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Jones Act Is a Swamp Creature That’s Strangling Puerto Rico

Colin Grabow

President Trump’s administration has wisely chosen to
waive outdated regulations that are getting in the way of Puerto
Rico’s recovery from Hurricane Maria. The regulations, known
as the Jones Act, make it more expensive for the U.S. territory to
affordablyimport goods from the mainland. And while it’s
commendable that Trump has temporarily waived this obstacle, it
shouldn’t have taken a major disaster to realize the harm it
was causing.

But like so many federal laws and regulations, there’s one
big reason the Jones Act remains — and while talking to reporters on Wednesday, Trump gave
the game away. Stating that he was considering the waiver, Trump
admitted he was hesitant to do so because “a lot of people
that work in the shipping industry … don’t want the Jones
Act lifted.”

So much for draining the swamp.

If Trump and the GOP are
serious about deregulation, spurring economic growth and taking on
special interests, they’ll repeal this archaic law.

This same president once vowed to take on the established
interests, and promised at his first address to
Congress
that he would undertake “A historic effort to
massively reduce job-crushing regulations.” Yet the fact that
Trump needed a historically destructive hurricane as the impetus
for temporarily waiving the Jones Act should come as no surprise.
Occupants of the White House come and go, and control of Congress
occasionally shifts from one party to the next, but for almost 100
years no one has mustered the necessary courage to take on the
interests behind this protectionist and economically backwards
law.

A swamp creature is born

More formally known as the Merchant Marine Act of 1920, the
Jones Act mandates that goods travelling by water between U.S.
ports be carried on ships that are built in the U.S., registered in
the U.S., at least 75% American-owned, and at least 75%
U.S.-crewed.

The results have been universally abysmal. The Jones Act reduces
choice and competition among shipping providers, driving
transportation costs higher. A 2015 report by a group of economists,
including former World Bank Chief Economist Anne Krueger, found
that shipping costs to Puerto Rico are twice that of neighboring
islands — costs that are then passed along to consumers. And
the law certainly hasn’t achieved its stated goal to
“develop and encourage the maintenance” of a merchant
marine capable of supporting the U.S. in time of war. As economist
Thomas Grennes notes, from 2000 through 2016
the number of large Jones Act-eligible ships in the U.S. fleet
actually declined from 193 to 91. Fewer ships means fewer jobs, and
those which remain do so at the eye-popping figure of $250,000 per position, according a study
conducted by former President Clinton’s Council of Economic
Advisers.

It’s easy to see how harmful this could be for Puerto Rico.
Puerto Ricans needlessly pay higher prices for the many goods and
products they import from the rest of U.S., driving up their cost
of living for the sake of protecting unions, American shippers and
the U.S. shipbuilding industry. And although they’re getting some
relief for 10 days, once the Jones Act comes back into effect,
Puerto Ricans will be right back where they started.

In spite of this hardship, the law persists. In fact, the sad
reality is that recent efforts to outright repeal the Jones Act
haven’t even come close to succeeding. In January 2015, Sen. John
McCain, R-Ariz., presented an amendment to repeal parts of the law
but ultimately failed to gather the necessary support to even have
a vote. Last week McCain and Sen. Mike Lee, R-Utah, introduced a
bill to permanently exempt Puerto Rico from the
century-old shipping law. The success or failure of this bill will
reveal much about where Trump and the Republican-controlled
Congress stand on draining the swamp.

Maddeningly, the Jones Act even enjoys support from politicians
who purport to represent constituents harmed by its provisions. The
four members of Hawaii’s congressional delegation are a case in
point — they’re uniformly in favor of the Jones Act. While
the precise impact on Hawaii is difficult to calculate, a 1999
U.S. International Trade Commission report
found Jones Act requirements to be the equivalent of a 65% tariff
on shipping services, an impact that is surely felt on an island
which imports 90% of its food and much else of what it
consumes.

Perhaps, however, the devastation in Puerto Rico can serve as
something of a turning point.

As outrage mounts over the plight of Americans on the island,
there are signs of a growing recognition of the human costs the
Jones Act imposes. If Republicans in Congress and Trump are serious
about deregulation, spurring economic growth, and taking on the
special interests, they will set their sights firmly on finally
repealing this archaic and counterproductive law. It’s time to
finally drown this swamp creature.

Colin Grabow
is a policy analyst at the Cato Institute’s Herbert A. Stiefel
Center for Trade Policy Studies.