The United States is in the midst of negotiating two groundbreaking free trade agreements. However, one major impediment to international trade is surprisingly absent from the conversation. The Merchant Marine Act of 1920, also known as the Jones Act, requires all goods transported by water between U.S. ports to be carried on ships built in America, owned by citizens, and crewed by U.S. residents. While this Act may sound harmless, it has devastating effects on American consumers and domestic business investment.
Contrary to the claims of Jones Act supporters, the law does not increase economic growth. Rather, it reduces it. A select few ship builders and those they employ benefit, but most consumers lose because the restriction on shipping competition raises prices for everyday goods. For example, because of the Jones Act, it costs about $6 per barrel to move crude oil from the Gulf Coast to New England — triple what it costs to ship crude from the same destination to Canada on a foreign-flagged ship.
The Jones Act is particularly harmful to non-contiguous U.S. states and territories, such as Puerto Rico, Alaska, and Hawaii. Former U.S. Representative Charles Djou of Hawaii told me, “The Jones Act is an antiquated piece of legislation that needlessly drives up the cost of living in Hawaii. We lack the competition with trucking and rail to help keep shipping prices down. That’s why regulated monopoly shipping particularly hurts Hawaiians.” No wonder Hawaii has the nation’s highest cost of living, 12 percent higher than second-place Connecticut.
By insulating domestic producers from foreign competition, the Jones Act is harming, not supporting, the U.S. maritime shipping industry. The U.S. trucking industry does not enjoy the same protections as maritime shipping does, though both are critical to American economic and geopolitical power. U.S. exports of cruise and cargo ships only reached $100 million in 2013, compared with $4.1 billion for exports of semi-trailer trucks.