A Better Way to Unclog NYC Streets: Repeal the Jones Act

Daniel J. Ikenson and Colin Grabow

Bumper-to-bumper traffic. Degraded bridges and potholed highways. Excessive fuel use and carbon emissions. Inflated transportation rates. Higher prices on store shelves. It’s time for New Yorkers to connect these dots and take full notice of the burdens the Big Apple endures as a consequence of what is possibly the most expensive, distortionary, protectionist failure in US history. It’s time to blame the Jones Act.

The Jones Act — technically, Section 27 of the Merchant ­Marine Act of 1920 — is a 99-year-old law that was originally sold as a national-security necessity. The law was supposed to ensure a ­domestic shipbuilding capacity, a reliable and diverse fleet of ships and a ready reserve of merchant mariners that could be deployed in times of war or other national emergencies.

The law requires that domestic waterborne cargo be restricted to ships that are US-built, US-owned, US-flagged and US-crewed. It has thoroughly backfired.

Over the last century, there has been a near total absence of any compelling evidence that the Jones Act has contributed meaningfully to national security. We have witnessed continuous ­declines in the number of US merchant mariners. The range of ships built in America’s dwindling shipyards has narrowed; the volume has dropped.

Meanwhile, the US government has remained dependent on foreign ships during national emergencies such as the Gulf War, when the Pentagon was so desperate for ships for transporting military equipment that it asked the Soviet Union — twice! — to borrow one of theirs.

Meanwhile, the Jones Act has saddled the US economy with a bevy of serious problems that have grown worse over time.

First, the law mandates that ­domestic carriers use US-built ships, which are up to eight times more expensive than those built in foreign shipyards.

A recently christened Jones Act containership, for example, featured a price tag $50 million higher than a South Korean-built containership with six times greater cargo capacity than the domestic one.

Second, the US carriers that purchase these overpriced ships are only able to make the economics work because of the Jones Act’s ­requirement that domestic transport be provided by ships that are owned and crewed by Americans, and registered under the US flag.

Without foreign competition, US carriers are free to charge exorbitant rates. According to the best available data, the freight rates charged by these Jones Act carriers are double to triple the rates charged to ship similar volumes and distances in voyages involving a foreign port, where the Jones Act doesn’t apply.

Exorbitant waterborne rates push cargo onto congested US highways and railways. That, in turn, boosts demand for truck and rail transport, which means higher transport costs for businesses that move merchandise to retail outlets, inventory to warehouses and intermediate goods to manufacturing facilities.

Those inflated freight expenses increase the costs of production for US manufacturers and the cost of living for US families.

The ­diversion of cargo onto our highways worsens an already bad congestion problem. New Yorkers know this side effect of the Jones Act all too well. Waterborne-freight restrictions aren’t the only cause of bad traffic in congested areas, but they’re an important factor.

The costs don’t end there. The Jones Act also deters Americans from buying US-made products. In Puerto Rico, for example, businesses and residents purchase products ranging from jet fuel to corn and potatoes to animal feed from abroad rather than from ­domestic sources, because the cost of domestic shipping is too high.

Outrageously, even as the United States has emerged as an energy-exporting powerhouse, New Englanders often heat their homes with imported gas — even from Russia — because of the dearth of Jones Act ships and the high cost of shipping.

Finally, the Jones Act is a trade barrier. Because the government insists on keeping shipbuilding and maritime services officially off-limits in trade negotiations, foreign governments limit American firms’ access to their markets in ­response.

This is but a taste of the Jones Act’s unseen and myriad costs. For almost a century, this law has ­imposed significant costs on the American economy in exchange for benefits that are dubious at best. It’s time to sink the Jones Act and free our roadways.

Daniel J. Ikenson is director and Colin Grabow is a policy analyst at the Cato Institute’s Herbert Stiefel Center for Trade Policy Studies. Colin Grabow is a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.