Facts and observations about the Jones Act

by on September 29, 2017 at 8:01 am in Current Affairs, Economics, Law, Uncategorized | Permalink

1. In 2011, 67 percent of the vessels operating in the Port of San Juan were foreign flag vessels, often Panamanian.  Of course they were not carrying cargo from the United States.  That limits the economic costs of the Jones Act, but also implies it doesn’t do much to keep up U.S. shipbuilding for military purposes.  I found this GAO report useful.

2. How can we achieve the military purposes of the Jones Act?  Some observers recommend direct subsidies, but those are much more costly and furthermore require targeting and thus a more specific brand of crony capitalism.  We tried such subsidies in the past and abandoned them due to cost.

3. China, South Korea, and Japan account for over 91 percent of the flow of new ships, circa 2015.  That is sourced from this Mercatus study, by Thomas Grennes, which is the best piece I’ve found on the Jones Act and also the source for the points to follow.

4. What counts as an “American ship” for Jones Act purposes is not always defined or enforced very rigorously.  If deep trouble were to hit East Asia, it might not be possible to expand the production of American ships very much, because of reliance on foreign components.

5. In 1960, there were 2,926 large ships in the U.S. fleet, now there are only 169 such ships.  And of those, only 91 are Jones-Act eligible.

6. Wages on American ships are five times higher than on comparable foreign-flag vessels.  The crews for the latter are often Filipino or Chinese.  Part of the Jones Act motivation is to have surge capacity on the crew side, not just on the shipbuilding side.

7. The cost of producing new ships in American shipyards is four to five times higher than in the relevant foreign shipyards.

8. Given changing share ownership, we don’t even know if “American-owned” ships, for Jones Act purposes, are necessarily American-owned or controlled.

9. John McCain introduced a bill to repeal the Jones Act as long ago as 2010.  He has argued the Act serves no useful military purpose, as it still does not leave America with a useful “surge capacity” for military purposes.  This problem remains outstanding.

10. Trump did just temporarily waive the Jones Act for Puerto Rico.  While this is to be applauded, in the short run this still won’t help very much, as the main problem is transport and infrastructure on the island, not shipping per se.

1 dearieme September 29, 2017 at 8:03 am

“but those are much more costly “: balls. They’d be much more visible. Bastiat and all that. You must have heard of the chap.

2 JWatts September 29, 2017 at 9:22 am

+1, I can’t believe that comment came for Tyler the Economics professor. The current system just hides the costs by pushing it onto the customers as higher transportation costs

3 dan1111 September 29, 2017 at 9:57 am

I think this is a weak criticism.

Direct subsidies are indeed “much more costly” in the context of government budgets. This is real and very relevant in terms of what is feasible politically, even if systemically it is just the same cost in a different form. There’s nothing wrong with calling this “higher cost” within the appropriate context.

But also, the subsidy program may be a less efficient and less effective way of achieving the same end, and therefore cost more in systemic terms as well. If the subsidy program has greater administrative requirements and more targeted “crony capitalism” than it may indeed be more expensive.

4 prem435 September 29, 2017 at 11:08 am

… members of Congress are the officially designated decision-makers on this issue. They carefully evaluate all the fiscal, logistical, military, political factors involved … using their vast knowledge, experience, and superb legislative teamwork. They produce the best possible solution(s) available.
We should not be second-guessing our esteemed national leaders in the United States Congress, past or present.

5 Louis October 1, 2017 at 11:40 am

Another negative effect of subsidies and protected markers : desincentive to develop new markets and substantial efforts to increase productivity. Who knows, in the long rune, without Jones act, American vessels could be more competitive even with higher wages. United states has proven to be highly compétitive in many sectors without gouvernement intervention. Why not in the maritime industry ?

http://nm-maritime.com/en/2016-development-shipbuilding-industry/

6 A Truth Seeker September 29, 2017 at 8:14 am

“In 1960, there were 2,926 large ships in the U.S. fleet, now there are only 169 such ships. And of those, only 91 are Jones-Act eligible.”

So what? Americans can use cheap jeans, haircuts, reverse swaps and Juiceros to transport their goods.

7 mulp September 29, 2017 at 11:52 am

“We tried such subsidies in the past and abandoned them due to cost.”

Bottom line, paying American workers to work costs American workers too much.

We put money in the pockets of American workers with tax and prices cuts than they lose by eliminating their jobs or slashing their wages by 60%!

And when we transfer our military technology to China, we will have a much bigger military superiority globally by buying more and better military equipment from China. For the money used to buy the last ten nuclear carriers we will be able to buy 15 from China and save money, buy 25 replacement nuclear subs to replace the current fleet and save money, and only the US will have the superior naval power!

8 A Truth Seeker September 29, 2017 at 2:14 pm

I do not think China will sell you weapons to defeat China, but they may be interested in selling you a rope to hang yourself. But there will be profit…

9 The Other Jim September 29, 2017 at 8:19 am

There it is!! Thanks Ty.

I was wondering how long it would take on MR to go from

“OMG TRUMP ISN’T PAYING ATTENTION HE MUST WAIVE THE JONES ACT NOW, THAT MONSTER” to

“Now that he’s waived the Jones Act, it’s time to point out that it won’t really do anything.”

Answer: 48 hours!!

10 Caleb September 29, 2017 at 9:00 am

Answer: 48 hours!! – To be fair, Trump is only waiving the Jones Act for 10 days while MR called for its permanent repeal. Considering the time it takes to prepare shipments and the travel time, a 10 day waiver is basically worthless.

11 dan1111 September 29, 2017 at 9:37 am

Not to mention that the two posts were written by two different people.

Have you ever noticed the hypocrisy of MR being for open borders whenever Alex writes a post, and against open borders whenever Tyler posts? That is an even bigger story.

12 Anonymous September 29, 2017 at 10:23 am

Can anyone even schedule and deliver in a 10 day window? Sounds like a think designed to be useless.

13 Andrew M September 29, 2017 at 10:52 am

Can anyone even schedule and deliver in a 10 day window?

Amazon can deliver within two hours.

14 Anonymous September 29, 2017 at 11:02 am

Problem solved. Amazon Prime generators to every remote town.

15 Brian Donohue September 29, 2017 at 9:01 am

Yeah, I noticed #10 comes through audibly gritted teeth.

16 Urso September 29, 2017 at 4:11 pm

Never let a crisis go to waste.

17 Adam September 29, 2017 at 9:40 am

1. I means the administration can be influenced to do the right thing. Good.
2 Only for 10 days, so only very immediate relief shipments. The Jones act hurts Puerto Rico disproportionately, and it should be waved for the whole rebuilding period. Actually it should be scrapped entirely.

18 Anonymous September 29, 2017 at 10:16 am

This whole line of argument is silly. Or at least it is if you closely follow the news. Trump first said squarely in an interview that he was keeping the Jones Act in place for Puerto Rico because US shipping interests told him it was a good thing.

http://www.cnn.com/videos/us/2017/09/27/jones-act-waiver-puerto-rico-hurricane-maria-marsh-lead.cnn

Everyone had a good laugh and gave him a good scold and then he suspended the act. Is it really just ten days? What a pussy.

19 mulp September 29, 2017 at 12:08 pm

It was purely political. And meaningless. The current ship backlog is over ten days waiting to dock and have cargo unloaded.

Economists still believe a baby can be produced in one month by putting 9 women on the job.

20 wait September 29, 2017 at 2:52 pm

My favorite is all the trumpers defending his refusal to waive the Jones Act claiming there MUST be a good reason for it and liberals just want to whine about everything without looking at the facts first #fakenews!

Welp, Don the Con proving the nickname sticks once again.

21 TMC September 29, 2017 at 4:47 pm

Or maybe they just pay attention to the fact that PRs ports are damaged badly and the Jones Act is meaningless to helping PR. Ships are piling up to unload around PR, there is no shortage of supply there. The 10 data reprieve is for those who know no better.

22 wait September 29, 2017 at 5:02 pm

Then why did he never bring this point up and instead said the reason was it wouldn’t be good for the shipping industry? And why waive it now?

23 mulp September 29, 2017 at 11:57 am

The Jones Act isn’t what blocks the Viet Cong and vietnim from running a Ho Chi Min trail to move the goods from the port to the front lines. Trump needs to open the borders to Haitian and Central American immigrants.

24 Thor September 29, 2017 at 12:34 pm

Haitians? They couldn’t organize a coup in a bordello or a bordello in a coup.

Why not get the Vietnamese in? They are proven, uh, trailblazers, as the Ho Chi Ming trail showed.

25 Borjigid September 29, 2017 at 8:29 am

Yes, lets bring back the Corn Laws too. We must have “surge capacity” in farmers too.

26 mavery September 29, 2017 at 9:03 am

I think I get what you’re going for here, but we’re the biggest food exporter on the planet, so I’m not sure what “surge capacity” would even mean. And we definitely do use price supports and direct government funding to support farmers. So… ?

27 Borjigid September 29, 2017 at 2:20 pm

No, you seem to have missed- probably my fault. I was not being sincere in calling for the return of the Corn Laws. They were bad in the same way that the Jones Act is bad, and they were defended in much the same way that the Jones Act is being defended now.

28 Ted Craig September 29, 2017 at 8:47 am

At least since the ’80s, there have been claims that we lacked merchant marine capacity in case of a major war (at that time, this meant with the Soviets).

29 Robert September 29, 2017 at 9:10 am

These hurricanes are good for the economy — the rebuilding will create jobs and raise economic growth. Paul ‘bastiat’ Krugman

30 Verbal September 29, 2017 at 9:24 am

Don’t be obtuse. His point was that GDP alone is not a good measurement of the health of a society or its economy– because it measures dollars-of-activity alone. Disaster recovery increases GDP, but that doesn’t mean disasters are good. Wikipedia decreased GDP by supplanting encyclopedia sales, but that doesn’t make it bad.

31 MOFO September 29, 2017 at 10:21 am

In all seriousness, do you have a link to where he makes this point? I dont follow Krugman too closely but ive heard this criticism of him before, id love to see if it has any merit or not.

32 Anonymous September 29, 2017 at 11:53 am

That wasn’t even remotely his point. His point was that the multiplier was so high that spending the money to tear things down and build them again would be beneficial

33 Thorfinnsson September 29, 2017 at 11:47 am

Frédéric Bastiat in 1849 advocated the immediate and unilateral disarmament of France. He suggested that this would not diminish France’s national security, as other countries would no longer feel threatened by France and also feel inspired to themselves disarm.

In 1871 Prussia and its allies invaded France, routed the French Army, captured the Emperor, and conquered Paris.

King Wilhelm I was crowned German Emperor in the Hall of Mirrors in Versailles and the Germans extracted reparations of five million gold francs.

I suppose if only the French government had followed Bastiat’s advice this disastrous sequence of events would never have occurred!

34 Anonymous September 29, 2017 at 11:55 am

Hey I heard a guy was wrong about something one time

35 Thorfinnsson September 29, 2017 at 12:10 pm

Touche, but libertarians are wrong about an awful lot of things an awful lot of the time in some very stupid ways.

36 George September 29, 2017 at 12:36 pm

So are other people. Libertarians also get a lot right that most people don’t. Economists are much more libertarian than the general population.

37 Thorfinnsson September 29, 2017 at 1:03 pm

You’re really going to cite economists as a positive example?

These are the geniuses who can’t figure out why other countries growing faster than you is a bad thing.

38 Thor September 29, 2017 at 12:36 pm

Well, *gritting my teeth and trying to say something charitable*, it was just after the 1848 revolutions, so perhaps Bastiat thought future conflicts would be internal/domestic.

39 Thomas September 29, 2017 at 9:44 am

“10. Trump did just temporarily waive the Jones Act for Puerto Rico. While this is to be applauded, in the short run this still won’t help very much, as the main problem is transport and infrastructure on the island, not shipping per se.”

I was told by commentators on NPR and CNN that Drumpf wasn’t issuing a waiver because he doesn’t care if Puerto Ricans die because he is racist.

40 Samoht September 29, 2017 at 11:08 am

No, Trump doesn’t care if Puerto Ricans die because he’s a shallow, indifferent narcissist with minimal conscience. Like everyone outside his immediate family, they’re not real people to him, just an abstract concept.

It’s his base (i.e. you) that doesn’t care if Puerto Ricans die because they are racist.

41 Thor September 29, 2017 at 12:39 pm

What if I didn’t vote for Trump, don’t listen to him much as demonstrably NOT a racist, but think that PR has made itself into a quasi failed leftie state?

42 Thor September 29, 2017 at 12:40 pm

* and am demonstrably not a racist

43 Samoht September 29, 2017 at 4:28 pm

You can think Puerto Rico is a “quasi failed leftie state” and still care whether or not Puerto Ricans die due to inadequate disaster relief efforts. The two issues are orthogonal to each other.

44 Thor September 30, 2017 at 1:09 pm

Trump is a shallow narcissist AND PR has been ineptly managed. Of course PR needs robust humanitarian help and should receive it. This doesn’t alter the fact that it’s the Greece of the country and there should be a debate about what to do to make it less dependent.

45 Thomas September 29, 2017 at 1:40 pm

“It’s his base (i.e. you) that doesn’t care if Puerto Ricans die because they are racist.”

“Vote for me, you racist scumbag” – Every Democrat 2020

46 msgkings September 29, 2017 at 2:08 pm

Dems don’t want your vote, and they have no chance of getting it ever anyway.

47 Samoht September 29, 2017 at 4:40 pm

msgkings is correct.

There’s no point in the Dems marketing to you at all because there are no circumstances whatsoever under which you will ever vote for them. You’re part of Trump’s base, and your past comments indicate you’re an anti-Semitic white nationalist. Trump is likely as far left on the political spectrum as you’re willing to vote.

The movable piece in 2020 for Dems is center-right conservatives who dislike Trump but nevertheless voted for him in 2016 as a means of voting against Hillary. The needle the Dems have to thread is to find a candidate moderate, centrist, and vanilla enough to peel off a sizable percentage of those center-right conservatives without depressing the votes of the SJW activist base too much.

48 PaulD September 29, 2017 at 6:11 pm

If your past comments indicate you’re an anti-Semite, Democrats will market to you. How else do you explain Al Sharpton’s and Keith Ellison’s roles in the Party?

49 TMC September 29, 2017 at 4:53 pm

There is a sizable minority that will vote either way depending on the candidate. Telling 62% of Americans that they are racists won’t help much.

50 Samoht September 29, 2017 at 4:56 pm

Trump’s base isn’t 62% of Americans.

51 Rupert September 29, 2017 at 9:52 am

two points, first is that the jones act does keep small vessel shipbuilding alive in the US (I.e. tugs and other vessels <300ft), which I believe are the bulk of Jones act vessels. Second, from a purely operational perspective having a high proportion of us owned/crewed/flagged vessels operating in us waters does have some purely benefits (have you ever tried to put a lien on a vanuatu flagged vessel or Dealt with a non-English speaking crew in an emergency situation (think deep water horizon)? Not saying the Jones act isn’t protectionist or perhaps not meeting its original intent, but it’s not all bad…

52 mulp September 29, 2017 at 12:01 pm

Renquiring American workers be paid kills American jobs! The only way to create jobs for Americans is to outsource everything to foriegn workers.

Just don’t let them live in the US.

53 Anonymous September 29, 2017 at 10:09 am

I had assumed some real strategic importance, but if a noted hawk says no, I will assume that away again. Full repeal.

54 Anonymous September 29, 2017 at 10:35 am

By the way, I assume anti-elite Trumpians support the Jones Act because they think it supports good union jobs, more than it lines the pockets of owners?

55 Thorfinnsson September 29, 2017 at 10:50 am

The Jones Act has failed in its purpose as it is insufficiently protective. The Navigation Acts instead must be the model.

Charge a tariff on foreign-owned shipping. Charge an additional tariff on foreign-made ships. The tariff should be initially small with scheduled increases over time.

Domestic shipyard productivity could perhaps be bootstrapped quickly by partnering with advanced Korean and Japanese shipbuilders. They could get an equity stake in exchange for transferring their technology and know-how to American industry.

American shipping can be given further competitive advantages as well. The Panama Canal should be seized from Panama (and Jimmy Carter shot for giving it away in the first place) and duties on American shipping could be eliminated.

We blow a lot of foreign aid money on Egypt…as long as we do that how about we ask for something valuable in return? Egypt should exempt American shipping from duties on the Suez Canal.

Lastly, our foreign policy should be reoriented from its obsessive focus since the late 1930s on “security” and back to the pre-New Deal emphasis on Dollar Diplomacy. Latin American countries for instance should be coerced into exempting our shipping (and real, all exports) from duties and customs.

Other countries will of course retaliate, but they generally have more to lose (larger merchant fleets and shipbuilding market share than us) and less leverage (small economies, smaller share of world trade, less military power).

The policy could be even more effective by partnering with some of the other Anglo countries to further increase leverage.

56 Andrew M September 29, 2017 at 10:55 am

7. The cost of producing new ships in American shipyards is four to five times higher than in the relevant foreign shipyards.

Shouldn’t we be paying a bit more attention to this point? South Korea is a rich, developed country; yet their shipbuilding industry is as strong as ever. Why are costs so much higher in the USA? (Unions? Environmental regulations?)

57 Thorfinnsson September 29, 2017 at 11:02 am

Because civilian shipbuilding, other than certain specialty products (e.g. offshore drilling rigs), is now just a boutique industry in the USA. There are no economies of scale and there is much less know-how.

This is why you don’t let industries, especially important industries like shipbuilding, be destroyed by foreign competition…something all American statesmen understood until the 1960s.

Industrializing economies have long targeted shipbuilding to develop their national economies. Shipbuilding provides exports (both in goods and services) and stimulates a vast technological value chain that encompasses steel, metalworking, engines, transmissions, electronics, etc. It has thus long been subsidized, and the lack of protection meant our civilian shipbuilding industry (and that of the UK–the biggest shipbuilder in the world before 1956) has been destroyed.

The sad thing is that for us it’s so easy to protect industry as our internal market is so large. Think of what smaller countries have to go through to develop respectable industry.

58 Harun September 29, 2017 at 11:22 am

South Korea became strong in ship-building by being a poor country first. They took the jobs from the Japanese.

Now the Chinese have taken the jobs from the South Koreans.

South Korea only produces very specialized ships now, IIRC. LNG tankers and such, not normal cargo ships.

59 Thorfinnsson September 29, 2017 at 11:33 am

China is likely to surpass South Korea in gross tonnage soon, but for now South Korea remains #1:

https://www.statista.com/statistics/263895/shipbuilding-nations-worldwide-by-cgt/

And note that Japan still has a massive tonnage share.

There’s some conflicting information from this link, which shows China as #1 by tonnage: http://gcaptain.com/japan-overtakes-south-korea-in-shipbuilding/

But it still shows very large tonnage shares for South Korea and Japan.

Low labor costs help but aren’t enough. South Korea would’ve gotten nowhere in shipbuilding without General Park’s Heavy-Chemical Industry Drive. Look at all of the countries in the world with far lower wages in China that don’t make much of anything.

The USA also doesn’t necessarily need to compete on the world market either in shipbuilding. As the world’s #1 trading nation the amount of domestic customers is so vast that all that is necessary is tariff protection. As the shipbuilding industry matures it will likely export more as well.

60 John Mansfield September 29, 2017 at 11:06 am

So, how does the U.S. President waiving laws work? Any law that someone can convince him we shouldn’t have—by his decree, we no longer have it for whatever period he has decreed?

61 Anonymous September 29, 2017 at 11:20 am

I presume the law has written in some emergency power.

62 Harun September 29, 2017 at 11:24 am

Wouldn’t we just seize foreign ships or hire them if we had a serious war?

I think a war with China could be the one war where lost capacity would be hard to replace, though.

But then again, all those ships on the China – USA run would need business or be able to be bought cheaply by our government.

63 Thorfinnsson September 29, 2017 at 11:41 am

Seizing or hiring foreign ships is doable of course, but it’s certainly less desirable than American owned (and crewed) vessels subject to American law. The adversary country will try to seize and hire these ships as well to deny you shipping. And foreign crews will obviously be less enthused about risking their lives for America.

You also need to be able to REPLACE shipping losses in any conflict which endures. Britain survived both World Wars because it (with American assistance) was able to replace shipping losses faster than Germany could sink the ships. They could do that since they were the largest and most productive shipbuilding nation in the world, and they got a big assist from American industry as well.

Meanwhile both Japanese industry and people were starving at the end of the Pacific War because we sank their merchant shipping–which was already inadequate for their civilian needs before the war–faster than they could replace the ships.

Shipping isn’t just a national security issue of course. It’s an economic issue, same as all other trade. As long as this country has a current account deficit we need to look critically at all imports, including service imports.

I know economists speak rosily that current account deficits are no big deal since they are balanced by surpluses on the capital account which they warmly refer to as “foreign investment”, but what that really means is selling your country off bit by bit to foreigners. Over time this results in becoming a comprador economy in which your bourgeoisie is located abroad.

64 Anonymous September 29, 2017 at 11:46 am

Again, if McCain says abandon the Jones Act, what good evidence is there of strategic need?

Dude was Navy, after all. Admirals as friends and family. If anyone is dialed in ..

65 Thorfinnsson September 29, 2017 at 11:49 am

John McCain is an idiot and a traitor. And his father for that matter was the fixer who effectively covered up the USS Liberty betrayal. I guess we can give his grandfather a pass.

If we want to play this game you could investigate Alfred Thayer Mahan’s opinions on civilian shipping and shipbuilding.

66 Anonymous September 29, 2017 at 12:12 pm

Anyone who opens with that writes themselves off, but I happened to read a thing. I think Joe is pretty hit and miss these days, but this is mostly hit:

https://www.washingtonpost.com/opinions/what-are-you-guys-doing-booing-john-mccain/2017/09/28/c27ca7dc-a477-11e7-ade1-76d061d56efa_story.html

67 Anonymous September 29, 2017 at 3:31 pm

There are known unknowns, and then there are tinfoil hats.

I believe there is a solid literature on conspiracy theories as artificial certainty in a complex world.

68 Thorfinnsson September 29, 2017 at 4:54 pm

Since you refuse to even consider anything you haven’t heard of before, we’re left with two facts:
1 – McCain is an idiot
2 – You don’t have an argument

69 Anonymous September 29, 2017 at 12:01 pm

“we sank their merchant shipping–which was already inadequate for their civilian needs before the war–faster than they could replace the ships.”

This had nothing to do with shipbuilding capacity and everything to do with complete military domination of the air and seas. The Japanese never had a chance from the get-go, which is why the war started in the first place- complete U.S. intransigence refusing to believe the Japanese would be stupid enough to start something, not understanding internal Japanese power dynamics where the military dominated the government and could be forced into war to save face.

70 Thorfinnsson September 29, 2017 at 12:09 pm

It certainly has “nothing to do with shipbuilding capacity”, though it does have quite a bit to do with command of the air and sea. And that command of the air and sea took time to attain, but US submarine skippers were targeting Japanese shipping right from the beginning of the war (unfortunately with defective torpedoes).

If Japan had had more shipbuilding capacity, at leasr three things would’ve changed:

1. Likely, a larger merchant marine at the beginning of the war
2. The decline in the size of Japan’s merchant marine would’ve been slower, resulting in more industrial output over time
3. It would’ve taken a longer time to attain command of the sea as a result of more Japanese fighting ships

The whole reason the USA adopted a “Germany First” strategy during the war was because Germany was considered a much more dangerous adversary than Japan owing to its greater industrial and technological power.

And you know the origin of American domination of the air and sea in the Pacific War, don’t you? Massively superior industry…the same thing “free trade” geniuses tell us doesn’t matter.

71 Guabajubeeda September 29, 2017 at 1:00 pm

You might be surprised to learn about the origins of some of those foreign shipbuilding companies http://www.levingstonoffshore.com/about/ Keppel FELS Singapore is closer to Orange, Texas than your map suggests.

When America makes it hard to do business in America, American business people just do it somewhere else.

72 Matt2 September 29, 2017 at 2:33 pm

I haven’t read all the comments yet but:

Jones Act Eligible

US flagged

NOT the same thing.

Domestic moves are the Cabotage trade. There are rules for Ex/Im Bank cargo, DOD cargo, PL 480 cargo, and maybe a couple others I’m not thinking of. Words and terms matter and people need to be much more precise about what they are talking about.

73 Steve Sailer September 29, 2017 at 5:40 pm

If the Jones Act were permanently repealed tomorrow, how much would Puerto Rico’s problems, such as a corrupt and feckless school system, be better off in ten years? One percent?

74 Greg G September 30, 2017 at 4:04 pm

It’s true that repealing the Jones Act won’t fix Puerto Rico’s school system. So what? The proposed repeal is meant to fix an entirely different problem. No one claims repeal would fix the school system.

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