Something strange is afoot in the energy industry. According to Reuters, demand for tankers has reached such stratospheric levels that traders are resorting to that most desperate of measures—using Jones Act ships:

Oil traders are hiring expensive U.S. vessels, normally only used for domestic shipments, to store gasoline or ship fuel overseas, five shipping sources said, in a sign of the energy industry’s desperation for places to park petroleum amid a 30% drop in worldwide demand.

Billions of people worldwide are living under confinement rules due to the coronavirus pandemic, destroying demand for gasoline and other fuels and creating a supply glut. Storage tanks onshore and floating storage in tankers on the water are rapidly filling, leaving fewer options for traders looking to sock away oil.

Several shippers said they have started to book Jones Act (JA) vessels for foreign voyages or to store refined products. The century-old Jones Act requires that vessels traveling between domestic ports be owned and operated by U.S. crews, and they are generally more expensive than other vessels.

“It’s very unusual to use JA tankers for international trips,” one shipping source said.

Pause for a moment to reflect on this. International traders with a wide range of vessels to choose from consider Jones Act ships a last gasp option. But these costly vessels are the only option when transporting goods by water within the United States. Which helps explain why Americans largely avoid water transport. Despite 40 percent of the U.S. population living along coasts, ships are used to transport just 2 percent of the country’s freight (barges account for another 4 percent). In contrast, 40 percent of the European Union’s internal freight is moved by sea.

This is in large part the Jones Act’s handiwork. Instead of being able to select from a vast array of ships offering competitive rates, those seeking domestic waterborne transport are restricted to a limited, old, and expensive fleet undesired by the rest of the world. And what should be a leading means of transporting goods within a country as vast as the United States is a last resort. Americans deserve better.

I recently explained why concerns about China are no reason to allow the Jones Act status quo to fester. But the analysis can be taken a step further. If China is assumed to be a grave geopolitical threat, is the 100-year-old Jones Act an asset? If the United States and China are on a collision course—be it a Cold War-style confrontation or worse—does the law leave the United States better prepared or at a disadvantage? Here are some reasons to suspect it’s the latter.

Shipping: In the (hopefully unlikely) event of a U.S.-China military conflict, access to commercial ships will be a prized commodity. Any large-scale sealift operation will require such vessels to transport U.S. military supplies and equipment. But the Jones Act’s U.S.-build requirement means fewer U.S.-flag ships available than would otherwise be the case.

Any vessels engaged in the domestic waterborne transport of goods must be built in the United States. In other words, U.S. domestic ship operators have been effectively subjected to an international embargo for the purchase of vessels—all without China having to lift a finger. Instead of Americans having access to efficient foreign shipyards that offer competitive prices, they are restricted to domestic producers that charge up to five times as much as their international counterparts while taking longer to deliver the contracted vessels.

Such vessels must charge higher rates to compensate for their costly acquisition, and, thus, there is less demand for their services. The result is fewer of them. Anyone in China rooting for a decline in the U.S. commercial fleet can hardly believe their luck.

Shipbuilding: Jones Act supporters often claim the law’s U.S.-build requirement helps foster U.S. shipbuilding, which is often deemed key to U.S. national security. But here too the Jones Act plays the role of saboteur. Low demand for pricey U.S.-built ships means that the combined output of U.S. shipyards is typically in the low single digits. This is entirely predictable. By handing U.S. shipyards a captive domestic market, the Jones Act nearly guarantees their inferiority to shipbuilders abroad. These shipyards don’t need to be world-class to win Jones Act business—they simply need to better than the handful of other U.S. builders.

U.S. shipyards find themselves caught in a vicious cycle. Their lack of competitiveness results in minimal export business (exports accounted for just 4.6 percent of industry revenue in 2014) and little demand in the captive domestic market. This lack of demand means lower economies of scale, leading to reduced efficiencies and higher costs, further dampening the appetite for U.S.-built ships. And so it goes.

The Jones Act also harms U.S. shipbuilders in more direct ways. The law, for example, imposes severe limits on the amount of foreign-modified steel that can be used in vessel construction. In contrast, high-wage Norwegian shipyards are able to stay competitive in shipbuilding by outsourcing hull construction to cheaper yards in Eastern Europe. This allows the country’s shipyards to specialize in higher value-added aspects of the vessel construction process. Jones Act restrictions, however, make such an approach impossible for U.S. shipyards.

The Jones Act not only disincentivizes shipyards to achieve excellence but actively hamstrings their ability to reduce costs. Chalk this up too as a win for China.

Maritime Infrastructure: While China expands its investments in ports around the world, the Jones Act increases the difficulty and expense of maintaining such critical maritime infrastructure in the United States. Acting in concert with the 1906 Foreign Dredge Act, the Jones Act restricts dredging operations to vessels that are U.S.-flagged, U.S.-crewed, U.S.-built, and U.S.-owned. But the U.S. dredging fleet is comparatively small, aging, and costly. This translates into more time and money to remove the sand and silt that impedes the efficient operation of U.S. waterways.

Economic Impact: U.S. economic might is the sine qua non of both the country’s soft and hard power. Without its massive economy, the United States would be diminished in influence and less able to fund its large military. But the Jones Act undermines U.S. prosperity. Indeed, a 2019 study performed by the Organization for Economic Cooperation and Development found that the law’s repeal would boost U.S. value-added (essentially GDP) by up to $64 billion.

It’s easy to understand why. Although typically viewed as a foreign trade barrier, the Jones Act is perhaps best understood as an impediment to domestic trade. By raising the cost of transportation the law hampers Americans’ ability to trade with each other across the country’s vast expanse. It is figurative sand in the gears of the U.S. economy (more literally in the case of U.S. ports).

A lack of competitive shipping rates, or even sometimes actual ships, means that Americans purchase products from abroad despite a domestic abundance. New England ports receive liquefied natural gas (LNG) originating in Russia rather than the United States, Puerto Rico imports agricultural products instead of buying them domestically, and Hawaii meets its liquefied petroleum gas (LPG) needs from West Africa instead of the U.S. mainland.

China imports U.S. LNG and LPG while Americans in places such as Hawaii and New England cannot. That’s not defensible on the grounds of either economic efficiency or national security.

The Verdict is Clear: the Jones Act is Hurting U.S. Interests

This is far from an exhaustive list of harms caused by the Jones Act. Nonetheless, it’s hard to escape the conclusion that—assuming the worst about the path of U.S.-China relations and intentions of China’s leadership—the Jones Act actually serves Beijing’s interests. The law is a classic example of economist Henry George’s maxim that “What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.” Concerns over China are not only a false justification for the status quo, but they actually make reform or repeal of this law even more imperative.

For the record, I do not believe that framing U.S.-China tensions as a neo-Cold War or China as the Soviet Union reincarnate is a useful or accurate depiction of the relationship. But there is a clear element of competition. The United States has traditionally been seen as a champion of free markets and free people while China’s leadership has chosen the path of authoritarianism and a greater role for economic central planning. Other countries are watching and deciding which is best.

To be an effective advocate and model, the United States must hew to its principles in both word and deed. The embrace of laws such as the Jones Act serves as a disturbing indicator that the United States lacks confidence in the ideals it espouses. The Jones Act isn’t just about what’s best for the U.S. maritime sector or even U.S. economic efficiency and prosperity, but what the country stands for. Free people ought to use foreign ships in domestic transport, or at the very least foreign-built ships. The United States does not prevail in an ideological clash by embracing policies that are at clear odds with its stated values. It only undercuts and undermines itself.

Regardless of how one views the U.S.-China relationship, be it a battle of ideals or something more foreboding, the case for the Jones Act’s repeal or reform is overwhelming. The law is not only failing to achieve its stated objective of promoting a strong maritime sector but is actively working against U.S. interests. After 100 years change is long overdue. 

Tariffs, despite what their proponents seem to believe, harm domestic consumers and manufacturers. And this damage is especially bad in difficult economic times

So a new policy that postpones tariff payments for select products might seem like a step in the right direction:

“The Trump administration said it would allow some companies to delay payment of import tariffs due to economic hardship triggered by the new coronavirus.”

Importantly, however,

“President Trump’s special tariffs on Chinese goods and steel and aluminum imports weren’t included in the tariff-deferral offering, and other punitive tariffs on dumped and subsidized products also can’t be delayed, according to the temporary rule.”

So the relief is temporary, complicated, and different across industries, correlating with countries the administration dislikes or industries the administration wants to protect; in other words, thinly disguised crony capitalism. Lifting tariffs – in a clean, simple, and neutral way across industries – is the better policy.

As scrutiny of the Jones Act intensifies, defenders of the 100-year-old law have come up with ever more imaginative justifications for keeping it in place. One argument currently en vogue is casting the Jones Act as a bulwark against Chinese expansionism. Such framing is not difficult to understand given the poisoned state of U.S.-China relations.

But is it actually true? Would China take over or dominate domestic shipping in the Jones Act’s absence? There is considerable reason for skepticism.

It’s perhaps first worth noting that China, while a major shipping player, hardly dominates the field. Measured by deadweight tonnage (carrying capacity by weight), China and Hong Kong collectively own approximately 15.5 percent of the world’s ships. Ships flying the China and Hong Kong flags, meanwhile, account for less than 9 percent of the world’s total (or 15 percent as measured by deadweight tonnage).

In international shipping, Americans are free to use ships from any country for exporting and importing. Yet the overwhelming majority are from countries other than China. Of the top 40 shipping lines that carry U.S. exports, only a single one is headquartered in China. That line, Cosco/​OOCL, has a 9.4 percent market share of U.S. exports. For the shipping of U.S. imports Cosco/​OOCL weighs in at 12.3 percent.

Similarly, ships built in any country can be registered in the United States for the purpose of transporting goods internationally (but not domestically due to the Jones Act). But of the 86 U.S.-flagged ships engaged in foreign trade, only 12 were built in China. The rest come from the shipyards of U.S. friends and allies including Japan, South Korea, Taiwan, Singapore, Denmark, Germany, and Poland.

This use of Chinese-built ships and Chinese shipping has come at no obvious detriment to U.S. national security. Indeed, seven Chinese-built ships participate in the Maritime Security Program that provides sealift to the U.S. military. One of these vessels, the Ocean Giant, has been used to supply U.S. military bases and government installations.

If Chinese-built ships and Chinese shipping fail to dominate U.S. international trade and the U.S.-flagged foreign trading fleet, what reason is there to think they would occupy such a position in domestic trade should the Jones Act be repealed?

But even if Chinese domination of U.S. domestic trade in the Jones Act’s absence was a realistic possibility, that’s still no reason to leave the law intact. The Jones Act does not specifically prohibit Chinese ships from engaging in domestic trade, but rather all foreign-flagged and foreign-built ships.

This means that Americans cannot buy competitively-priced ships built in Japan or South Korea⁠ and use them to facilitate domestic trade. It means that Americans cannot contract with leading shipping companies such as Denmark‐​headquartered Maersk Line to move goods domestically. It means that Americans cannot use Spanish-flagged LNG carriers—a type of ship that does not exist in the Jones Act fleet—to transport U.S. natural gas to New England or Puerto Rico. It means that Americans cannot employ advanced dredging vessels from the Netherlands and Belgium⁠ to maintain the country’s ports and waterways.

These are all countries that have signed defense treaties with the United States. 

If keeping Chinese-built ships and shipping out of domestic trade is deemed a national security imperative, the current Jones Act blanket ban could be discarded in favor of a narrower approach that still grants access to U.S. partners and allies. One possibility would be to restrict the use of foreign-built ships or the provision of domestic waterborne transport to those countries with whom the United States has defense treaties or free trade agreements. Constraining one country by banning all countries from offering their ships and services is a profoundly inefficient approach.

This assumes, of course, that concerns about China are being made in good faith and aren’t just a convenient excuse for maintaining an archaic piece of protectionism.

The Jones Act is an outdated law that burdens the U.S. economy and spoils our environment while failing mightily to bolster national security. It is self-sabotage on a grand scale. If the employment of Chinese‐​controlled or Chinese‐​built ships in domestic commerce is indeed a national security threat then far less damaging ways of mitigating it are available. But this alleged menace is no excuse for maintaining an intolerable status quo.

The Jones Act’s primary victim is not China, but the United States.

Yesterday, to help businesses stay afloat and keep workers on payrolls, President Trump authorized the deferral of tariff payments on imports of certain products by certain companies for a certain amount of time. Before you smile broadly and, perhaps, engage in a few moments of gloating over the fact that, in this gesture, the president has finally conceded that U.S. importers pay the tariffs, first be reminded that Trump sees no cost too big for others to bear and no collateral damage too catastrophic for the economy to endure to ensure he doesn’t have to admit to a mistake.

Trump’s action will provide a little breathing room for some businesses, but many, many more will asphyxiate at the altar of “China Pays the Tariffs.” Here’s what happened.

The United States, like nearly every other country, imposes MFN (most-favored nation) tariffs on imported goods. The U.S. MFN tariff rate for a particular product is the same, regardless of which WTO-member country the product comes from. For example, the duty applied to imported automobiles is 2.5 percent ad valorem. China, the European Union, South Korea, and every other WTO member have their own MFN tariff rate for imported automobiles. The rates charged by each country may differ from each other’s (and they do), but the MFN rate each applies to every other country is the same.

Now, to add a layer of complexity, the duty rates applied to imports from countries with which the United States has a separate free trade agreement can be—and typically are—lower. For example, under NAFTA, auto imports come in duty-free (provided the auto meets the necessary rules of origin—that it qualifies as originating in North America). So, there are MFN rates and preferential rates of duty. (There is also something called “Column 2” rates, which are the duties that apply to imports from countries that do not enjoy “normal trade relations” status with the United States. That list, today, includes only North Korea and Cuba.)

Finally, sometimes imports from particular countries are subject to additional and conditional tariff rates because those imports have been found to be dumped (under the Antidumping Law), subsidized (under the Countervailing Duty Law), otherwise “unfair” (under Section 301 of the Trade Act of 1974), not necessarily “unfair,” but “injurious” (under Section 201 of the Trade Act of 1974) or a threat to national security (under Section 232 of the Trade Expansion Act of 1962).

In the years preceding Trump up through 2017, duties collected were in the neighborhood of $30–36 billion per year (~1.4% of import value). Those were all MFN and preferential FTA duties, as well as about $1–2 billion of duties collected on imports subject to antidumping and countervailing duty orders.

Then, in early 2018, Trump imposed safeguard tariffs (Section 201) on solar panel components and large washing machines from most countries. Later that year, the president imposed “national security” tariffs (under Section 232) on steel and aluminum from most countries. Then, in the summer of 2018, he began imposing (in phases) tariffs on imports from China under Section 301.

The duties collected by Customs and Border Protection doubled from $36 billion in 2017 to $72 billion in 2019. So, about half of that $72 billion are tariffs collected from Trump’s noted protectionist measures, as well as antidumping and countervailing duty orders imposed during and before Trump’s presidency.

That brings us to yesterday’s executive order. Trump’s decision to grant a 3‑month reprieve on tariff collections extends only to the MFN and preferential FTA duties in effect before Trump came into office. The duties from his protectionist actions (solar components, large residential washers, steel, aluminum, China, and the numerous AD/CVD orders) do not qualify for the deferral. Why? This is presumably to inoculate Trump from having to concede that his duties on China (and the other duties that he so wisely and strategically deployed) are actually paid by U.S. importers. The burden on importers, according to this Trump contortion (if logic’s not your strong suit or you’re just willfully ignorant) is caused by the MFN and FTA tariffs, and not by the tariffs associated with Trump’s protectionist actions.

To qualify for the 90-day tariff deferral, which applies only to imports made in March and April, companies must demonstrate that they’ve suffered financial hardship and meet other opaque requirements. My back of the envelope estimate is that this action would put up to $6 billion back into the cash flow of businesses for 90 days, giving them some room to continue operating and keeping workers on payroll. But this is no more than a cosmetic, political gesture being taken when doing something more meaningful—such as deferring payment of all tariffs for one year and scrapping the corrupting conditions—would be possible, but for Trump’s obsession about winning the argument about who pays the tariffs.

Reuters reports that the Trump administration is planning to tighten export controls “to prevent China from obtaining advanced U.S. technology for commercial purposes and then diverting it to military use.” That sounds unobjectionable. After all, one purpose of U.S. export control laws is to ensure that dual-use items—articles that have both commercial and military applications—are exported for commercial use only, unless explicitly licensed for military use. But closer scrutiny of the fine print is needed to assess whether the expected national security benefits of these new rules will be significantly outweighed by their commercial, geopolitical, and human costs.

The Export Control Reform Act of 2018 (“ECRA”) grants the administration broad jurisdiction over “the export, reexport, and in-country transfer” of dual-use items, such as “accelerometers,” which are devices that measure the movement of objects and are used in commercial aircraft navigation systems, as well as in missile guidance systems. The ECRA requires the secretary of commerce to establish and maintain a list of controlled items, and a list of foreign persons and end uses deemed threatening to national security.

Under the law, licenses are required to export those items and to export to those persons, but exceptions apply under certain conditions. Some of those exceptions are on the chopping block. According to Reuters, three major changes are in store:

One change would do away with the civilian or “civ” exemption, which allows for the export of certain U.S. technology without a license, if it is for a non-military entity and use… Another change would stop China’s military from obtaining certain items without a license even if they were buying them for civilian use, such as scientific equipment like digital oscilloscopes, airplane engines and certain types of computers…A final change would force foreign companies shipping certain American goods to China to seek approval not only from their own governments but from the U.S. government as well.

Forestalling the Chinese military’s access to advanced technology seems like a legitimate aim of U.S. policy, and the first two rule changes identified above might help achieve that outcome at an acceptable cost. It seems reasonable that U.S. exporters of certain advanced technology to non-military entities in China should require licenses so that illicit channels of technology transfer can be better monitored and shut down. Likewise, given Beijing’s own blurring of lines between military and civilian activities—President Xi speaks of a “civil-military” fusion in the area of technology adoption—why should that distinction be preserved under U.S. export control laws?

It’s prudent to require U.S. exporters of dual-use items to the Chinese military to have a license—even when those items are designated for civilian use. Of course, those changes would make exporting to China more burdensome. But most of the added costs would be borne by the parties to the transaction—U.S. exporters and Chinese importers—and would probably justify the national security benefit obtained.

The last measure (or set of measures) under consideration, however, is problematic because it is less surgical than the others and threatens collateral damage to the technology ecosystem, U.S. commercial interests, broader relations with China and other countries, and international efforts to contain and defeat a global pandemic.

U.S. export controls apply directly to products made in the United States, but also extra-territorially to products made in third countries with “controlled” U.S. equipment, which contain a certain minimum percentage of controlled U.S. content. Exporters of these products from third countries require U.S. approval. The new rule would lower (and maybe eliminate) the content threshold so that licenses would be required by more producers in third countries, including all foreign companies producing semiconductors with U.S. chip-making equipment that are sold to China’s Huawei Technologies.

Sales of U.S.-made goods to Huawei have been restricted since last May, when the company was put on a Commerce Department blacklist for reasons of national security. But up until now, foreign suppliers of U.S. technology to Huawei have been beyond the full reach of U.S. authorities. The new rule would extend that reach, giving the U.S. government veto power over sales of even basic commodity semiconductors to Huawei from producers in Taiwan, South Korea, and elsewhere, wreaking havoc, in the near term, on Huawei’s capacity to plan, produce, and profit.

It isn’t hard to believe these new rules are intended primarily to thwart Huawei’s success—an objective many policymakers in Washington seem to support. But before pulling the pin, the administration should solicit stakeholder feedback and conduct an honest analysis of the likely costs and broader impact of the rule changes on the technology ecosystem, which includes industries up and down the supply chain from companies doing research to commercial innovation to semiconductor manufacturing to the production of everything called information and communications technology.

What might they learn? The following, if this U.S. technology industry coalition letter is a guide:

Abrupt changes to the export controls regulations for semiconductors will create uncertainty for the entire technology industry. Semiconductors are the foundation of modern electronics, information technology, cloud services, critical infrastructure and the defense industrial base. In addition to playing a critical role in sectors throughout the economy, semiconductors play an essential role addressing the COVID-19 public health emergency. Semiconductors drive the functionality in advanced medical equipment used by health professionals to treat the public, and they enable the products and services that allow telework, remote learning, telemedicine, and other aspects of our economy and daily life. Semiconductors will also play a pivotal role in driving the industries of the future and the economic recovery once the public health emergency is defeated.

Changes to the export control regulations under consideration have the potential to result in significant impacts on the semiconductor industry, its global supply chain, and the broader technology sector that relies on predictable access to semiconductors. Given the importance of this industry – and in light of the unprecedented public health crisis and economic disruption – it is imperative that any regulatory changes be narrowly tailored and minimize damage to industry. Subjecting such regulatory changes to public comment would help ensure that Commerce benefits from the industry’s views and avoids unintentionally exacerbating an already difficult economic situation.

A letter to President Trump by the president of SEMI, an association representing the semiconductor and electronics manufacturing supply chain, warned that the new rules would “serve as a disincentive for further investments and innovation in the U.S. and lead to the design-out of U.S. technology and components.” Indeed, companies such as Taiwan Semiconductor Manufacturing Corporation, a long-time consumer of U.S. chip-making equipment and the world’s largest producer of commercial chips, which obtains 17 percent of its revenue from sales in China, will look to other countries for their capital equipment needs.

Likewise, the move would encourage China to expedite development of its own chip-making capacity and to source more semiconductors from South Korea, which would hasten a decline in revenues and market shares of U.S. chip and chip-making equipment firms. The damage to U.S. commercial interests would go beyond the semiconductor supply chain, as Beijing looked to deploy retaliatory measures to frustrate the efforts of U.S. businesses in China and elsewhere. Ultimately, disruptions in semiconductor supply chains could impede production and increase the costs of various kinds of smart medical equipment and devices relied upon by health professionals in the battle against COVID-19 and other diseases. 

Controlling exports of cutting-edge technologies that have military or intelligence applications is probably a prudent aim of policy. But the new export controls go beyond that and seem unnecessarily provocative, especially during a time when U.S.-China cooperation is sorely needed. Most concerning is that the accumulated weight of the measures and countermeasures that have burdened relations for several years may soon prove too hard to bear, resulting in a total collapse in the bilateral relationship. The specter of the world’s two largest economies refusing to cooperate to contain the pandemic and repair the global economy is a worry to take very seriously.

Nine days ago, I noted here on this blog that “[s]o far, 54 countries have implemented some form of export restriction on medical supplies.” The number has increased since then, and it appears that the United States will be joining the club.

Last week, President Trump issued a “Memorandum on Allocating Certain Scarce or Threatened Health and Medical Resources to Domestic Use,” which including the following passage about personal protective equipment (PPE):

On March 25, 2020, the Secretary of Health and Human Services designated under section 102 of the Act 15 categories of health and medical resources as scarce materials or materials the supply of which would be threatened by accumulation in excess of the reasonable demands of business, personal, or home consumption, or for the purpose of resale at prices in excess of prevailing market prices (“scarce or threatened materials”). These designated items include certain PPE materials. To ensure that these scarce or threatened PPE materials remain in the United States for use in responding to the spread of COVID-19, it is the policy of the United States to prevent domestic brokers, distributors, and other intermediaries from diverting such material overseas.

An accompanying statement clarified:

Nothing in this order will interfere with the ability of PPE manufacturers to export when doing so is consistent with United States policy and in the national interest of the United States.

The memorandum was a bit strangely worded, and these kinds of announcements from the Trump administration sometimes don’t lead to much, so I wondered where this was going. But now it has gone somewhere. Last night, FEMA put out a temporary final rule (scheduled for publication in the Federal Register on April 10) entitled “Prioritization and Allocation of Certain Scarce or Threatened Health and Medical Resources for Domestic Use.” This rule will give FEMA the authority to block exports of PPE (such as N95 respirators, gloves, and masks) in particular circumstances. The key part of the rule states:

Following consultation with the Secretary of HHS; pursuant to the President’s direction; and as an exercise of the Administrator’s priority order, allocation, and regulatory authorities under the Act, the Administrator has determined that the scarce or threatened materials identified in the April 3, 2020 Presidential Memorandum (“covered materials”) shall be allocated for domestic use, and may not be exported from the United States without explicit approval by FEMA. See new 44 CFR 328.102(a).

The rule is necessary and appropriate to promote the national defense with respect to the covered materials because the domestic need for them exceeds the supply. Under this temporary rule, before any shipments of such covered materials may leave the United States, CBP will detain the shipment temporarily, during which time FEMA will determine whether to return for domestic use, issue a rated order for, or allow the export of part or all of the shipment under section 101(a) of the Act, 50 U.S.C. 4511(a). FEMA will make such a determination within a reasonable time of being notified of an intended shipment and will make all decisions consistent with promoting the national defense. See new 44 CFR 328.102(b). FEMA will work to review and make determinations quickly and will endeavor to minimize disruptions to the supply chain.

In determining whether it is necessary or appropriate to promote the national defense to purchase covered materials, or allocate materials for domestic use, FEMA may consult other agencies and will consider the totality of the circumstances, including the following factors: (1) the need to ensure that scarce or threatened items are appropriately allocated for domestic use; (2) minimization of disruption to the supply chain, both domestically and abroad; (3) the circumstances surrounding the distribution of the materials and potential hoarding or price-gouging concerns; (4) the quantity and quality of the materials; (5) humanitarian considerations; and (6) international relations and diplomatic considerations.

This rule contains an exemption that the Administrator has determined to be necessary or appropriate to promote the national defense. See new 44 CFR 328.102(c). Specifically, the Administrator has determined that FEMA will not purchase covered materials from shipments made by or on behalf of U.S. manufacturers with continuous export agreements with customers in other countries since at least January 1, 2020, so long as at least 80 percent of such manufacturer’s domestic production of covered materials, on a per item basis, was distributed in the United States in the preceding 12 months. The Administrator decided that this exemption is necessary or appropriate to promote the national defense because it would limit the impact of this order on pre-existing commercial relationships, in recognition of the importance of these commercial relationships to the international supply chain, and for humanitarian reasons, in consideration of the global nature of the COVID-19 pandemic. If FEMA determines that a shipment of covered materials falls within this exemption, such materials may be transferred out of the United States without further review by FEMA, provided that the Administrator may waive this exemption and fully review shipments of covered materials subject to this exemption for further action by FEMA, if the Administrator determines that doing so is necessary or appropriate to promote the national defense. FEMA may develop additional guidance regarding which exports are covered by this exemption, and encourages manufacturers to contact FEMA with specific information regarding their status under this exemption.

What does all this mean in practice? What impact will the rule have on exports of PPEs? How many exports will fall under the exemption described in the last paragraph? It’s hard to say and we’ll have to see how FEMA applies the rule. It is possible that FEMA will apply it strictly and try to divert a fair amount of these products to the domestic market rather than let them be exported. It is also possible that FEMA will apply it flexibly, and only block exports if they would clearly undermine coronavirus-related global health policy. In making its decision on whether to allow export, FEMA is supposed to consider a number of factors, including “humanitarian considerations” and “international relations and diplomatic considerations.” Blocking exports of medical supplies being sent abroad to help people in other countries would seem to undermine those goals.

Generally speaking, I’m not too worried about the existence of regulations like this one in principle. It seems to me that governments should be tracking where these products are right now, in order to coordinate with each other and help those most in need at a given time. If an export regulation such as this one is used mostly as a monitoring mechanism, to track where these products are being sold, it would be fine. And to take an extreme hypothetical, if it were used to prevent an order being shipped somewhere for a big halloween party where everyone wants to wear surgical masks, that’s OK too. And it’s even all right if governments keep the products in their country if they are at the peak of the crisis while the export destination country hasn’t been hit yet.

The key is to talk to other governments about what you are doing. The exercise shouldn’t be a purely unilateral one. The instruction in the rule to take into account “international relations and diplomatic considerations” should serve as the basis for cooperating with other countries in the implementation of this rule. Let’s hope it does. If the Trump administration uses the regulation as a way to hoard medical supplies, it’s going to cause retaliation by our trading partners in the short– and long-terms, as they apply tough export restrictions of their own and begin to lose trust in the United States as a reliable trading partner. Hoarding is not the answer here. Instead, governments should focus on encouraging increased production and should work together to make sure those with the greatest need have access to the necessary supplies.