Bad policy shrinks merchant fleet in U.S.

Wesley Jones, a Republican U.S. senator from Washington, 1909-1932, should be canonized as the patron saint of industrial policy. His contribution to such mischief, which is enjoying a rebirth of respectability, is in its second century of doing damage.

His advocacy of the Merchant Marine Act of 1920, aka the Jones Act, included the usual cant about serving national security and the public interest generally. The act began, however, as political parochialism. It survives because it is defended by the “reliance interests” — industries tethered to government favoritism — that industrial policy, aka protectionism or crony capitalism, invariably produces.

Industrial policy involves government supplanting society’s myriad private collaborations to allocate resources and opportunities as government thinks best. Such policy empowers government to supplant markets in shaping the future, deciding which industries and products should prosper.

The Jones Act today requires that cargo transported by water between U.S. ports must travel in ships that are U.S.-flagged and are at least 75% U.S.-owned and -crewed. The ships also must be assembled entirely in the U.S., with all major components U.S.-fabricated. Passed after one war, the act was rationalized by anticipation of another. Supposedly protecting the domestic shipping industry from foreign competition would stimulate merchant marine shipbuilding sufficient for military emergencies. Predictably, protecting the industry from competition increased costs of goods, decreased pressure for efficiencies and contributed to the shrinking of U.S. shipbuilding.

Colin Grabow and Scott Lincicome of the Cato Institute report that two years after the Jones Act was passed, a government report found that a U.S.built ship cost 25% more than a comparable vessel built abroad. And after a century of the act? “A U.S.-built tanker costs 300% more than one built abroad while a U.S.-built containership has a price premium of 400%.” U.S. shipyards have collectively produced fewer than three a year since 2000.

The quality of the U.S. merchant fleet has national security implications. In Europe, a large war of aggression is raging, with the survival of the aggressedagainst nation depending on U.S. weapons, munitions and other materials. A larger war could erupt in Asia, especially if the aggressor doubts the U.S. ability to sustain a protracted conflict.

The number of oceangoing cargo ships meeting Jones Act requirements has declined from “193 to 99 since 2000, and only 78 of those 99 can be deemed militarily useful,” wrote Grabow and fellow policy analysts Inu Manak and Daniel Ikenson in 2018. “Facing exorbitant replacement costs, ship owners are compelled to squeeze as much life as possible out of their existing vessels. … Excluding tankers, the ships in the Jones Act fleet currently average 30 years old, fully 11 years older than the average age of a ship in the world merchant fleet of other developed countries.”

The authors were writing for the Cato Institute. The libertarian think tank near Capitol Hill, where crony capitalism originates, disparages the Jones Act.

Cato obtained documents related to a 2020 meeting of a committee that advises, on behalf of the U.S. shipping industry, the U.S. Maritime Administration, which oversees the industry. The committee’s recommendations included: “Charge all past and present members of the Cato and Mercatus Institutes with treason.” Such brainstorming from industrial policy’s defenders indicates their assessment of their arguments’ persuasiveness.