The protectionist Jones Act vs. US economic freedom

Countries with low trade barriers are more prosperous than those that restrict imports. That’s not an opinion. It’s fact, fully documented in the “2015 Index of Economic Freedom,” published just last month by The Wall Street Journal and the Heritage Foundation.

{mosads}That’s why Congress should get rid of trade barriers that shield politically connected insiders from competition. A good start would be to do away with the Jones Act, one of the so-called “coastwise laws.” As the Department of Homeland Security observes, “The coastwise laws are highly protectionist provisions that are intended to create a ‘coastwise monopoly’ in order to protect and develop the American merchant marine, shipbuilding, etc.”

Among other things, the Jones Act requires goods shipped between two ports in the United States to use U.S.-built, U.S.-flagged ships, crewed mostly by Americans and with at least three-quarters American ownership. Horizon Lines, a shipping company that just happens to meet these requirements, maintains that these transparently self-serving rules are “vital to American economic, merchant marine, military, national and homeland security interests.” Can a company wrap itself any more tightly within the flag?

Horizon will not remain an independent firm for long. It is being acquired by Matson, Inc., which has called the Jones Act “The single most important piece of legislation to Matson.” Neither company wants its customers to be able to ship goods on foreign-built or foreign-owned vessels.

Sen. John McCain’s (R-Ariz.) recent proposal to allow foreign-built ships to transport goods within the United States was swiftly attacked by the head of the American Maritime Partnership (AMP), an organization that represents Horizon, Matson and other companies who get a leg up from the Jones Act. “The McCain amendment would gut the nation’s shipbuilding capacity, outsource our U.S. Naval shipbuilding to foreign builders, and cost hundreds of thousands of family-wage jobs across this country,” said AMP Chairman Tom Allegretti.

Again, the rhetoric bleeds red, white and blue. So when Horizon recently needed to modernize its ships, guess which company it contracted with to design and provide the parts?

Alfa Laval Aalborg Nijmegen BV, based in the Netherlands.

Apparently even defenders of the Jones Act understand the benefits of using components that are imported or built by foreign-owned companies, even as their lobbyists work to deny the same benefits to other Americans.

Unfortunately, the powerful U.S. shipbuilding lobby continues to block reform of the Jones Act, even keeping it off the table in trade negotiations designed to reduce U.S. and foreign trade barriers. President Obama is on board with that. In 2009, he assured the industry: “You can continue to count on me to support the Jones Act and the continued exclusion of maritime services in international trade agreements.”

Last July, U.S. Trade Representative Michael Froman re-upped that pledge, saying:

This [a]dministration has continuously ensured that the application of the Jones Act is permitted under each of our trade agreements. As we continue to participate in discussions where this issue may arise, including trade agreement negotiations, we will continue to take this position.

Unfortunately, that position gives other countries a handy excuse to maintain their barriers to goods and services made in the U.S.A.

McCain’s proposal would have reduced shipping costs, encouraged the use of new, fuel-efficient ships, created new jobs at U.S. ports and boosted economic freedom — all while reducing the price of gasoline at the pump. As Charles Drevna, president of American Fuel and Petrochemical Manufacturers, observed: “It is now cheaper to ship crude oil from the Gulf Coast to Canada, refine it into gasoline, and ship it back to the East Coast rather than simply ship the crude from the Gulf Coast to our East Coast refiners.”

It’s impossible to calculate exactly how many jobs would have been created by McCain’s amendment, but as shipping expert Don Frost put it, “cheaper ships equals more ships equals more jobs at sea, so we could reliably forecast a renaissance in coastwise shipping.”

Nobel Prize-Winning economist Joseph Stiglitz called the Jones Act “an outrageous restriction on trade in a country that says it believes in free markets.” Reform or repeal of this 95-year-old law is long overdue.

Riley is the Jay Van Andel Senior Policy Analyst in the Heritage Foundation’s Center for Trade and Economics and co-author of “Opportunity for All, Favoritism to None.”