Untie the Loop

Trump campaigned on getting the economy going again. To do that, he can eliminate outdated transportation regulations, like the Jones Act, that keep the cost of shipping goods high.

The costs of goods and services has increased dramatically because of increased federal spending combined with supply chain constraints that resulted from contraction in economic activity caused by the CoVID-19 lockdowns. This inflation in prices has caused undue hardships for American families. On the campaign trail while running again for re-election, Donald Trump pledged to increase petroleum extraction to cut energy costs in half, a much needed measure which will serve as a rebuke of the eco-fascist climate alarm mongers.

Reductions in onerous regulations could also serve to increase supplies of goods and services, in conjunction with an expansion of energy supplies. Nonetheless, further improvements can be sought through an avenue that typically receives only modest public attention, in particular: cargo transportation.

Rail and road constitute most of North America’s internal movement of goods. For many decades, port facilities along coastal and inland waterways have been underutilized. Obsolete infrastructure accounts for much of this deficiency, but the primary culprit appears to be a statute that has outlived its usefulness, at least in its original form.

The Jones Act Effect

Over a century ago, Congress hobbled our economy by imposing shipping restrictions most commonly referred to as the “Jones Act,” named after Senator Wesley Jones (R-WA). This cabotage measure under Title 46 of the United States Code – officially section 27 of the Merchant Marine Act of 1920 –strangles coastal and inland water transport around the Great Loop by legally rendering such operations economically unviable. Its protectionist provisions effectively prohibit cargo ships from efficiently moving goods along America’s waterways between successive ports.

Under chapter 5 of this title, only American ships may carry goods between territorial ports. While measure was intended to protect domestic maritime shipping from foreign competition, the Jones Act has suffocated our ability to build and operate cargo vessels, rendering us uncompetitive on the global market.

This leads to the next question, what qualifies as American ships? Section 50101 states “It is necessary for the national defense and the development of the domestic and foreign commerce of the United States that the United States have a merchant marine” in compliance with listed provisions. This requires in paragraph (a)(3) owned and operated vessels of the United States by citizens of the United States; and (4) composed of the best-equipped, safest, and most suitable types of vessels constructed in the United States and manned with a trained and efficient citizen personnel (emphasis added).

Further, paragraph 55102(b) requires “a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel—(1) is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and (2) has been issued a certificate of documentation with a coastwise endorsement…” (emphasis added). Thus to ferry merchandise between American “coastwise points” (without intermediate foreign ports), such cargo ships must be built and registered (i.e., flagged) in the U.S., as well as owned, commanded and crewed by Americans. Further details can be obtained from guidance by Customs and Border Protection and in a revitalizing report sponsored by Congress.

Cargo Transportation

Such crippling restrictions diminish the merchant fleet, as detailed in William Olney’s thesis and relegate most cargo to be delivered by overland transport, whether by road, rail or conduit. As the chart below compares these modes, trucks and trains dominate with over two-thirds of this service, while waterborne transport stagnates at one-tenth of those rates.

But why might that drastically shift from changes to Jones? Most Americans and Canadians reside in the eastern portion of the continent as shown by this population density map.

Thanks to our fortunate geography, ocean coasts, rivers, lakes and canals bestow a Great Loop that enables waterway traffic, not to mention adjoining rivers that extend there between. Clockwise from the north, this path includes the Great Lakes, the Trent-Severn waterway in Canada, the Atlantic and Gulf coasts, the Mississippi River and the Tennessee-Tombigbee waterway as shown on the linked circuit cruise map.

Ship Construction

While labor unions might reasonably balk at non-Americans employed as officers and crew, the domestic ownership and origin of construction would serve to expand water transport and would help to alleviate road and rail traffic. During a national emergency, the federal government is authorized to seize foreign assets and to provide compensation in escrow. Over the past century, American shipyards were severely diminished in their building capacity, so restoring our waterways would necessarily require the purchase of foreign-built vessels, whether that be tankers, container ships or other cargo ships.

Why would this be needed? Because removing the “owned” and “constructed” restrictions on sea and riverine cargo would dramatically reduces transportation and energy costs by an order of magnitude. There is also the additional benefit of mitigating pollution and road deterioration by reducing the movement of cargo that is shipped over land surfaces.

Proponents for maintaining the Jones Act often cite national security and preservation of the domestic merchant marine. Monopoly protection affords profitability without competition. The first item presents a canard, as the fleet is comprised of ships that are approaching thirty years of age and are on the verge of retirement, with few replacements presently under construction. As published in a Congressional Research Service report, the number of oceangoing ships that America produces can be counted on one hand, whereas Japan and South Korea each build two orders of magnitude more, and China constructs as many or more than both these two countries plus Europe combined. While in the first half of the prior century, America built thousands of cargo ships, but numbers fell to current levels in during the 1980s.

As mentioned above, shortages of oceangoing cargo ships that are able to visit successive American coastal ports means that freight must travel by road or rail at greater expense than by water. However, this option is unavailable to territorial islands off the continental shelf, such as Hawaii, which dramatically exacerbates delivery costs for providing emergency disaster relief to Puerto Rico as Vox explains.

Security Concerns

Homeland security presents the most salient argument for maintaining this protectionist legacy. Daniel Gouré of the Lexington Institute authored a spirited defense of protectionism based on concerns of foreign infiltration through undefended miles of shoreline. Additionally, Salvador Mercogliano confronts Jones critics by reiterating the sealift strategy that was behind the 1920 legislation, and asserting that more ships qualify than are typically cited.

However, this security concern cannot be dispositive. As domestic merchant marine capacity has declined, temporary administrative waivers have been issued in the aftermath of hurricanes Katrina (2005), Rita (2012), Harvey and Maria (both 2017). In fact, in response to the last waiver, the late Senator John McCain (R, AZ) sought a repeal of the Jones Act. Moreover, while complete removal of Jones might facilitate a national invasion of foreign-flagged vessels, permission to purchase allied-built vessels which are compliant with American requirements and insisting on American crews and U.S. regulatory compliance would enable us to avoid the clandestine hazards of sabotage or espionage.

CATO has addressed these concerns of foreign interference by issuing several articles that discount such appeals to sovereignty and military prerogatives [why the italics?] as self-serving and disingenuous. For example, “Rust Buckets” by Colin Grabow draws attention to the age of the Jones Act compliant fleet, which has been impacted by the cost of domestic replacement. It should be noted that American military transport, radar surveillance, bomber and fighter aircraft face no threat from Europe’s Airbus competitively selling passenger aircraft to domestic airliners.

Statutory Reform

Full repeal of Jones may be politically unpalatable (or potentially even imprudent), especially due to concerns over potential increases in foreign flagged vessels within inland waterways. Nonetheless, exemptions for non-contiguous states and territories coupled with rescission of domestic construction requirements could pave the way for improved and less costly internal transport of cargo, and thereby bring politically induced monetary inflation under control.

Permitting the purchase of tankers, container ships, and bulk carriers from shipyards in allied countries, such as South Korea, Japan, Italy and France, would alleviate vessel shortages, and would also create opportunities for repair and refurbishment in domestic shipyards, as these would necessarily be American-owned and operated. Such expansion would also necessitate renewal of skills to augment the merchant seamen workforce, which has also suffered from long-term neglect.

The enormous amount of wasteful spending that ignited the highest level of inflation in more than four decades can only be counteracted by economic growth in and actual productivity. Such economic expansion can only occur by lower operational costs and without reducing the working citizenry to penury as the midwit elite desire. Further, such financial boon can only result from reduced cost of resources and operations, as well as upgrading the inland waterways infrastructure. The former and future president’s intent to encourage further oil extraction and reduce regulations offers hope that energy costs can be contained, even as demand increases from economic resurgence. Amending the Jones Act via Congressional legislation would provide similar benefits to America’s long suffering public.

Photo Credit- iStock Photos