If you wanted to truck oranges from Miami to New Orleans, it doesn't matter where the truck was made. If you wanted to fly them, it doesn't matter where the plane was made. But if you put them on a boat, the Jones Act says the ship must be American made or be subject to tariffs and fees. How much of a difference does this make?
Enough so that the administration temporarily waived the act so as to get shipments to Puerto Rico after hurricane Maria. Evidently, they believed this measure was restricting the free flow of emergency provisions. But, alas, the waiver will not be renewed. Some clever economist should measure how much this waiver lowered costs (and maybe saved lives). If so, we might have the ammunition needed to repeal this blatant protectionism.
The Jones Act is completely contrary to the one lesson of business (Froeb, McCann, Shor & Ward, 2016, Pg. 19) that says the art of business consists of identifying assets that are in low value uses and transitioning them to high value uses. Prior to the recent disaster following the hurricane in Puerto Rico, I’d never heard of the Jones Act. The Jones Act states that any products shipped to any American port must be carried by US ships, with US crew and that those ships must be made in the US (Szakonyi, 2017). When the act was first instituted in 1920, it made sense for the United States to require that our ships all be flying US flags. There was a need to be sure that we could protect the United States from attack by sea and we could move supplies around in case of war and the intent behind this act was to be sure that there would always be a readily accessible merchant marine fleet. It did not have much impact, and still does not have much impact, on goods moved around the mainland United States since a majority of those goods are shipped via truck and rail. It has a huge impact on Hawaii, Alaska, and Puerto Rico though.
ReplyDeleteIt drives up costs in unnecessary ways because it eliminates much of the competition. It also invites corruption and is certainly not a good example of moving assets to higher value uses. It is difficult to accurately predict what the impact would be if the Jones Act was repealed though (Beason, 2015, Pg. 50) because it is not known if foreign shipping companies would keep their rates what they are for other comparable locations or would increase shipping costs due to increased regulation that comes with bringing cargo into ports that are part of the United States. Even though the overall impact would be difficult to predict I believe that it is regulation that is still in place not as much for its original intent, which was to provide a readymade merchant marine fleet, but more for the fact that it makes some American companies a lot of money and those same companies have lobbyists in Washington, D.C.
References
Beason, S. (2015). Myth and Conjecture? The 'Cost' of the Jones Act. Journal Of Maritime Law & Commerce, 4623.
Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2016). Managerial economics a problem-solving approach. Boston, MA: Cengage Learning.
Szakonyi, M. (2017). For better or worse, Jones Act set to stay. Joc Online, 1.