“Up for Debate” is a project of the Center for Maritime Strategy geared towards driving thoughtful, energizing discussion about pressing issues facing the U.S. Sea Services and international maritime security. Our monthly series places two contrasting expert views into written conversation with each other about a timely issue of maritime significance. “Up for Debate” provides a platform for respectful and informed debate which can shape thinking about maritime strategy and security policy. The authors’ arguments are their own, not reflecting any institutional perspectives. In this edition, Mr. John McCown, Non-Resident Senior Fellow at the Center for Maritime Strategy, and Mr. Andrew Hale, Senior Trade Policy Analyst at The Heritage Foundation, debate the following issue: Is The Jones Act a help or hindrance to American shipping and national security?
Argument of John McCown, Non-Resident Senior Fellow, Center for Maritime Strategy
Few issues in the maritime sector produce as much debate as the Jones Act. Let me say I unequivocally support the Jones Act while I also believe in free trade. I square those contradictory views for equity and national security reasons. Before explaining further, we must first address the misleading information that often moves the discussion away from facts and towards hyperbole and falsehoods that have produced myths and misunderstanding. The Jones Act has an economic cost that can be quantified. Some believe any cost makes it unacceptable. Most are influenced by what they understand that economic cost is, often informed by exaggerated figures and selective comparisons that present a distorted picture.
Critics like to highlight the vessel build cost multiple. The Cato Institute previously used six to eight times as the cost of building a ship in the U.S. compared to overseas but has now settled on five times as their favored exaggeration. Actual comparables have it three times for tankers and four times for container ships. Building ships is labor intensive and the main product used in their construction is steel. U.S. wage rates are more than five times the rest of the world and its steel production accounts for 4.3% of world production. The majority of the world’s steel is now made in China, the position the U.S held until 1950. With the U.S. at a clear cost disadvantage with the two main factors used in building ships, there is no mystery why they cost more to build in the U.S.
Most importantly, in using build cost multiples, the Jones Act critics want to imply that the customer impact is the same multiple. Crew costs is a lower multiple. Fuel and other ship-related costs, as well as all port costs and land costs, are the same whether it is a Jones Act or foreign ship. In container shipping, the large majority of carrier costs have nothing to do with the ship. Going through the real numbers, the total difference in an objective comparison for container shipping would be in the 15–20% range. In banging the anvil with the 5 times multiple, the critics are off by a factor of 25 to 33 on the container sector that dominates the Jones Act. The cost difference with tankers is twice the container sector with less landside costs but nowhere near the hyperbole.
With experience in the Jones Act as an operator and an investor, I have taken it upon myself to challenge and correct the mistakes I have seen made by critics. For instance, my May 2021 article used the actual charter of a foreign flag tanker booked under a Jones Act waiver to show difference was 31%, geometrically below the three to five times refrain. My July 2021 article systematically dismantled a report saying the Jones Act cost Hawaii consumers $1.2 billion per year and pegged the real cost at $136 million. One of critics’ favorite way to spread Jones Act myths is equating it to gasoline costs. My July 2023 article took the claim that the Jones Act cost East Coast consumers $4.3 billion annually and unpacked it in detail to prove an actual cost of $85 million — fifty times below the claim.
Jones Act cost differences result from America’s laws, regulations, and labor practices. Any industry allowed to operate outside of those would see costs decline. Jones Act ships are directly involved in domestic commerce and should be covered by the same rules governing other domestic industries. It would be fundamentally unfair to selectively treat the domestic maritime industry differently.
Further, it is incontrovertible that a U.S. flag merchant marine provides national security benefits as the only sealift capacity reliable in national emergencies. Jones Act vessels comprise the majority of our merchant marine and provide crucial seagoing billets for maritime academy graduates. These trained seafarers are the key element in our merchant marine. Ending a significant portion of those jobs results in training issues not readily reactivable. There is an extensive web of suppliers and professionals linked to the Jones Act that also provide critical products and services for naval shipbuilding. Harming them compromises that national security capability.
The Jones Act makes sense for both equity and national security reasons. It would be reckless for Congress to repeal it, particularly today when the importance of stable service and sealift capacity in an emergency are more recognized than ever.
Reply of Andrew Hale, Jay Van Andel Senior Trade Policy Analyst, The Heritage Foundation
The Jones Act is not working and has never delivered a competitive edge. The United States has lost its global competitiveness in shipbuilding. China, on the other hand, has constructed a premier merchant fleet while investing in more than 100 ports in 63 countries. Under the Jones Act, the U.S. merchant marine cannot compete with large Chinese corporations such as COSCO. Conversely China’s “civ-mil” fusion harmonizes civilian shipping activities with military requirements. The Chinese are also not burdened with costly U.S. environmental, labor, and special interest regulations. The Jones Act and ad valorem taxes on U.S.-flagged vessels for overseas ship maintenance have prevented the U.S. shipping industry from competing globally and hastened its decline. The U.S. Jones Act-compliant fleet had 257 ships in 1980 — and only 93 ships today.
Yet, the Jones Act makes it more expensive to maintain this fleet by requiring that these ships be U.S.-built, even while the withering fleet size has reduced U.S. capacity. The absurd consequence is that ships built in the U.S. now require maintenance in Chinese shipyards. This absurdity is compounded by the fact that the 93 remaining and aging U.S. ships would be of limited military use in wartime. Creating a wall of protection around the U.S. merchant navy has not worked, and the merchant fleet is in obvious decline as a result. This decline is in stark contrast to China’s fleet of 8,007 ships, the second largest fleet in the world by cargo-carrying tonnage. Chinese shipbuilders benefited from $132 billion in direct subsidies, as well as indirect subsidies and deregulation between 2010 and2018. Yet, on the U.S. side, simply subsidizing a fleet that operates under the stifling Jones Act will not revive a declining U.S. merchant marine.
The U.S. government needs to encourage industry to leverage innovation and technology. The goal is to increase industrial capacity, yet U.S. regulators who implement the Jones Act prevent new innovators from entering the market. As General Stephen Lyons stated in his congressional testimony, it is 26 times more costly to build ships domestically in the U.S. than to purchase them abroad. It is not just a question of labor costs (although Chinese labor is becoming less inexpensive). Even if lower Chinese labor costs are removed from the assessment, U.S. regulations and restrictions still make American shipping 18-fold more expensive. The vast majority of this differential only arose after the Jones Act created a protective wall that stifled competitive forces for U.S. shipbuilders.
As an intermediate solution, there should be more waivers for South Korea, Japan, and Greece as strong maritime allies under the Jones Act. Realistically, it is not possible in the short term to outperform China in the maritime sphere, but the U.S. can, in coordination with its allies, alter the logistical paradigm. At a minimum, the goal should be to avoid the reoccurrence of the obvious failures of shipping supply chains during the COVID-19 pandemic.
The Merchant Marine needs to become globally competitive, and it needs to innovate with new technologies, which can happen with deregulation. Protectionism breeds weak and uncompetitive industries, while innovation and renewed competitiveness would eventually make the Jones Act unnecessary. The U.S. has revolutionized shipping before with containerization, and it can do that again with modularization (which is resisted by labor unions).
The solution to the current predicament has already been articulated in The Heritage Foundation’s special report, Regaining U.S. Maritime Power Requires a Revolution in Shipping. The authors argue for a “blue ocean strategy,” under which ships would circumvent the Jones Act by offloading cargo to ships waiting 12 nautical miles away from the U.S. shoreline. As container ships increase in size, the dated U.S. ports will struggle to cope with advanced cranes and increased depth and offloading areas. One could thus circumvent the Jones Act by offloading 12 nautical miles from the U.S. shore. Given that the U.S. cannot compete in global shipping under the Jones Act, it must supplant the Jones Act fleet, because it will continue to wither away, as it has been for years.
John McCown is a Non-Resident Senior Fellow at the Center for Maritime Strategy.
Andrew Hale is the Jay Van Andel Senior Trade Policy Analyst at The Heritage Foundation. He can be found on X @DrewHaleDC.
The views expressed in this piece are the sole opinions of the author and do not necessarily reflect those of the Center for Maritime Strategy or other institutions listed.
Center for Maritime Strategy
By John D. McCown | Andrew Hale
“Up for Debate” is a project of the Center for Maritime Strategy geared towards driving thoughtful, energizing discussion about pressing issues facing the U.S. Sea Services and international maritime security. Our monthly series places two contrasting expert views into written conversation with each other about a timely issue of maritime significance. “Up for Debate” provides a platform for respectful and informed debate which can shape thinking about maritime strategy and security policy. The authors’ arguments are their own, not reflecting any institutional perspectives. In this edition, Mr. John McCown, Non-Resident Senior Fellow at the Center for Maritime Strategy, and Mr. Andrew Hale, Senior Trade Policy Analyst at The Heritage Foundation, debate the following issue: Is The Jones Act a help or hindrance to American shipping and national security?
Argument of John McCown, Non-Resident Senior Fellow, Center for Maritime Strategy
Few issues in the maritime sector produce as much debate as the Jones Act. Let me say I unequivocally support the Jones Act while I also believe in free trade. I square those contradictory views for equity and national security reasons. Before explaining further, we must first address the misleading information that often moves the discussion away from facts and towards hyperbole and falsehoods that have produced myths and misunderstanding. The Jones Act has an economic cost that can be quantified. Some believe any cost makes it unacceptable. Most are influenced by what they understand that economic cost is, often informed by exaggerated figures and selective comparisons that present a distorted picture.
Critics like to highlight the vessel build cost multiple. The Cato Institute previously used six to eight times as the cost of building a ship in the U.S. compared to overseas but has now settled on five times as their favored exaggeration. Actual comparables have it three times for tankers and four times for container ships. Building ships is labor intensive and the main product used in their construction is steel. U.S. wage rates are more than five times the rest of the world and its steel production accounts for 4.3% of world production. The majority of the world’s steel is now made in China, the position the U.S held until 1950. With the U.S. at a clear cost disadvantage with the two main factors used in building ships, there is no mystery why they cost more to build in the U.S.
Most importantly, in using build cost multiples, the Jones Act critics want to imply that the customer impact is the same multiple. Crew costs is a lower multiple. Fuel and other ship-related costs, as well as all port costs and land costs, are the same whether it is a Jones Act or foreign ship. In container shipping, the large majority of carrier costs have nothing to do with the ship. Going through the real numbers, the total difference in an objective comparison for container shipping would be in the 15–20% range. In banging the anvil with the 5 times multiple, the critics are off by a factor of 25 to 33 on the container sector that dominates the Jones Act. The cost difference with tankers is twice the container sector with less landside costs but nowhere near the hyperbole.
With experience in the Jones Act as an operator and an investor, I have taken it upon myself to challenge and correct the mistakes I have seen made by critics. For instance, my May 2021 article used the actual charter of a foreign flag tanker booked under a Jones Act waiver to show difference was 31%, geometrically below the three to five times refrain. My July 2021 article systematically dismantled a report saying the Jones Act cost Hawaii consumers $1.2 billion per year and pegged the real cost at $136 million. One of critics’ favorite way to spread Jones Act myths is equating it to gasoline costs. My July 2023 article took the claim that the Jones Act cost East Coast consumers $4.3 billion annually and unpacked it in detail to prove an actual cost of $85 million — fifty times below the claim.
Jones Act cost differences result from America’s laws, regulations, and labor practices. Any industry allowed to operate outside of those would see costs decline. Jones Act ships are directly involved in domestic commerce and should be covered by the same rules governing other domestic industries. It would be fundamentally unfair to selectively treat the domestic maritime industry differently.
Further, it is incontrovertible that a U.S. flag merchant marine provides national security benefits as the only sealift capacity reliable in national emergencies. Jones Act vessels comprise the majority of our merchant marine and provide crucial seagoing billets for maritime academy graduates. These trained seafarers are the key element in our merchant marine. Ending a significant portion of those jobs results in training issues not readily reactivable. There is an extensive web of suppliers and professionals linked to the Jones Act that also provide critical products and services for naval shipbuilding. Harming them compromises that national security capability.
The Jones Act makes sense for both equity and national security reasons. It would be reckless for Congress to repeal it, particularly today when the importance of stable service and sealift capacity in an emergency are more recognized than ever.
Reply of Andrew Hale, Jay Van Andel Senior Trade Policy Analyst, The Heritage Foundation
The Jones Act is not working and has never delivered a competitive edge. The United States has lost its global competitiveness in shipbuilding. China, on the other hand, has constructed a premier merchant fleet while investing in more than 100 ports in 63 countries. Under the Jones Act, the U.S. merchant marine cannot compete with large Chinese corporations such as COSCO. Conversely China’s “civ-mil” fusion harmonizes civilian shipping activities with military requirements. The Chinese are also not burdened with costly U.S. environmental, labor, and special interest regulations. The Jones Act and ad valorem taxes on U.S.-flagged vessels for overseas ship maintenance have prevented the U.S. shipping industry from competing globally and hastened its decline. The U.S. Jones Act-compliant fleet had 257 ships in 1980 — and only 93 ships today.
Yet, the Jones Act makes it more expensive to maintain this fleet by requiring that these ships be U.S.-built, even while the withering fleet size has reduced U.S. capacity. The absurd consequence is that ships built in the U.S. now require maintenance in Chinese shipyards. This absurdity is compounded by the fact that the 93 remaining and aging U.S. ships would be of limited military use in wartime. Creating a wall of protection around the U.S. merchant navy has not worked, and the merchant fleet is in obvious decline as a result. This decline is in stark contrast to China’s fleet of 8,007 ships, the second largest fleet in the world by cargo-carrying tonnage. Chinese shipbuilders benefited from $132 billion in direct subsidies, as well as indirect subsidies and deregulation between 2010 and2018. Yet, on the U.S. side, simply subsidizing a fleet that operates under the stifling Jones Act will not revive a declining U.S. merchant marine.
The U.S. government needs to encourage industry to leverage innovation and technology. The goal is to increase industrial capacity, yet U.S. regulators who implement the Jones Act prevent new innovators from entering the market. As General Stephen Lyons stated in his congressional testimony, it is 26 times more costly to build ships domestically in the U.S. than to purchase them abroad. It is not just a question of labor costs (although Chinese labor is becoming less inexpensive). Even if lower Chinese labor costs are removed from the assessment, U.S. regulations and restrictions still make American shipping 18-fold more expensive. The vast majority of this differential only arose after the Jones Act created a protective wall that stifled competitive forces for U.S. shipbuilders.
As an intermediate solution, there should be more waivers for South Korea, Japan, and Greece as strong maritime allies under the Jones Act. Realistically, it is not possible in the short term to outperform China in the maritime sphere, but the U.S. can, in coordination with its allies, alter the logistical paradigm. At a minimum, the goal should be to avoid the reoccurrence of the obvious failures of shipping supply chains during the COVID-19 pandemic.
The Merchant Marine needs to become globally competitive, and it needs to innovate with new technologies, which can happen with deregulation. Protectionism breeds weak and uncompetitive industries, while innovation and renewed competitiveness would eventually make the Jones Act unnecessary. The U.S. has revolutionized shipping before with containerization, and it can do that again with modularization (which is resisted by labor unions).
The solution to the current predicament has already been articulated in The Heritage Foundation’s special report, Regaining U.S. Maritime Power Requires a Revolution in Shipping. The authors argue for a “blue ocean strategy,” under which ships would circumvent the Jones Act by offloading cargo to ships waiting 12 nautical miles away from the U.S. shoreline. As container ships increase in size, the dated U.S. ports will struggle to cope with advanced cranes and increased depth and offloading areas. One could thus circumvent the Jones Act by offloading 12 nautical miles from the U.S. shore. Given that the U.S. cannot compete in global shipping under the Jones Act, it must supplant the Jones Act fleet, because it will continue to wither away, as it has been for years.
John McCown is a Non-Resident Senior Fellow at the Center for Maritime Strategy.
Andrew Hale is the Jay Van Andel Senior Trade Policy Analyst at The Heritage Foundation. He can be found on X @DrewHaleDC.
The views expressed in this piece are the sole opinions of the author and do not necessarily reflect those of the Center for Maritime Strategy or other institutions listed.