Hey, Congress: If You Really Want to Help Puerto Rico Recover, Dump the Jones Act
Crony law benefitting U.S. shipping companies will drive up costs, extend hurricane crisis.
Puerto Rico is in a dire state after Hurricane Maria. The island has lost all power even as a heat wave bakes it—and it may be months, not days or weeks, before electricity and services are restored. Meanwhile, the place's agriculture industry has been decimated. Recovery will require the island to import everything from lumber to food to fuel to medical supplies.
Unfortunately, a protectionist law may get in the way. The Jones Act—technically, the Merchant Marine Act of 1920—has had nasty financial impacts on trade to Puerto Rico and many other port cities and islands within the United States and its territories.
The Jones Act requires that all ships traveling between U.S. ports be made, owned, and crewed by Americans. So a ship from another country, or whose owners are from another country, cannot travel from port to port within the United States delivering or picking up goods.
Fortunately the Department of Homeland Security has recognized this problem and has waived the Jones Act for fuel shipping for the time being. But given the tremendous amount of devastation Puerto Rico faces, the costs that are going to be involved in recovering, and the already poor financial state of the island, there has never been a better time to dump the Jones Act entirely.
The Jones Act exists to boost the American shipping industry. It has long contributed to the dramatic costs of shipping to Puerto Rico. A New York Fed report from 2012 shows that it costs twice as much to ship something from a port in the U.S. mainland to Puerto Rico as it does to ship to Jamaica and the Dominican Republic nearby. There are only a handful of Jones Act–compliant options, and that lack of competition allows U.S. shippers to charge much higher prices.
People who think the government should intervene to stop price-gouging during a disaster should know the Jones Act practically facilitates it and makes recovery all the more expensive. Cato Institute Adjunct Scholar Scott Lincicome warned about the consequences in 2015:
During the Deepwater Horizon oil spill, the government…refused to issue Jones Act waivers so foreign vessels could aid in the cleanup and containment. Despite several offers for foreign assistance during an ongoing ecological disaster, the government cited the Jones Act to justify turning them away. Many suspect that the Obama administration was reluctant to go against the pro-Jones Act labor unions (tr. every labor union) he needed to cement his re-election. It's not a leap to say that such cronyism may have delayed the eventual resolution of the spill.
In response to Puerto Rico's current crisis, Lincicome tells Reason if a complete repeal is not in the works, then at the very least its rules should be waived for all shipping to Puerto Rico for the foreseeable future, not just for shipping fuel. "You're looking at a clear and avoidable economic burden being placed on the people of Puerto Rico," he says.
He adds that the island's citizens suffer this economic burden every day as it is. It's only being temporarily halted due to the crisis.
"We're alleviating that burden because they're a sympathetic group right now and there's a spotlight on the tragedy," Lincicome says. "In the good times or normal times, those costs are considered OK. It's a really sad state of affairs."
Lincicome has seen no evidence that the disaster might cause Congress to rethink the law. Sen. John McCain (R-Ariz.) periodically attempts to get the Jones Act repealed, but nothing comes of it. And opening America's ports to foreign competition certainly doesn't seem like something President Donald Trump is likely to embrace.
"In this political environment it's going to be pretty darned tough to get Republicans on board," Lincicome says. "Politicians are convinced that protectionism is good politics."