Although President Trump is known as “A Tariff Man,” all of the presidents in our lifetime have been far more draconian when it comes to “protecting” the U.S. maritime industry with the 100-year-old Jones Act. The result has been fatalities, the decimation of an industry, heavy burdens on American consumers and businesses and, most recently, a genuine Russia scandal.
Enacted in June 1920, the Jones Act prohibits any foreign ship or crew from moving cargo from one U.S. port to another. There is no tariff they can pay to sell their shipping services to American customers. While seemingly harmless, if not patriotic, this burdensome regulation has all but eliminated domestic coastal shipping and U.S. ship building because it drives up domestic shipping costs by a factor of up to eight.
Unintended consequences abound as customers try to avoid some of the extra expense. One tactic is to rely on a dangerous tug-barge operation because the barge requires no crew. It was this same operation that struck Richard K. Lublin’s 36-foot pleasure craft Karen E in Long Island Sound in 1981, killing his wife, daughter Karen and three neighbors who were onboard. The precursor to the Jones Act, the 1915 Seaman’s Act, contributed to the drowning deaths of 844 people in a single day, which remains Chicago’s biggest disaster surpassing even the Great Chicago Fire.
A sizable amount of the cargo that, without the Jones Act, would be shipped on coastal waters ends up on trucks congesting our highways and polluting our atmosphere, especially near large cities where many people live and breathe. Other cargo ends up on circuitous international routes.
As if leaving domestic shipping high and dry was not enough, the Jones Act has forced American natural gas consumers on the East Coast into the hands of Russian bootleggers. Natural gas is consumed all over the world, but most of the natural gas reserves are in Russia, the Middle East and the United States.
One would think that Russia’s natural gas company, Gazprom, would serve customers in the Eastern Hemisphere while American companies served customers in the West, but the Jones Act upends the transportation logistics and further enriches Gazprom in the process. As with the alcohol prohibition of the 1920s, the prohibition of natural gas shipments creates profit opportunities for bootleggers.
Here is how it works. Foreign ships bring Russian natural gas thousands of miles across the Atlantic Ocean (the Jones Act does not apply to international routes), where they unload it in Massachusetts for almost $9 per thousand cubic feet in liquified form (known as LNG). The empty ships then make a short trip down the East Coast, where they refill with LNG at bargain prices as low as $3 per thousand cubic feet and then cross the ocean again to deliver to their final customers in Pakistan.
From the point of view of the consumers in Massachusetts and Pakistan, and from producers in Russia and the United States, this transport system is hardly different from running illegal bootlegging routes up the American East Coast while delivering natural gas directly from Russia to Pakistan. Either way, the Russians get to pocket $6 per thousand cubic feet ($9 in Massachusetts minus $3 in Maryland or Georgia) at America’s expense. The circuitous international route makes this little-known Russian scandal all legal.
The good news is that not everyone is onboard with the Jones Act, namely President Trump. He sees it for what it really is; a harmful regulation like the ones he has succeeded in eliminating from health insurance, telecommunications, farming and many other industries. Moreover, he hates that America has fallen so far behind ship builders in China, Korea and Japan. He and others on his staff find it ridiculous that nowhere on Earth is there a single LNG carrier that fits the Jones Act criteria.
The bad news is that a web of powerful special interests is committed to keeping the Jones Act afloat. In 2008, presidential candidate Barack Obama knew that he must genuflect to the Seafarers International Union, writing that “your members can continue to count on me to support the Jones Act … and the continued exclusion of maritime services in international trade agreements.” The web is well established in Congress, too. It stretches all the way to President Trump’s Cabinet, where the Secretary of Transportation Elaine Chao, together with her powerful husband, Sen. Mitch McConnell, receive prestigious awards and millions of dollars from shipping interests.
Centuries ago, Britain’s Navigation Acts also prohibited, for protectionist purposes, the import of domestic shipping services. But by the mid-19th century, Britain recognized that modern naval warfare no longer needed that kind of protection. The time is long overdue for us to repeal the Jones Act.
• Casey B. Mulligan, professor of Economics at the University of Chicago, served as chief economist of the White House Council of Economic Advisers from 2018 to 2019. He is the author of “You’re Hired! Untold Successes and Failures of a Populist President.”