The Jones Act of 1920 mandates that goods shipped between American ports via waterways must be transported exclusively on ships constructed, owned, and operated by American entities flying the nation's flag. For the past century, this protectionist law has stifled competition and innovation, ultimately impeding economic growth. It is well documented that this law has increased the cost of goods in Hawaii and Puerto Rico. A new study by the National Bureau of Economic Research (NBER), “Impacts of the Jones Act on US Petroleum Markets” unveils how the Jones Act has caused a conservatively estimated $769 million annually in higher energy prices for the U.S. East Coast households.
Using data on shipping costs and fuel prices, the study estimates that, on average, over 2018-2019, “removing the Jones Act’s restrictions would have decreased [the U.S. East Coast] prices for gasoline, jet fuel, ultra-low sulfur diesel, and light crude oil by $0.63, $0.80, $0.82, and $0.36 per barrel, respectively.” At a time when taxpayers continue to grapple with the aftershocks of a period of high inflation, that is a significant cost to taxpayers for no benefit. The overarching goal should be to maximize consumer welfare and taxpayer value while ensuring the stability and competitiveness of the energy sector.
While 40 percent of Americans live at or near the coast, much of the fuel demand for these areas is met through imports, despite domestic production capabilities. This is in large part because the Jones Act makes it logistically infeasible to transport fuel where it is needed. The new report concludes that the removal of these restrictions would reduce East Coast fuel imports and increase domestic shipments, resulting in lower prices for consumers in that region.
And while the Jones Act’s advocates continue to defend the law on national security grounds, there is little reason to think it has been successful in this regard. It has not succeeded in maintaining a private American shipbuilding industry — there remains only 93 Jones Act-compliant ships in the country, and between 2014-2016 U.S. shipbuilding tonnage was less than 1 percent that of China, and less than Vietnam or Romania.
As NTU Foundation wrote last year:
Clinging to this outdated policy is not an act of patriotism, but rather one of stagnation. The United States, a global leader, must ensure that its maritime policy is agile, competitive, and in tune with the needs of its citizens.
In the end, the Jones Act stands as an economic anchor, imposing higher costs on American businesses and consumers alike. While the initial intention of the Act may have been to bolster the domestic maritime industry, the unintended consequences paint a different picture. The higher energy costs identified by NBER add to the reasons why Congress should repeal or reform this law. For example, the Open America’s Waters Act (S.3662), introduced by Senator Mike Lee (R-UT), aims to repeal the Jones Act on coastwise trade to lower shipping costs, increase competition and innovation, and champion free trade.
Additionally, the Protecting Access to American Products Act (S.3665), also introduced by Senator Lee, aims to amend the Jones Act by allowing provisions for waivers for shipping goods under certain conditions, ensuring timely allocation and alleviating costs for consumers and businesses. In his press release on the bill, Lee specifically noted the “unintended consequences to our nation’s energy supply“ due to the absence of Jones Act-compliant U.S. ships available for transporting liquefied natural gas.
It is key to acknowledge the inherent flaws in protectionist policies like the Jones Act and take legislative action to address the issue effectively.