The Jones Act Stifles American Progress, But Must Remain

May 1, 2025

Zhichao James Xi

Introduction 

Towards the end of World War I, America sent over four million troops to Europe, enormous amounts of necessary supplies, rations, and equipment. This created an unattainable demand for America’s shipping industry, forcing foreign ships to shore up America’s sealift capacity. Senator Wesley Jones introduced the Merchant Marine Act in 1920, recognizing this dependence on foreign ships. This act intended to “lay the foundation of a policy that will build up and maintain an adequate American merchant marine in competition with the shipping of the world.”

The critical piece of this legislation is the requirement that all ships engaged in cabotage – transporting goods or people between U.S. ports – must be American-flagged, built, owned, and crewed. This requirement ensured the Jones Act’s primary goal: to provide the U.S. military with sufficient capacity and manpower for emergencies. As U.S. commercial shipbuilding has plummeted in the last few decades to just five oceangoing ships under construction a year, China’s shipbuilding industry has skyrocketed to building almost 2,000 a year. The Congressional Research Service exposed this vulnerability, finding that 7 of the 12 most recently built ships in the Maritime Security Fleet for the Department of Defense are Chinese-built. Evidence indicates that the Jones Act has not achieved its objective of sustaining a robust American merchant marine. Moreover, economists, politicians, and think tanks have cited the Act as a source of substantial harm to American industries and non-contiguous states and territories.

Increased shipping costs have inflicted considerable economic harm towards non-contiguous American states and territories such as Puerto Rico, Alaska, and Hawaii. Lack of Jones Act compliant vessels has stifled offshore wind farm goals and left the Northeast, California, and Puerto Rico to seek foreign suppliers for energy. Despite these failings, shipbuilding advocacy groups and the United States Maritime Administration (MARAD) continue to hail the Jones Act as the lynchpin for the entire domestic American maritime industry and U.S. national security. This article will highlight the main economic harms attributed to the Jones Act and then detail how the importance of maintaining this industry outweighs the economic harm that it inflicts. 

Puerto Rico

The Jones Act creates energy and economic uncertainty in Puerto Rico. In 2017, Hurricanes Irma and Maria caused millions in Puerto Rico to lose power in one of the longest blackouts in U.S. history. Puerto Rico’s crumbling infrastructure cascaded woes that were compounded by the Jones Act.  An island territory, Puerto Rico depends on imported shipments of aid, fuel, and supplies. Despite a waiver for the Jones Act granted by President Trump, the waiver failed to last long enough for foreign ships to make those much-needed shipments of aid. 

Puerto Rico’s faltering energy grid continues to rely heavily on liquified natural gas (LNG). In 2023, 40% of Puerto Rico’s energy was generated by shipments of LNG. The United States is the world’s largest producer and exporter of liquified natural gas, with a capacity of over 92 million metric tons per year. Being a nearby territory, it would be reasonable to assume that Puerto Rico benefits from its favorable location next to the world’s leading LNG exporter. However, out of the over 600 LNG tankers in the world, none of these tankers comply with the Jones Act. This has forced Puerto Rico to seek its LNG abroad, with regular shipments from Trinidad & Tobago, Nigeria, and Spain. Neighboring countries like the Dominican Republic and Jamaica are in distinct contrast. On average, the Dominican Republic imports a third of its LNG needs from America while Jamaica imports almost half. 

This suggests that without the Jones Act, Puerto Rico could seek domestic shipping prices from the United States rather than across the Pacific. This drives up prices not only for LNG and related products such as petroleum but also has a ripple effect across the entire Puerto Rican economy. Thus, researchers for the World Bank have found that the Jones Act acts as a 30% tariff, reducing household expenditure by $203 per person annually. Across the United States, the high shipping costs imposed by the Jones Act costs Puerto Rico $1.5 billion a year, Hawaii $1.2 billion a year, and increases coastal state shipping costs by 2-3%. 

For a territory that continues to struggle through natural disasters on a crippled infrastructure, Puerto Rico is only one implication of this policy’s greater magnitude on clean energy goals. In 2019, Puerto Rico adopted a 100% renewable energy for electricity by 2050 goal, following dozens of other states that have declared similar goals. In New Jersey, an ambitious plan by Governor Murphy sets a 100% clean electricity standard by 2035. Standing in the way however, is the Jones Act. The law’s restrictions on cabotage pose a significant hurdle to these goals in hindering the flow of natural gas, incentivizing carbon-heavy freight such as road, rail, and air, and halting offshore wind farm development. 

Although natural gas is frequently criticized by environmental groups, its environmental role is more complex than a simple fossil fuel label suggests. Natural gas’ importance in the clean energy transition is rooted in the economics of the energy industry. For energy grid operators, reliability is a critical component of grid integrity. While solar and wind energy fluctuate throughout the day and require lengthy application processes to connect to the power grid, natural gas is the steady source of energy necessary to work as the transition fuel between coal and renewable energy. This is why S&P Global finds that by replacing coal plants with natural gas, carbon emissions could be cut by more than 50% per unit of electricity. When 20% of the United States still depends on coal, natural gas could quickly and significantly slash emissions to support renewable energy. 

Just as the Jones Act hinders shipments of natural gas to Puerto Rico, so it does for New England whose demand for natural gas has jumped to more than half of their electricity production. Researchers at McKinsey & Co. found in 2018 that because of the Jones Act New England pays a $7.2-$1.2/mmbtu premium compared to the spot price of LNG loaded onto tankers in Texas. When natural gas futures were priced at $3.12/mmbtu during the same period, this Jones Act premium was a massive tax on millions of ratepayers.

Trump and the Jones Act

The Trump administration recognized this in April of 2019, when Puerto Rico sought a longer, ten year Jones Act waiver. Republican strategists and oil and gas officials supported granting waivers not only to lower energy prices in Puerto Rico but in the Northeast as well. “If you’re in favor of the Jones Act, you’re in favor of damaging consumers and helping very specific interests line their pockets at consumers’ expense,” said Mike McKenna, a member of Trump’s transition team. This issue was framed not only as an energy price issue, but a national security one as well. Jennifer Dlouhy for Bloomberg writes, “Oil industry leaders argue that the Jones Act restrictions undermine Trump’s American “energy dominance” agenda, by encouraging imports of foreign oil and gas despite abundant supplies inside the U.S. Russian LNG was delivered to Massachusetts last year to help supply consumers in the Northeast U.S.” 

However, in May of the same year, Trump withdrew support for Jones Act waivers after being visited by Republican senators from Louisiana. Supported by shipbuilding and maritime interest groups, Senator Bill Cassidy (R-LA) stated “We cannot let the United States become dependent on foreign countries to transport energy and critical products within the United States.” Following their meeting, Senator Cassidy and John Kennedy (R-LA) expressed confidence that President Trump had pledged to not grant Jones Act waivers. 

In establishing his stance as Pro-Jones Act, Trump is consistent with his protectionist trade policy. Indeed, Trump views the Chinese shipbuilding industry as a threat. With low-cost labor and extensive government support, China has achieved massive dominance in global oceangoing shipbuilding, far outpacing America. According to the Congressional Research Service, China, Korea, and Japan build over 90% of the world’s tonnage in ships, while the United States builds only 0.2%. Released in the final week of the Biden administration, this report positions Trump to unilaterally enforce U.S. trade rights via tariffs and other retaliatory measures under Section 301 of the Trade Act of 1974.

In April 2024, U.S. Trade Representative Katherine Tai launched a probe into Chinese-built vessels, finding that China’s massive share has expanded because of government subsidies. “Beijing’s targeted dominance of these sectors undermines fair, market-oriented competition, increases economic security risks, and is the greatest barrier to revitalization of U.S. industries, as well as the communities that rely on them,” said Tai.+.

It is possible that the incoming 2024 Trump administration could take the lessons learned from tariffs on the Chinese automotive industry and levy tariffs on the use of foreign-flagged ships. This could provide American shipbuilders with the demand necessary to revitalize empty shipyards and reach an economy of scale. Yet the USTR finds that “rebuilding the once vibrant U.S. maritime industry will take decades and investments of tens of billions of dollars. Tariffs alone will not suffice.” While American ships continue to be out-priced by foreign competition, the Jones Act is the only policy keeping any demand for American shipyards at the moment. 

Counter Argument and Conclusion

Most economists and policy advisors have claimed it is the Jones Act that has caused the collapse of the shipbuilding industry. Colin Grabow for the Cato Institute summarizes this argument, writing that it is instead “higher prices for water transportation” that drives down demand for cargo shipping by water and in turn demand for new ships. A repeal of the Jones Act would collapse prices for water transportation as foreign flagged vessels now compete with domestic vessels. Since lower prices incentivize greater demand for water transportation, demand for new ships should theoretically increase. 

Though this might have been true in the 1980s, what Colin and economists overlook is that the modern shipbuilding sector is now plagued with overcapacity. The absence of growth in American shipbuilding currently is not the result of the Jones Act, but rather symptoms of a global economy that has transitioned the industry away from the United States to cheaper alternatives. The most successful shipbuilding firms in Korea and Japan often operate at a loss. Even if demand increases for water transportation, overseas construction of commercial ships will outpace American production. The CRS finds American built ships can be four or more times the average price due to high labor costs and exchange rate policy. If American ships will always be priced out due to labor cost, it is reasonable to conclude that the entire U.S. commercial shipbuilding industry is kept afloat by the Jones Act. Without the Jones Act, any amount of demand American industry requires will be easily filled by foreign-flagged ships. Without the maintenance of a commercial, oceangoing, shipbuilding indus try, a majority of shipyards could close as they are limited to the scarce orders placed by the federal government. Because of the interconnectedness of shipbuilding, ship repairing, and the overall economy, the closure of shipyards would affect the employment of hundreds of thousands as well as billions of lost GDP. 

Comparing this to the billions of dollars lost to consumers in Puerto Rico, Alaska, Hawaii, and coastal states it could be seen as a lateral decision to favor one industry over another. However, the U.S. private shipbuilding industry is an invaluable asset to national security. In the hope that America will once again need to construct large, ocean-going vessels – such as offshore wind turbine installation vessels, LNG tankers, or fulfill an urgent request for military sealift capacity, the Jones Act must remain intact.

 

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