President Donald Trump has challenged the conventional wisdom about free trade with his interest in protectionist tariffs. Now, however, he has an opportunity to move the other way and undo the damage done by a century of protection for an American industry that once led the world in innovation and productivity: shipbuilding and merchant shipping.
Bloomberg News and Maritime Executive magazine report that Mr. Trump is considering issuing a presidential waiver to allow New England states and Puerto Rico to import liquid natural gas from the Gulf Coast without going through the requirements of the 1920 Jones Act. Six years ago Bloomberg reported that because of the Jones Act, it costs twice as much to ship oil from the Gulf Coast to the East Coast as it does to ship the same cargo to Canada.
Mr. Trump should go further than proclaiming a waiver. He should recommend that Congress repeal the Jones Act.
Part of the Merchant Marine Act of 1920, the Jones Act requires that goods shipped between American ports must travel in ships made in the United States and crewed by U.S. crews. Shipping by foreign-flag carriers costs dramatically less. Because of this cost differential, the governor of Puerto Rico requested a long-term waiver of the Jones Act to ease the costs of recovery from the devastation caused by Hurricane Maria in September 2017.
A Jones Act waiver would also avoid major heating cost increases for New England caused by sanctions against the Venezuelan liquid natural gas (LNG) it now imports. Also it might be the only way for those two markets to purchase domestic LNG, a far cleaner fuel than coal. Maritime Executive reports that it has been 40 years since American shipyards built LNG tankers, and that they are unlikely to do so unless part of an unlikely, because too costly, long-term supply contract.
The lack of an American LNG tanker fleet despite the booming world trade in the fuel reflects the dramatic decline of the American merchant marine over the last century.
The 1920 act not only restricted coastal trade to American ships but, in the course of mandating better working conditions for American seamen, made American crews much more costly than their foreign competitors. The result, in the 1920s, was the rapid growth in the number of ships registered in foreign countries, starting with Panama, to avoid American labor laws. One could say that the American merchant marine was the first victim of globalization, as American shipbuilding capital went elsewhere to build and man merchant ships.
Now U.S. ships carry about 1 percent of global trade, down from nearly 2.5 percent over the past 15 years. Over 90 percent of new shipbuilding takes places in three countries: China, South Korea and Japan. Of 94,000 merchant vessels in world trade, U.S. Jones Act ships number 82.
As Mark Buzby, U.S. maritime administrator, told the House last year, “ Over the past few decades the U.S. maritime industry has suffered losses as companies, ships and jobs moved overseas.”
The Jones Act claimed to strengthen national security. But a 2018 National Defense University study found the diminished capacity of the U.S. shipbuilding industry will make it more costly to rebuild the Navy, as current national security planning requires.
Mr. Trump should not only issue waivers from the Jones Act for Puerto Rico and New England. He should advocate repeal of a law that has manifestly accelerated the decline of a critical national industry.