We at Cato have been happy to see a growing list of public officials, policy analysts, and everyday Americans join us in recognizing the Jones Act’s many problems. Among these new critics is the Niskanen Center, which last week published an essay characterizing the Jones Act—a 1920 law restricting domestic waterborne transport to vessels that are U.S.-flagged, U.S.-built and mostly U.S.-owned and crewed—as “outdated industrial policy”. The Jones Act, the Niskanen piece added, is out of touch with economic reality, does not support the U.S. maritime industry, and fails to advance national security goals.

That’s the good news.

After detailing the law’s many flaws and failed objectives, however, author Gabriela Rodriguez proposes not a fundamental overhaul but instead maintaining the law’s world-beating protectionism and implementing additional industrial policy measures. In particular, she recommends that the government (1) tighten the law’s domestic build requirement by mandating that certain electronic systems used in Jones Act ships be made in the United States; (2) create a federally chartered corporation to invest in the U.S. maritime sector; and (3) establish a “national shipyard (perhaps administered by [the U.S. Maritime Administration])” to “build critical oceangoing Jones Act fleet vessels” such as liquified natural gas (LNG) tankers and heavy‐​lift vessels used to move smaller vessels and heavy equipment.

Such an approach, however, suffers from several flaws—flaws that would very likely amplify the Jones Act’s failures, rather than remedy them.

Before getting to that, however, let’s start on a high note with areas of agreement. As already mentioned, Rodriguez is absolutely correct that—after more than a century of protectionism and the slow, steady degradation of U.S. commercial shipbuilding and the merchant marine—the Jones Act imposes economic costs while failing to meet the country’s national security needs. Rodriguez also commendably recognizes that the Jones Act confounds the provision of relief supplies, and that there must be a better process for allowing the use of foreign ships during emergencies. Her call for the law to be reformed instead of repealed, something we at Cato have long examined and explored, also has much to recommend given political realities. The United States probably won’t shift from having the world’s most restrictive cabotage law to no cabotage law overnight (a more detailed look at possible Jones Act reforms will be provided in a separate and forthcoming blog post).

Unfortunately, these positive aspects of Rodriguez’s essay can’t salvage the whole thing.

For starters, the essay suffers from basic factual errors. Rodriguez, for example, avers that the Jones Act was “intended to bolster the domestic steel and iron industry by supporting commerce on the Great Lakes.” But the law was intended to do no such thing. The Jones Act—Section 27 of the Merchant Marine Act of 1920—was an update of cabotage laws dating to 1817, far predating the iron and steel industry’s rise to any noteworthy size in the region. The only industry Section 27 was meant to bolster was the shipping industry in Sen. Wesley Jones’s home state of Washington, which championed the measure to drive foreign competition out of the Alaska trade.

Rather than bolstering Great Lakes iron and steel companies the Jones Act hinders industries that rely on Great Lakes shipping by leaving them beholden to an aging and inferior fleet. In fact, Congress granted relief from the law and its precursor to assist the Great Lakes steel industry during both World War I and World War II—a notable tacit admission of the Jones Act’s damaging effects (these wartime exceptions, by the way, are worth reflecting on given frequent defenses of the law made on national security grounds).

Rodriguez also mistakenly attributes the high cost of constructing ships in the United States to labor and safety regulations. But such factors have little explanatory power as even U.S. shipyards themselves admit. At an online forum last year, for example, representatives of three U.S. shipyards were asked if regulations contributed to the higher cost of U.S.-built vessels, and all three representatives either demurred or rejected this as a significant factor.

Perhaps more instructively, the Netherlands and Norway—countries not known for their lax labor and safety regulations—in 2021 each had more than three times the commercial shipbuilding output of the much larger United States. That’s unsurprising given their superior levels of efficiency. A 2004 article, for example, noted that Dutch shipyards were able to produce ships for one‐​third the U.S. price while paying their workers 20–40 percent more.

And this gets to the second, and more fundamental, flaw in Rodriguez’s proposals: they fail to acknowledge that the primary source of the Jones Act’s problems and those plaguing U.S. shipbuilding is its onerous and out of touch protectionism. Indeed, as we and many others have detailed, more than a century of maritime protectionism has not only harmed American consumers, hampered disaster relief efforts in Puerto Rico, and left energy-starved Americans unable to access American-made energy, but also left the U.S. commercial shipbuilding plumbing new depths of uncompetitiveness. Two years after the Jones Act was passed, for example, a government report found the cost of a U.S.‐​built ship to be 25 percent more than one constructed overseas. Today a U.S.-built tanker costs 300 percent more than one built abroad while a U.S.-built containership has a price premium of 400 percent.

This is the logical—textbook, even—outcome of a protectionist law that hands the domestic shipping and shipbuilding industries a captive U.S. market and thus discourages scale, efficiency, innovation, and specialization. Rather than identifying a competitive niche in the large international market and utilizing the world’s best materials, equipment, and know-how, U.S. shipyards content themselves with a small, protected domestic market. While individual foreign shipyards can annually build scores of merchant ships, U.S. shipyards have collectively averaged fewer than three per year since 2000. 

Such paltry numbers mean, among other things, that high fixed costs are spread across fewer vessels, and that there is no volume discount from ordering large numbers of components from suppliers. The result is a vicious cycle where prices go up and the quantity demanded goes down, placing further upward pressure on prices (U.S. tariffs on steel and other inputs don’t help either).

The Philadelphia Shipyard offers a troubling example of this cost death-spiral. In late 2013 shipping company Matson ordered two Aloha class containerships from the shipyard for $209 million each. Last year Matson ordered three more Aloha class containerships for $1 billion—$333 million each. Even accounting for inflation and some technological upgrades, this is a notable deterioration in competitiveness—so notable, in fact, that it prompted one Danish maritime publication to wonder whether the ships were to be constructed with gold plates!

One analyst recently summarized this dynamic well when describing how the Jones Act undermines domestic shipbuilding for inland waterways:

[T]he Jones Act requires domestic shipping to be conducted exclusively with vessels built and registered in the United States and crewed by American mariners. On inland waterways, this makes marine transportation less competitive compared to trains and trucks because shipping costs are too high to offset the inherently longer travel time. Absent the lower prices that competition and innovation could bring to marine shipping, shippers only turn to marine transport for the heaviest and bulkiest cargo.

This captive market remains profitable without requiring large capital investments in new ships or other assets. Inland vessels can remain in service for decades or even a century because they travel in freshwater, which is less corrosive. And with its cargo concentrated in bulk commodities, the industry faces little pressure to upgrade its vessels or launch new ones.

As a result, shipbuilding for this market remains essentially a cottage industry — another example of the Jones Act’s failure to preserve domestic shipbuilding.

That analyst, it turns out, is Rodriguez’s colleague at the Niskanen Center.

A failure to acknowledge and reform the protectionist root causes of the Jones Act’s problems means that most of Rodriguez’s offered solutions raise far more questions than they answer. For example, her proposal for a government‐​run national shipyard to build LNG tankers and heavy‐​lift vessels never explains where—without fundamental reforms that would boost international competition, lower coastwise shipping prices, and impose some semblance of discipline on the shipbuilding industry—demand for these vessels would come from. Indeed, that such vessels are entirely absent from the Jones Act‐​compliant fleet isn’t due to a lack of domestic shipbuilding capacity but rather the ruinous economics of forcing American companies to use high-cost Jones Act shipping firms and forcing those firms to purchase their vessels from inefficient U.S. shipyards.

Put more simply: while private U.S. shipyards can build such vessels (albeit with skilled foreign shipyard workers in the case of LNG tankers to ensure the work is done correctly), there is no demand for them given prices vastly higher than those found abroad. Ships saddled with high Jones Act capital and operating costs rarely compete in the international market, and there appears to be insufficient demand to operate them purely in the domestic market. The math to both purchase and operate them under Jones Act requirements just doesn’t pencil out—unless, of course, the plan is simply to force American taxpayers to foot a massive and ever-increasing subsidy bill.

Indeed, we have every reason to believe that a shipyard owned and operated by the federal government would perform worse, not better, than current U.S. shipbuilders. This is, after all, the same government that has managed both an air traffic control system and a passenger rail service that are roundly considered to be impossibly costly, technologically inferior, and hobbled by mismanagement and politics. Do we really want to turn domestic LNG shipping, which demands some of the world’s largest and most technologically complex vessels, into another Amtrak?

Other more practical questions also arise. Would a shipyard backed by Uncle Sam compete with existing private shipyards, possibly driving them out of business? Would it also be subject to Buy America rules that, as noted by Cato scholars and many others (including at the Niskanen Center), increase bureaucracy and costs while delivering inferior products? And where would this shipyard be located? Watching various congressional delegations hash that question out would no doubt be quite the spectacle, and surely wouldn’t be the only matter surrounding the shipyard’s operation subject to political pressure.

The best way to address the many harms inflicted by the Jones Act is to change the Jones Act. While there is scope for offering new government measures to achieve U.S. national security aims in exchange for liberalizing Jones Act requirements, seeking to ameliorate the law’s harms by simply throwing more money at the problem in the name of industrial policy is a surefire formula for more economic heartburn and weaker national security.

Nearly 40 years ago the Niskanen Center’s namesake Bill Niskanen warned that the country faced a “choice between two industrial policies. One policy perceives government intervention as part of the solution, the other as part of the problem.” Niskanen made clear that his sympathies were firmly with the latter. U.S. maritime policy today faces a similar choice, and it should be clear that the industry’s ills do not stem from a lack of government intervention. Indeed, for decades it has been a case study in protectionism and government largesse run amok. To address the Jones Act’s harm to both the country’s economy and national security the pendulum must begin to swing the other way.