This post originally appeared at https://www.badgerinstitute.org/jones-act-is-both-a-boon-and-a-bane-to-wisconsin/

Century-old protection raises costs for anything shipped to or from state — but not enough to overcome shipbuilding industry’s interest

The Jones Act, protecting the American maritime industry and driving free trade champions crazy for more than 100 years, is both a boon and a bane to Wisconsin businesses, workers and consumers. 

With Lake Michigan to the east, Lake Superior to the north and the Mississippi River to the west, Jones Act protections have tangibly benefited the state’s shipbuilding cluster, those who analyze the industry say.  

Wisconsin has about 2,000 jobs in the shipbuilding industry, which indirectly support another 6,000 jobs, according to the federal Maritime Administration. The Transportation Institute estimates Wisconsin has nearly 10,000 jobs related to a more broadly defined maritime industry.  

But a 2019 study found the act protects “domestic shipbuilding and crew at the expense of economic efficiency and consumers,” with costs specific to Wisconsin that amount to millions of dollars a year. 

Proponents of the act and protectionism are able to point to tangible benefits for shipbuilders. Fincantieri Bay Shipbuilding in Sturgeon Bay, for example, began construction in September on a nearly 300-foot ship that will join the more than 170 vessels – most built with Jones Act protections – operated by Crowley, a U.S. maritime energy company with $3.4 billion in annual revenues and 7,000 employees worldwide. 

As Canada showed when it eliminated a tariff on foreign-made ships in 2010, trade barriers can make a big difference. “Since then,” noted the Congressional Research Service this year, “the two Canadian carriers that own lakers [large ships serving the Great Lakes] have replaced most of their fleet, purchasing 18 vessels, 16 of them from Chinese shipyards and two from Croatian yards.” 

Still, it’s hard to say how many jobs would stay without the act. Wisconsin is the beneficiary of natural protections. The Great Lakes and especially the Mississippi River are less accessible to global competition than, say, the Atlantic and Pacific oceans. Even without the Jones Act, foreign vessels operating within the United States would face a web of wage, immigration and tax laws that they don’t face when bringing cargo to a U.S. port from abroad, according to the Journal of Maritime Law & Commerce. 

Nationwide, according to a 2021 Maritime Administration report, “More than 60 percent of vessels delivered during the last six years have been inland tank and dry cargo barges,” while military projects account for about 80% of all shipbuilding revenue. This is important because American shipbuilders are more competitive with barges than with other vessels — according to the Congressional Research Service, they build about 1,000 per year and benefit from economies of scale — while military ships are unaffected by the Jones Act. 

For those who decry the government selecting certain industries for protection while ignoring others, the Jones Act is an unalloyed evil. Critics, such as Colin Grabow of the pro-free-trade Cato Institute, charge that the law reduces America’s economic output by billions of dollars a year by forbidding the use of foreign vessels, which can be several times cheaper, both to build and to operate. 

Economists generally agree that protectionism’s costs outweigh its benefits, and that free trade boosts efficiency by allowing each nation to specialize in the areas where it has a comparative advantage – and by enabling greater competition. 

In Wisconsin, as in the rest of the Great Lakes states and nationwide, the cost of the Jones Act is spread out and difficult to quantify. 

In a 2019 study he co-authored, Ike Brannon, president of Capital Policy Analytics, found that more than $45 million in shipping costs would have been saved moving 87 million tons of domestic cargo between 2006 and 2017 to Wisconsin ports without the Jones Act. That’s about 52 cents a ton, a savings of about $10 for every person in Wisconsin over that entire period.  

That doesn’t count the increase in shipping that might have occurred had the cost been lower, Brannon said. “The Jones Act impacts Alaska, Hawaii, and Puerto Rico the most, and it has a radical impact on their economies, and a significant — but lesser — impact on the coastal states,” Brannon said. 

Farmers, who must ship their products across the country, are one potential beneficiary of reform. Mike Steenhoek, executive director of the Soy Transportation Alliance, whose organization monitors the Jones Act debate, told the Badger Institute that reform might make some shipping options cheaper. The issue, however, is not a priority, he said, considering both the relatively small upside and the long odds of success. 

Elected officials who have tried sincerely — and in vain — to weigh the costs and the benefits of the policy haven’t found enough fodder to seriously consider repealing the Jones Act. Many, probably most, of the people in Congress could not explain why this or any part of the Merchant Marine Act was passed back in 1920. 

“The Jones Act was designed to maintain shipbuilding within the borders of the United States,” said Richard Stewart, an emeritus professor who once directed the Transportation and Logistics Research Center at the University of Wisconsin-Superior. “It was designed to maintain a pool of mariners with expertise in how to sail ships, navigate, run engines, and everything else, in part because they would then be available in time of a national emergency.” 

The requirements are patriotically specific. The 40,000 vessels, from oceangoing ships to small tugs and barges, taking cargo from one U.S. port to another must be assembled and repaired in the United States. The major components of their hulls and superstructures must be fabricated in the United States. Their ownership and crews must be made up of 75% or more American citizens. All these vessels must fly the flag of the United States. 

Some parts of the act are more unusual than others. “The Jones Act is not unique in the world, and it’s certainly not unique to just marine transportation. Airlines, trucking, rail, even pipelines, all have cabotage laws in the United States,” said Stewart, who, before his retirement, co-directed the Great Lakes Maritime Research Institute. 

But the construction requirements are a little different. “The Jones Act requires that the ship be built in the United States, while the standards for airlines require that the plane can be built somewhere else, but to U.S. standards,” Stewart said.  

Only 15% of all countries engaged in international shipping have protective construction requirements, while 81% have protective crewing requirements, according to Maritime Administration numbers published by the Transportation Institute. 

Efforts to do away with the Jones Act have not gotten far in the recent past. The late Sen. John McCain’s bills to allow U.S. shipping companies to buy vessels made elsewhere with Americans operating them got no traction. 

The Jones Act has not done the kind of economic damage that gets the attention of lawmakers. For members of Congress from areas with lots of maritime activity, the Jones Act is a “hill they would die on,” Steenhoek said, but “we haven’t seen the Jones Act as this huge barrier for farmers to be successful.” 

“When we did our study and I reached out to various entities that I thought would be supportive,” Brannon said, “they wished me good luck and told me it wouldn’t change a thing.” 

“I’m not saying that it’s going to be around forever,” Steenhoek said. “But there’s a reason why it’s been around so long.” 

Robert VerBruggen is a fellow at the Manhattan Institute.

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