If The Jones Act Is About National Security, Let’s Make It About National Security.
June 3, 2019//
With the US’ oil and natural gas boom, the Jones Act has become a topic of heated debate with economic and natural security implications. The Act, which requires that any vessel transporting goods from one American port to another (known as “cabotage”) must be “built, owned, crewed, and repaired” by Americans, has been around since the end of WWI and is intended to bolster the US merchant marine fleet. Critics and proponents of the Act have both embraced all-or-nothing narratives that do a poor job of reflecting legitimate economic and security concerns. These concerns can be addressed by reforming the Jones Act and striking out provisions requiring vessels be built in the United States. Critics of the Jones Act consider it a violation of free trade principles and a type of crony capitalism. They claim the higher costs of US-built ships compared to foreign competitors raises the price of shipping goods from US port to another. This hurts states and territories outside the continental US, but is also problematic for cargoes which are more easily transported by ship than by land — such as liquified natural gas (LNG) — causing artificial energy price inflation in natural gas-hungry markets like New England and Puerto Rico. While the economics argument is compelling, it ignores equally compelling national security imperatives. At best, Jones Act critics argue that it is failing to meet its national security goals which, while true, is no reason to think those goals don’t matter. Jones Act advocates argue that the US merchant marine fleet is critical to our national security in the event of war or national emergency — merchant marine vessels are activated in these cases for logistical support as was the case for the Iraq War and hurricanes Katrina, Irma, and Maria. That merchant marine fleet has shrunk drastically, shrinking from 2,926 in 1960 to 196 in 2016[ (approximately half the merchant marine fleet is Jones Act compliant). Supporters argue other countries unfairly subsidize their maritime industry, and the Jones Act is all that protects what we’ve got left. Yet the Act hasn’t stopped the fleet from shrinking dramatically, suggesting reform is urgently required. It’s expensive to build ships in the US. Other shipbuilding countries enjoy advantages brought about by government subsidies. When it comes to LNG carriers, the US hasn’t build an LNG carrier since 1980, and that’s unlikely to change with the entrenchment of the industry in Asia. This trend holds throughout all types of commercial vessels. US shipbuilding has been in rapid decline since the 1950’s and crashed after government subsidies were ended by President Reagan in 1981. If protecting the US merchant marine fleet is a matter of national security, subsidies could be a price worth paying. While the WTO has historically found some subsidies to be against the rules, that’s been based on distortion of international trade. The US arguably could subsidize the building of Jones Act compliant vessels for cabotage only. Whether or not subsidies are a good idea is a political question, but it’s not even necessary in this instance. That’s because the most economically damaging aspect of the Jones Act can be done away with while still respecting national security needs. Requiring Jones Act compliant vessels to be built in US shipyards artificially increases the price of these vessels but provides limited national security benefit. In its FY 2016 Annual Industrial Capabilities report, the DoD noted that is increasingly integrating our defense industrial base with global markets and the defense industry will often need to use vital components from competitor countries. There are concerns with these arrangements. The current Huawei scandal is an example, but our best options for buying vessels are allies like South Korea and Japan rather than competitor countries. A second concern is that relying on outside suppliers puts you in trouble if that supply gets cut off – note recent reports that China could cut off rare earth mineral exports to the US as a next step in the trade war. However, shutting off the supply is a much greater threat for things like electronic components that have a short shelf life and constant demand for more, newer, better versions. Cargo ships have lifespans that are measured in decades, with crude and LNG carriers at the low-end of around 20 years. That kind of lifespan gives us a lot of flexibility to find new suppliers if one venue dries up. Reforming the Jones Act to allow vessels to be US-flagged, owned by US citizens and crewed by citizens and residents would answer nearly every concern raised in the current debate. It respects free trade principles and bolsters regional economic growth by cabotage’s economic viability. It fixes the Jones Act’s national security imperative by supporting a robust merchant marine fleet. The question of jobs is a political question, not a national security one. Some might find limited subsidies worth discussing to address that question, but we should be honest and admit that’s a question of politics, not national security. Editor’s note: An earlier version of this article incorrectly stated the US had never built an LNG carrier. The article has been corrected to reflect a limited run of LNG shipbuilding in the United States in the 1970s (with government financing), which has not been replicated since.