The Biden administration’s industrial policy aims to strengthen the U.S. economy and national defense by onshoring production, promoting well-paying jobs, creating more resilient supply chains, instilling competition, and combating climate change. Successes like the Inflation Reduction Act suggest the administration is avoiding the “worst mistakes of interventionism and statism from the past,” in the words of industrial policy gurus Karl Aiginger and Dani Rodrik.
It does seem odd, therefore, that for the oceangoing shipping sector, vital to the economy and national defense, the administration continues to rely on the century-old Jones Act. The 1920 act requires vessels transporting cargo within the United States be built, owned, and flagged, and crewed by U.S. citizens.
In January 2021, when President Biden issued his executive order to strengthen buy U.S. provisions, he reiterated “strong support for the Jones Act and American vessels . . . especially those important for America's clean energy future and the development of offshore renewable energy.” This is a truly visionary statement because the United States has no turbine or foundation installation vessels to construct offshore wind farms that comply with the act and associated legislation. The United States will need to rely on foreign vessels and even foreign turbines until it builds its own specialized craft.
The namesake of the act, Senator Wesley Jones (R-WA), created a monopoly for Seattle shippers to serve Alaska. The act applied to all territories and was dressed up in a higher purpose: for the United States to have a “merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency.” Post World War I was a heady time. U.S.-flagged carriers were transporting about 50 percent of U.S. oceangoing trade, and the government was selling surplus ships.
Times have changed. As of January 2022, the total U.S. flag fleet of oceangoing, self-propelled vessels totaled 178, down from 425 in 1984. Of these, 93 were Jones Act eligible, down from around 270 in 1980. Just 1.5 percent of U.S. waterborne trade is transported on oceangoing U.S. flag vessels. 300 shipyards have closed over the last 40 years, shedding thousands of workers. For international context, in 2018 China accounted for 40 percent of ship deliveries (gross tons) with Korea and Japan together accounting for another 50 percent. Around 5,000 ships fly the Chinese flag.
Clearly, the act has not lived up to its stated purpose and even has resulted in practices contradicting the administration’s industrial policy. Shipping crude for refining in the Virgin Islands is cheaper than shipping it to East Coast refineries. Liquefied natural gas (LNG) is exported to Europe but not shipped to Boston since no Jones ships are outfitted to carry LNG. Transshipment of international containerized cargo anchored in U.S. waters to U.S. coastal ports by feeder ships, a common practice abroad, does not exist in the United States.
The New York Federal Reserve Bank has noted that shipping to Puerto Rico from the East Coast generally costs about twice as much as to the Dominican Republic, that the port of Kingston has thrived compared to San Juan, and that the act would appear to have a negative effect on Puerto Rico’s economy. Recent devastating hurricanes have demonstrated how the act’s restrictions impede delivering emergency energy supplies quickly to the island.
Regulating coast-wise trade is a common practice, but the Jones Act is the most restrictive of global cabotage laws and an anomaly in an otherwise open market like the United States, according to a report from the World Economic Forum.
As the U.S. economy has grown, waterborne shipping has languished. From 2000 to 2020, waterborne trade has fallen around 20 percent while trucking has increased by about the same percent and rail and air freight broadly have remained about the same.
The 2022 Department of Transportation’s Supply Chain Assessment recommended exploring the potential to increase U.S.-flagged ships, shipping companies, and shipbuilding to strengthen supply chains. More maritime shipping could reduce greenhouse gas emissions since it is the most carbon-efficient way to transport goods. Road freight can emit more than 100 times as much CO2 as ships carrying the same amount of freight the same distance.
The Jones fleet contributions to military sealift and manpower are modest. Only 73 percent of Jones ships are regarded as militarily useful. Most Jones ships are tankers while the military requires more agile vessels, such as roll-on, roll-off. Jones Act crews could fill 30 percent of mariners needed for a reserve fleet to keep commerce afloat, but only for 180 days.
The Jones Act “build in the United States” requirement rings hollow. If the hull is built in a U.S. shipyard, other components, such as engines and wiring, can be foreign. Of the four remaining U.S. shipyards building large oceangoing vessels for the commercial market, three have foreign partners and the fourth works with Daewoo Ship engineering on design and technologies.
The administration’s industrial policy understandably gives less weight to efficiency, a price to pay for national security insurance. Still, it is worth recording that the Organization for Economic Cooperation and Development estimated a full repeal of the Jones Act could increase U.S. economic output by up to $135 billion a year over time. Is the administration getting its money’s worth?
A smart industrial policy would take a comprehensive look at the U.S. maritime sector. Ideas range from a “Ships Act” to reinstate shipbuilding subsidies dropped in 1981 to the creation of a maritime reserve force.
At minimum, the old Jones Act needs fixes. Congressman Ed Case (D-Hawaii) has offered legislation exempting noncontiguous U.S. locations, setting a “reasonable rate” benchmark so Jones ships can charge no more than 10 percent of international rates and preventing monopolies or duopolies in noncontiguous shipping. Other suggestions include targeted exemptions, such as for sectors where no Jones Act specialty ships exist, for feeder container ships, or for energy transport when no Jones Act ship is readily available. Allowing foreign-built but U.S.-flagged and owned ships—“friend-shoring”—with fully vetted partners would tighten international security linkages and strengthen economic performance.
The politics of change cannot be underestimated. A plethora of congressional committees and executive agencies create a tight knot of interests. The administration has proved agile in shaping and implementing elements of a smart, new national industrial policy to strengthen the economy and security for the future. The Jones Act is the way of the past.
James Wallar is a senior associate (non-resident) with the Economics Program at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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