a tariff by another name, paid by Americans.

1. Concentrated benefits and dispersed costs explain its survival. The owners of the protected ships and the unions that crew them know exactly what the law is worth to them and they lobby for it every year. The family in Hawaii loses a few cents on each purchase and has no reason to hire a lobbyist. That is the standard recipe for a bad law that lasts. It is the same pattern I describe in big companies love the regulations their small rivals cannot afford.

I would add one moral point. We tell people in Puerto Rico that they are American citizens, and they are. Then we hand them a statute that makes their groceries and fuel cost more than they would cost anywhere else under the flag. A government that asks for citizenship's duties owes citizenship's equal treatment. That is a value, not a statistic, and I stand on it.

What a conservative reform would look like

I am not asking Congress to burn down the merchant marine. A sensible reform keeps the good in the old idea and drops the bad. Here are the options, from smallest to largest.

• Permanent, standing waivers for island and Arctic trades. Instead of begging for a ten-day exemption after a hurricane, let Puerto Rico, Hawaii, Alaska and the territories use the cheapest qualified carrier all year. The mainland trade, where trucks and trains already compete, would see little change.
• Open the energy trade. Let American fuel reach American ports on any seaworthy ship, so that mainland producers can sell to Puerto Rico and the Northeast without detouring through a foreign supplier.
• Replace the hidden subsidy with a visible one. If the country wants a standing reserve of ships and mariners, fund it directly through the defense budget, with a public price tag and a clear mission, and then let the rest of domestic shipping compete. We would at least know what we are buying.
• Full repeal of the build, ownership and crew mandates, leaving national-security carve-outs for vessels the Navy actually needs. This is the boldest option and the one a free-market purist would prefer.

Each of these respects the defenders' concern about sealift while ending the practice of making the most isolated Americans pay for it. And each can be argued on the floor of Congress, which has the constitutional authority to regulate commerce under Article I, Section 8. This is a matter of statute, not of a court ruling. Congress wrote the Jones Act, and Congress can rewrite it. (For how the delegation of trade powers works, see Who can raise tariffs? Article I, Section 232 and the delegated power.)

The test any defender must meet

When someone defends the law, listen for the move that cites sailors' jobs without counting the jobs lost to higher prices. A sailor's paycheck is visible. The business that never opened in Hawaii because of shipping costs is invisible, and an honest accounting counts both. Then ask a plain question of any member of Congress: if this law is essential to national defense, why does it need a waiver every time a hurricane arrives?

The case in brief

1. Section 27 of the Merchant Marine Act of 1920 requires that cargo moving between American ports travel on vessels built, owned, documented and mainly crewed in the United States.
2. The law has not produced a large or competitive shipbuilding base, but it does raise shipping costs for the places that depend on the sea, namely Puerto Rico, Hawaii, Alaska and the territories.
3. The national-security argument for a domestic shipyard base is serious, and the answer is to fund that capability openly rather than through a hidden tax on island families.
4. Reform can be incremental, from standing waivers for island trades to a full repeal paired with a direct defense subsidy, and Congress has the authority to do it.

What you can do: look up your two U.S. senators and your representative at my representatives and ask each one in writing whether they support a standing Jones Act waiver for Puerto Rico, Hawaii and Alaska.