What’s wrong with this picture? The United States will conduct over a trillion dollars in trade with other nations this year, much of it by sea, and yet virtually none of the ships engaged in that trade will be built in America.
The U.S. barely makes it into the top 20 rankings of commercial shipbuilders around the world—which is dominated by Asian nations—and most of the ships it does produce are intended for purely domestic routes.
This is a miserable performance for the country that led the global shipbuilding industry in its bicentennial year. America may be a military and economic superpower, but it isn’t even second-rate when it comes to building container ships and tankers for international trade. The main reason is foreign government subsidies to shipbuilders in China, Japan and South Korea—subsidies that Washington ceased providing to its own shipbuilders in 1981.
That’s when commercial shipbuilding in America began sinking. It would be gone completely today except for one thing: the Jones Act, formally known as the Merchant Marine Act of 1920. The Jones Act reserves trade between U.S. ports for ships that are built in the U.S., manned in the U.S., and flagged in the U.S. (meaning subject to federal maritime regulations).
Supporting offshore oil and gas rigs is big business along the U.S. Gulf Coast. There are thousands ... [+]
That includes when the trade is between the U.S. mainland and non-contiguous territories such as Alaska, Guam, Hawaii and Puerto Rico. The U.S. oceangoing merchant fleet consists of 175 vessels, about 100 of which operate as Jones Act ships serving the protected domestic market.
Critics complain this is a distortion of market forces, and that is true. However, when Washington tried the free-market route by killing construction subsidies in 1981, no other shipbuilding nation was willing to go along. That’s why the U.S.-flag fleet is so small today, and the ranks of commercial shipbuilders have thinned so markedly.
The arguments for retaining Jones Act restrictions on who can transport goods within the U.S. market are mainly concerned with national security. There’s no doubt that foreign ships cost less to build and foreign mariners cost less to employ, but policymakers grow queasy when they think about having no domestic industry to provide military sealift in wartime, or allowing Chinese vessels to carry natural gas between Houston and Boston in peacetime.
It sounds like a serious problem waiting to happen.
So the Jones Act has survived for a century, and continues to enjoy strong support on Capitol Hill today. But that hasn’t stopped competing interests from trying to chip away at the protections it provides to U.S. shipbuilders and shippers (a few of which contribute to my think tank). For instance, U.S. jurisdictions often seek exemptions, called waivers, to the Jones Act in the aftermath of hurricanes.
The exemptions are granted in genuine emergencies but only for brief periods. The trend of late has been to tighten up restrictions in concert with the Trump Administration’s efforts to revitalize lagging industrial sectors. Commercial shipbuilding has been a favorite focus of White House trade advisor Peter Navarro.
But protecting what’s left of the commercial shipbuilding industry brings howls from other industries that don’t want to pay any more than necessary for marine equipment and services. A case in point is this year’s legislative authorization to fund the U.S. Coast Guard, which is part of the Department of Homeland Security. It contains a provision to tighten restrictions on the use of foreign vessels and mariners in supporting offshore oil platforms.
Oil and gas rigs on the U.S. continental shelf are subject to the strictures of the Jones Act even if they are outside territorial limits, but Homeland Security has provided waivers to allow use of foreign ships and mariners on the reasoning that suitable domestically-built and flagged vessels are not available. This is the same logic the Department of Defense uses when it seeks waivers to use foreign shipping—an absence of sufficient domestic sources.
That kind of circumstance can arise frequently when the commercial shipbuilding and shipping sector has grown as frail as it is today. However, industry proponents in Congress and the White House are beginning to suspect that frailty may be due in part to the issuance of too many waivers. How many jobs might be created, they argue, if U.S oil and gas rigs were all relying on U.S.-made ships and barges for tasks like lifting heavy equipment?
This seems to be the reasoning behind the House Transportation and Infrastructure Committee’s move to create a waiver process for exempting offshore oil and gas platforms from Jones Act restrictions concerning the use of heavy-lift vessels. Rather than simply assuming they have the leeway to use foreign sources, energy companies would have to demonstrate a need—in other words, an absence of domestic sources.
The companies that operate oil and gas platforms are predictably unhappy at this prospect, because it would probably increase their costs. Congress will thus have to weigh the interests of the rig operators against those of domestic shipbuilders in settling on appropriate waiver arrangements. The energy sector, particularly offshore operators, is under considerable pricing pressure at the moment. On the other hand, domestic builders of oceangoing commercial vessels are in danger of outright extinction.
These are two of the Trump Administration’s favorite industries, so finding the right balance is tough. But the national security consequences of losing the few remaining builders of oceangoing commercial vessels will probably determine the final disposition of the issue. The Navy has said if the Jones Act did not exist, it would have to spend billions of dollars buying sealift that it currently can access in wartime from ships plying protected domestic routes. Homeland Security doesn’t want foreign ships transporting critical materials within U.S. borders.
And then there is the reason President Wilson signed the Jones Act into law a hundred years ago: to prevent a future shortage of domestic shipping from impeding U.S. mobilization efforts the way it had in World War One. A lot has changed during the intervening century but one thing that hasn’t is that America’s military will still need sealift in a war, and America’s economy will still need oceangoing transport. Becoming totally dependent on foreign ships and shipping is just not a good idea.
