Forego the Jones Act to get the supply chain running again

When we were in the Trump administration at the Council of Economic Advisers, New England was being hit by a polar vortex. Our staff estimated that the cold was forcing Americans to spend hundreds of millions of dollars more on natural gas from other countries. How could the US be a net exporter of gas in a cold winter and also a hostage to foreign countries like Russia?

The answer, we found, is the Merchant Marine Act of 1920, also known as the Jones Act, which requires ships sailing between US ports to be built in the US. No ships were built in the US that could transport liquid natural gas, and New England, which depended on shipping for its energy due to a lack of pipelines, could not buy gas from US suppliers. Foreign ships can bring gas from Trinidad to Boston, but not from any US port.

There is one specific exception to the law: the Department of Defense can issue a national security waiver and allow foreign-built ships to operate in US waters, freeing New England from foreign influence. Pentagon officials agreed to the granting of the waiver at the time, but a political maelstrom ensued as word spread through Congress after a positive White House meeting on the waiver. The shipping lobby gives millions of dollars to politicians from both parties. It was made clear to us that a waiver would start a war between the legislature and the executive and all other administrative initiatives would come to a standstill. The waiver was never granted.

Today, an actual war has helped drive up energy prices and has once again revealed the puzzling dependency of parts of America on Russian energy. American consumers are paying record high prices at the pump, with the prospect of even higher prices. The desperation caused by high and rising prices spawned a variety of ideas, such as suspending federal gasoline tax collection. While well-intentioned, this would not bring much relief and could undermine infrastructure funding. And energy prices are just the tip of the iceberg in an inflationary spiral as serious as anything since the 1970s.

We believe the Biden administration is serious about its desire to fight inflation. It was intended to take advantage of the Department of Defense’s waiver option and allow inexpensive and efficient foreign shippers to operate in US waters. In difficult times, Americans come together, and it seems unlikely that politicians who thwarted our action would try again. The Jones Act causes shippers to pay higher tariffs which are passed on to consumers. It is even leading US buyers to source oil and petroleum products from countries like Russia.

Because of the Jones Act, almost all cargo in the US moves overland, although shipping by water should be far cheaper, more environmentally friendly, and less intrusive. Corrupt American shipping regulations, ostensibly to protect American shippers, have stifled the economy by shifting the transportation of goods to roads and rails. The Jones-capable ocean fleet has shrunk to just 95 ships. During our time at the CEA, we found that the US is lagging behind other developed countries and imposing high costs on itself by underusing water transportation.

Hawaii, a state that knows a thing or two about its reliance on ocean shipping, has asked for a temporary repeal of the Jones Act. Hawaii bought up to a third of its oil from Russia, mostly to avoid Jones Act costs. The recent executive order blocking Russian oil imports means the Hawaiians will now bear the disproportionate cost of efforts to deprive Russia of export earnings. The US Virgin Islands has a permanent exemption from the Jones Act, and Hawaiian leaders want their residents to enjoy the same benefits. The same goes for those in the Northeast and Puerto Rico.

The benefits of easing restrictions on cabotage (shipping between US ports) would be huge and not limited to the energy industry. Offering cheaper shipping would help the U.S. steel industry stay competitive and help virtually any industry that makes something heavy or is best shipped in a container.

President Biden should also be drawn to another benefit of relaxing Jones Act standards on one of his policy priorities. Offshore wind projects are currently being delayed due to the lack of specialized vessels needed to install and maintain turbines. While some ships are planned, more capacity is needed to meet the aggressive targets for this sector and utilizing the global fleet would help expedite projects and reduce costs. Relaxing the Jones Act would also give the US significant clout in trade negotiations, as foreign trading partners have regularly complained about its protectionist effects.

The Jones Act may have been well intentioned, but its perverse effects are undeniable. It has utterly failed to sustain the US shipping industry. With the devastation wrought by Vladimir Putin’s invasion of Ukraine making the country’s defense case for a waiver all too real, the government has a golden opportunity to circumvent an outdated law that disrupts supply chains.

Mr. Fitzgerald is an Associate Professor of Economics at Texas Tech University and served as Chief International Economist at the Council of Economic Advisers from 2017-2018. Mr. Hassett is a Distinguished Visiting Scholar at the Hoover Institution and served as Council Chair from 2017-2019.

Wonderland: The world, led by NATO, was supposed to guarantee Lviv’s status as a “free city”, just as the western powers did for West Berlin in 1948. Images: Keystone-France/Gamma-Keystone/Getty Images Composite: Mark Kelly

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