As a matter of professional avocation, I call myself a political economist of international security. In that sense, I rely on economics for answering political questions related to the material requirements of peace and war. Not everyone does these days: the White House has been repeatedly signaling that no one in the building actually shares my appreciation for that discipline, and particularly with respect to international matters. Even so, we cannot blame all tomfoolery in trade on Mr. Trump and the odd cabal of advisors around him. We have been living with the Jones Act since 1920, and it is still stupid. The abominable legislation provides no ships, inefficiently diverts cargo, and mollycoddles industry. But perhaps worst of all, it discourages actual innovation in the service of security at sea. The United States will sit at a significant disadvantage if it remains on the books for long.
Before delving into the problems, we can at least admit that those restrictions of 1920—forbidding the carriage of goods between American ports except by American-built, -owned, and -crewed ships—were actually passed by the Congress (see 46 U.S.C. § 50101). Over the past year, Mr. Trump has justified his one-man imposition of progressively higher tariffs by citing the so-called Trade Expansion Act of 1962, whose Section 232 authorizes the president to “adjust” trade in the interest of national security.
The 1962 law deserves that admonishing moniker because it is fundamentally designed to restrict, not expand, trade. For now, we will also leave on the shelf the US Constitution’s wrong-headed allowance of import duties but forbiddance of export duties. Whatever mercantile nationalists claim, one is not somehow better than the other. Exports, economists will remind you, are merely the cost of imports. But shelve that too for now. That the legislature has somehow been allowed to delegate to the executive its authority to impose taxes is further indication that the judiciary long ago lost touch with what is actually in the basic law of the federation.
Reversing the protectionist schemes of the incumbents may be regrettably difficult. As Tim Worstall of Forbes cited George Mason University’s Tyler Cowen back in 2016, “the most important person on the team is probably Peter Navarro,” but for one simple reason: because he is so bad at his job. In the current issue of the Cato Institute’s journal Regulation, Pierre Lemieux covers Navarro’s professional “conversion” from economist to nationalist in eight intriguing pages, and the outline is a good exercise for high school students to follow in preparing for their AP exams. Navarro’s writings provide plenty of bunk for debunking.
However, as Colin Grabow, Inu Manak, and Daniel J. Ikenson of Cato wrote this past June, “when all else fails” with the pseudo-economics, Jones Act enthusiasts “lean on a national security rationale that is entirely without merit.” Regarding Mr. Trump’s more recent assaults on Chinese steel and Canadian aluminum, as I argued in May and June of 2017 on the Defense Industrialist blog, such attempts at justification are nonsense. Imports of steel and aluminum have never been, are not now, and probably never will be threats to national security. These discriminatory taxes have been nothing more than sops to constituents who need to find more productive lines of work in the global economy.
Back to the Jones Act. I greatly regret that Senator John McCain, a long-time opponent of the law, did not live to participate in its repeal. Back in January 2015, the late senator had offered a bill (actually an amendment to the totally unrelated Keystone XL Pipeline approval) to repeal it. Some of the opposition was predictable. Politico reported at the time that the so-called International Association of Machinists and Aerospace Workers issued a letter saying that “McCain's amendment would result in the outsourcing of U.S. shipbuilding to foreign nations.” Again, let’s note the hypocrisy: there’s little that’s international about American labor unions. They expend much of their energy complaining about how people in other countries are making the money to which they think they have a birthright. Whatever that is, it’s nothing internationalist. Instead, it’s just about wrangling economic rents towards an remarkably small set of people.
That’s because opposition is also not about shipbuilding at scale. There is already very little American shipbuilding anymore, simply because American commercial shipbuilders have proven themselves remarkably cost-inefficient. Fairly, Americans aren’t alone in this problem; in North America, Canadians really set that standard. As I noted in 2014 for the Defense Industrialist (“England Without a Shipyard”), the only cost-effective way to procure cargo ships is as imports. The Royal Fleet Auxiliary’s new tankers, built in South Korea, were then costing about $4,700 per ton. The US Navy’s new tankers, built in California, were costing about $10,800 per ton. The Royal Canadian Navy’s forthcoming tankers, to be build in British Columbia, were then estimated to cost $69,500 per ton.
The US Department of Defense lacks the option that the British Ministry of Defence exercised, because American military shipbuilders are completely fenced off from overseas competition by a ban on foreign-built ships in military service (see 10 U.S.C. §7309). There is a curious exemption for rubber boats, perhaps because France’s zodiacs are so good. Canadian government policy ensures a similar ban on foreign-built ships. Even British government policy does, though only with respect to what British military-industrial strategy calls “complex warships.” That’s a more reasonable exclusion, but even then, the carve-out should be put to good use, to develop skills relevant to the supply of combatant ships, and particularly in wartime. But well before that point, the Jones Act has been actually interfering with the supply of American shipping in times of acute emergency.
This past February, John Grady speculated for the Naval Institute that the recent destruction wrought in Puerto Rico by Hurricane Maria had provided the “best chance in decades” to see that legislation off. The Estado Libre Asociado lacks the exemption from the Jones Act that the Virgin Islands were granted in 1920, as the recently acquired Dutch West Indies. The island thus had to endure delays in shipping as it recovered from an estimated 3,000 fatalities and widespread infrastructural damage. (The president can waive the strictures of the Jones Act in times of emergency, but this president did not.) There are, of course, no bridges to Puerto Rico, so as Cato’s Grabow might also have noted, mainlanders could not send relief supplies by truck. Even were it possible, it would have been mightily inefficient, but the rest of the coastal economy has been operating that way for decades. As Grabow wrote in July, across Europe, which lacks America's cabotage restrictions, “40 percent of domestic freight goes by sea, but in the US, the figure is a mere 13 percent.” Coastal shipping would be far more efficient—in finances, traffic, and environmental damage—if we could just import the ships.
Puerto Rico’s plight was painful, but so is listening to recurring economic non-thinking. In that regard, my Monday started out well enough, at the annual forum of the the Center for European Policy Analysis. The last panel of the day considered the problematic issue of Russian natural gas exports to the European Union. Liquified natural gas from the United States offers an alternative, but at a higher price than pipeline deliveries from Siberia. That all made sense, but it led me to recall the last call I heard for American gas, back in 2014. Congressman John Garamendi of California was then arguing that new-found Euro-realism about Russia presented an “opportunity for U.S. mariners,” because American gas could be shipped to Europe on American ships. Yeesh. As I subsequently wrote on the Defense Industrialist (30 March 2014), such a mandate would merely exacerbate the cost differential. That’s no way to convince the Germans that they need an LNG terminal to hedge against Putinist blackmail by throttling the Nord Stream. It’s just another opportunistic jump at extracting rents through a security problem where the economic inefficiency would be most unhelpful.
These goofy ideas do require regular thrashings, but what’s more difficult is sorting the obvious foolishness from the foregone opportunities. That’s where the effects of regulation can be most pernicious over the long run.
Consider the counterfactual of an America after the repeal of the Jones Act. Presume for the moment that only the ban on foreign construction is repealed: coastal cargos must still transit in ships owned and crewed by Americans. Even then, a more vibrant coastwise trade would arise amongst American ports on the four coasts: East, West, Gulf, and Great Lakes. The additional ships would lower logistics costs, and take trucks out of the congestion on Interstates like 5, 90, and 95. Port facilities would expand, and notably in smaller and shallower basins, which would provide redundancy in wartime. In the mid-run, this would lead to fewer truckers, but more mariners—Americans may not be so interested in the long trips from home of transoceanic merchants, but coastal shipping offers schedules more akin to those of trucking or airfreight. The addition of ships and crews would similarly provide a buffer in wartime, if those vessels were reasonably ocean-worthy.
In the long run, though, the United States would not gain many mariners, for the same reason that it will eventually lose most of its truckers and many of its aviators. Piloting—whether planes or trains or automobiles—is probably a job without a great future. Driverless cars are becoming increasingly technically feasible, and leader-follower military convoys are rather easier to implement. So why are companies like Google and Tesla seemingly so far ahead of outfits like Lockheed Martin and Oshkosh, even after the kickstart they received with the twin DARPA Grand Challenges of a decade ago? First, because the US armed forces can be intensively conservative customers. This issue has been on my mind for years. As I wrote for the Atlantic Council back in July 2015,
As Military Times recently told it, Michael Jones of Google Earth fame is bemused by labor-intensive American carriers: why can’t the aircraft be refueled and repositioned by robots? For decades, aircraft aloft have refueled with a handful of aircrew on each side—and now drones can refuel drones. Ships shouldn’t be much harder. Indeed in Norway, Rolls Royce Marine is working on the concept of wholly unmanned cargo ships. Habitation is a big part of ships, so what would one do with all that freed-up space? Missiles and marines, I say. Distributed lethality and alternative at-sea basing are the naval watchwords this year, and should be for years to come.
Indeed, unmanned or lightly manned ships should be even easier to get underway than trucks. This gets to the second reason: costs in free markets. If they could avail themselves of imported ships, domestic shippers would begin experimenting with driving costs even lower. In "Where are the Robo-Frigates?” (June 2015), I cited a story by Bloomberg (25 February 2014), which in turn cited “a study by the accountancy Moore Stephens that even a small crew, and its accompanying accommodations, contribute to five percent of the weight, 12 percent of the fuel burn, and fully 44 percent of the operating costs of a large container ship.” Forty-four percent is a lot. For smaller container ships, in the coastal trade, the figure could be higher, as bridge-standing watch sections are somewhat independent of tonnage.
Alas, Americans are not leading this charge, because Americans have no commercial market with which to lead it. We can wait for the Norwegians to get it right, and then buy their technology, which would be great. But if the biggest market in the world for such technologies was actually allowed to experiment with such technologies, the benefits for Americans, Norwegians, and everyone else in the western world would arrive all the faster. Instead, we have the Jones Act.