You may have heard recently that our esteemed president granted a 10-day waiver to the island of Puerto Rico from the “Jones Act” while declining to permanently exempt the island from the outdated regulation.
The “Jones Act” refers to Merchant Marine Act of 1920 which requires that all maritime shipping between U.S. ports be done by ships which are American made, owned by Americans and crewed by a 75 percent American crew. This law was passed in a bygone era, when a nation’s prowess was measured in maritime strength. Nowadays, in our new (blessed) globalized economy, this law serves as an albatross around the neck of the most vulnerable Americans in Puerto Rico.
Requiring that goods shipped to the non-continental U.S. be transported has real consequences which have hurt consumers and the American shipping industry which the Jones Act originally set out to protect.
The Jones Act has costs for Americans on the mainland as well, with gulf coast crude oil producers finding it to be uneconomical to transport the oil they’ve produced to refineries on the East Coast. This had led to America being forced to rely upon foreign oil from South America. For example, it is cheaper to pay shipping from Venezuela to the East Coast than it is from Texas to the East Coast.
With Puerto Rico specifically, two Puerto Rican economists found that the Jones Act has cost the island $17 billion between 1990 and 2010. On average, a vehicle purchased on the island costs $6,000 more than the same car purchased in nearby Florida.
Lack of competition in the area of domestic shipping has led to artificially high prices and a decline in the American shipping industry. Since 1960, the number of ships which met the requirement of the Jones Act declined from 2,926 to 169. During the same period of time, the number of freighters worldwide increased from 17,317 to 41,674. This is unsurprising as requiring that ships be American made and manned by Americans leads to higher operating costs which keep domestic shipping from being able to compete abroad with cheaper shipping. The Jones Act in fact heralded the beginning of the end for American shipping abroad by crippling their ability to operate competitively abroad.
In the specific case of Puerto Rico in 2017, having 169 ships to transport goods to an island of 3.4 million people is a nightmare scenario which a 10-day waiver can not solve. Puerto Rico needs long term help and access to cheaper goods than they currently have. Before the hurricane, the per capita income of residents was $18,000 per year, which is almost equal to half of Mississippi, the poorest of all 50 states. At the same time the cost of living is 13 percent higher in Puerto Rico than in 325 urban areas of the continental U.S. These factors have caused Puerto Rico’s economy to struggle with an unemployment rate double the national average at 10.1 percent as of August 2017. Add to that the major crisis of a hurricane and you have the current disaster facing America.
Trade isn’t a zero sum game of us versus them. It’s an exchange of goods and services where all benefit when competition, even foreign competition, and market forces are allowed to proceed freely. The crony protectionism of the Jones Act is harming American citizens, driving down economic growth and contributing to a blossoming Puerto Rican debt. This lesson is something which seems to have escaped the “great dealmaker” in the White House. Instead, this administration clings desperately to a mercantilistic worldview from an antiquated era, as American citizens in Puerto Rico struggle to gain access to the most basic of goods in the aftermath of hurricane Maria.
