Antiquated Jones Act Hobbles Texas’ Economy
Since 1920, Texas’ economy has been hindered by a little-known protectionist law called the Jones Act. In fact, Wayne Christian, the current chairman of the Railroad Commission of Texas, noted in a 2018 letter that this act hurts Texas and the nation and should be reevaluated. At a time when energy prices are soaring and economic activity is souring from bad policy in Washington, ending this antiquated act would be a big boost to Texans and all Americans.
The Jones Act mandates that only ships built, owned, and crewed by Americans can transport goods between U.S. ports. But such vessels are relatively more expensive to build and operate because of the lack of competition due to government restrictions. As a result, it can often prove cheaper for Americans to purchase products made in other countries.
In times of national disaster, presidents, regardless of political affiliation, have provided aid to coastal states and U.S. territories by granting waivers of the Jones Act so the assistance can arrive efficiently.
The act especially harms states like Alaska and Hawaii, as well as U.S. territories like American Samoa, Puerto Rico, and Guam. Because of the added surcharges associated with shipping goods on an approved vessel, artificially high prices become the norm for most of the goods shipped to those places and result in billions of dollars of lost revenue for U.S. businesses — and thus American workers and consumers.
The Jones Act is even more burdensome on energy producers, especially here in Texas. Currently, Texas produces half of America’s natural gas output — but instead of shipping gas domestically, we are being forced to export our natural gas. Texas continues to ramp up liquefied natural gas (LNG) production, but the Jones Act has made it impossible to sell some domestically. In fact, there are only 96 American-made, Jones Act-compliant ships and no eligible ships capable of carrying LNG. Because of this, it’s more economically viable for some coastal states and territories to import from foreign nations rather than buying LNG produced in Texas. Repealing this protectionist measure would remove this obstacle and help lower energy prices. Currently, foreign nations with large reserves of natural gas and crude oil have greater incentives to enter U.S. markets because the act puts American energy producers at a disadvantage.
Last year, the U.S. exported LNG to 37 countries, with the Dominican Republic purchasing over half of its LNG from the U.S. Meanwhile, the Dominican Republic’s island neighbor of Puerto Rico found it cheaper to import most of its LNG from Trinidad and Tobago instead of mainland America. The difference is that the Dominican Republic is a foreign nation and is not limited to more expensive approved ships to buy from the United States.
Proponents for the Jones Act claim that it “bolsters” our national defense, but instead it increases energy dependence on foreign imports, often from unfriendly countries.
Another unintended consequence of protectionist shipping laws is one of the largest — and most dangerous — commercial challenges for ships that navigate the narrow connection in the Houston Ship Channel as they sail towards the Gulf of Mexico from near Houston.
Jokingly nicknamed the Texas Chicken, this hair-raising encounter in which oncoming ships steer almost directly at one another has become the norm for ship captains because Houston simply doesn’t have a wide enough channel to safely accommodate two-way traffic at normal distances. This is due to another costly protectionist measure called the Foreign Dredge Act of 1906. It prohibits foreign-built ships from dredging in the U.S. In addition to these risky maneuvers, the U.S. Army Corps of Engineers has talked at length about the channel’s inefficiencies and environmental concerns because of flawed assumptions that restricting certain ships benefits Americans.
Simply expanding the channel would solve many of the bottleneck issues our state sees with energy exports and shipping in general. However, the costs associated with conducting this project are artificially high because of the two acts. Two of the largest sand-moving projects in Louisiana dredged about 24.6 million cubic yards of sand, costing a combined total of $334 million. In the Netherlands, a similar project was undertaken, costing just $55.5 million while dredging 14% more sand.
The economic costs of the Jones Act are clear and, as economist Milton Friedman said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
The Jones Act was created to protect domestic shipbuilding, but it has turned a once-thriving U.S. maritime industry into a dying, anti-competitive relic — an allegory of what irresponsible government regulation looks like. If waiving the Jones Act works during a crisis, why have it at all? We shouldn’t, and Texans and all Americans would be better off without it.
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Vance Ginn, Ph.D.