By Steve G. Parsons, Ph.D.

I spent most of my career working in heavily regulated industries.  This work included efforts to reduce regulation and/or make regulation more economically efficient.  My work involved U.S. federal regulations as well as state regulations in most states in the U.S. as well as regulatory work in other countries.  I have published in the Yale Journal on Regulation, the Journal of Regulatory Economics, and the Administrative Law Review among others. 

The Costs of Regulation. Regulation can create a substantial drag on businesses and on the economy in total. Consider two studies on this topic discussed by the free-market oriented Mercatus Center.  First, a now 12-year-old study found “that the accumulation of rules over the past several decades has slowed economic growth, amounting to an estimated $4 trillion loss in US GDP in 2012 (had regulations stayed at 1980 levels)” (Regulatory Accumulation and Its Costs | Mercatus Center.  See also, Government Regulation: New Numerical Measure Ranks States | National Review). I estimate a 2024 value is nearly $7 trillion.  This means fewer goods and services and higher prices; eliminating these regulations would be like having paychecks about 25% bigger.

The accumulated effect would be even greater if we pushed regulations back in time beyond 1980.  “A study published in the Journal of Economic Growth in 2013 finds that between 1949 and 2005 the accumulation of federal regulations slowed U.S. economic growth by an average of 2 percent per year (citing: Dawson & Seater 2013). Had the amount of regulation remained at its 1949 level, 2011 GDP would have been about $39 trillion—or 3.5 times—higher than it was.” ((Regulatory Accumulation and Its Costs | Mercatus Center).

There are currently over 1 million federal regulations or constraints (US Federal Regulation Tracker (quantgov.org).  However, the total state regulations (across all states) are far greater.   Among the states, “the least regulated state is South Dakota, with about 44,000 regulatory restrictions, while the most regulated state is California, with 395,000.” (Government Regulation: New Numerical Measure Ranks States | National Review.)  

The Jones Act of 1920 – An Example of Costly Regulation 

Section 27 of the Merchant Marine Act of 1920 (commonly called the Jones Act) requires that “no ship can transport any cargo between two United States ports unless it demonstrates that: 1) the company owning it is comprised of at least 75% of U.S. citizens; 2) the transporting vessel was not built or re-built in a foreign country; 3) at least 75% of the crew are U.S. citizens.” (P.L. 66-261 (41 Stat. 988) The Cost of the Jones Act Also Extends to the U.S. | Business | theweeklyjournal.com). 

The Act was signed into law by Democratic “progressive” two-term President Woodrow Wilson. His legacy was one of protectionism and rampant federal spending (which increased by 920% between 1912 and 1920 and by 2,680% between 1912 and 1919) with similar increases in the national debt (US federal budget history (areppim.com)).  In my opinion, he was among the worst of the U.S. presidents; the Jones Act is part of his legacy. 

While many countries have restrictions on shipping by foreign vessels (called cabotage), “according to the World Economic Forum, the Jones Act provides the world’s most restrictive example of global cabotage laws.” (Washington International Trade Association, 2018.  The Jones Act: A Burden America Can No Longer Bear - WITA).  And by any measure the US is among the three nations with the most restrictive domestic shipping laws in the world. 

Increased Costs of Ship Building and Shipping.  The burden of the Jones Act has increased over time as thousands of regulations have been heaped onto the related industries.  Estimates suggest that the cost differential was 20% in 1922, 50% in the 1930s, 100% by the 1950s, 200% by the 1990s.  Today, the price of a U.S.-built tanker or container ship is four or five times that of global prices (Journal of Commerce, “Drewry: Repeal the Jones Act,” November 18, 2013).   

These purchase price differentials lead to higher shipping costs for U.S. companies.  In 2017 the American Enterprise Institute found: “[f]or example, it costs about three times more to ship oil from the Gulf Coast to New England states than to ship the same amount of oil to Europe.” ((Meet the Jones Act | American Enterprise Institute - AEI ). 

Consider a January 2024 article from the Cato Institute: “In 2022, for example, three 3,600 TEU containerships were ordered from a US shipyard for $333 million each. The previous year, meanwhile, the going price for an even larger (4,250 TEU) containership from a foreign shipyard was $65.5 million.” (US Protectionism and Chinese Shipyards Keep Aging Ships Sailing | Cato at Liberty Blog.).  Even without adjusting for their smaller capacity the U.S. ships cost five times as much as their international counterparts. 

Older Ships.  These purchase price differentials are consistent with US ships being much older than their international counterparts (because replacement cost is so much higher).  A Jones Act CEO stated that “tankers from the international fleet are typically used for 20 to 25 years” (20–25 years). In contrast “[t]he last seventeen ships removed from the Jones Act fleet had an average age of forty-three.” (US Protectionism and Chinese Shipyards Keep Aging Ships Sailing | Cato at Liberty Blog) Citing average age of forty‐​three).  

Declines in U.S. Shipbuilding and Shipping. The high cost of Jones Act vessels is also consistent with the decline of domestic ship building in the U.S.  “U.S. shipyards capable of building large oceangoing commercial ships have dwindled from 30 in 1953 to just four as of November 2021, and oceangoing Jones Act ships have declined in number from 257 in 1980 to just 96 … less than 1% of all commercial oceangoing vessels worldwide.” ( Merchant Fleets of the World Privately-Owned, Oceangoing Merchant Vessels of 1,000 Gross Tons and Over as of January 1, 2016,). But this actually overstates U.S. shipbuilding capability which is now at only 0.13% of the world ship building capability (The United States Must Improve Its Shipbuilding Capacity | Proceedings - February 2024 Vol. 150/2/1,452 (usni.org)).  As an example, the U.S. has no LNG tankers of size to transport gas in bulk. 

As economics would predict, there have been substantial declines in U.S. domestic shipping via water, falling by 50% since 1960 while trucking volumes increased substantially.   

Five Categories of Cost Caused by the Jones Act.  The costs of the Jones Act fall into five categories.  First, as noted above, the costs of businesses shipping goods by water from one US port to another are substantially higher than they would be if the Act were repealed.   

Second, The Jones Act causes Americans to import more goods since the cost of American goods. This is due to the artificially higher prices of American goods caused by increased domestic shipping costs. This level of imports is higher than efficient.

Third, this cost differential leads to international shipping (using less costly vessels) over longer routes (rather than domestic shipping).  Obviously, such circuitous routing is inefficient and costly to the U.S.  Indeed, this is a contributing factor for why the US simultaneously imports and exports the same goods such as rice (USDA ERS - Chart Detail), potatoes (Potatoes: U.S. import and export value 2022 | Statista)), lumber (Forest Products | United States International Trade Commission (usitc.gov)), and petroleum ((Lee, McClintock Introduce Jones Act Repeal Bill | Cato at Liberty Blog)).  

Fourth, the direct cost of trucking (or shipping by rail) domestic freight is higher than non-Jones Act ships in many circumstances.  

Fifth, the high costs of Jones Act shipping cause a greater volume of ground transport via trucking (and to a lesser extent rail).  This creates additional costs associated with infrastructure, congestion, pollution, and safety. 

National Security?

Many who oppose repeal of the Jones Act claim there are national security reasons to pay substantially higher costs and retain the Act.  I find this argument doesn’t hold water for several reasons. 

U.S. is only 0.13% of World Shipbuilding Capacity.  First, the Jones Act fleet is tiny – we have a shortage of mariners, less than 1% of the world’s commercial vessels and only 0.13% of the world’s commercial shipbuilding capability (U.S. Navy Secretary Looks to Asia to Revive Shipbuilding at Home (gcaptain.com)) - while the US has 24% of the world GDP.  If the Jones Act did what it purported to do – the U.S. fleet would be much larger and much younger.  Naval wargames don’t even include Jones Act ships so as to not “uncover the economic liability of the coastal-wise trade for the purposes of American support.” (Colin Grabow on X: "Head of @US_TRANSCOM in congressional testimony on Tuesday: wargaming reveals that we wouldn’t really count on the Jones Act fleet for sealift needs. https://t.co/WqZSAZ7CKB" / X (twitter.com)).  That is, Transcom doesn’t count on Jones Act ships in an emergency, like they do for the civil reserve aviation fleet. 

Inexpensive Ships From South Korea or Japan Without Delays.  Second, U.S. shippers could (with even a partial repeal of the Jones Act) purchase much less expensive ships from our allies such as South Korea or Japan.  In April 2024 U.S. Navy Secretary Carlos Del Toro was “floored” by the efficiency of the South Korean ship building capabilities; U.S. shipbuilding has severe delays and cost overruns (US Navy secretary says he was 'floored' by a Pacific ally's shipbuilding abilities amid American warship production woes (msn.com)).  While not my first choice, the Jones Act could be modified (rather than fully repealed) to allow the purchase of foreign vessels to be owned and operated by U.S. companies. 

Alternatively, we could allow our allies’ flag ships to transport goods between U.S. ports at a fraction of the cost of continued use of Jones Act ships. 

Not State of the Art. Third, as noted above, “[m]uch of the commercial fleet is relatively old, raising safety concerns in certain cases.” (Shipping Under the Jones Act: Legislative and Regulatory Background (congress.gov)).  It is impossible to have such older ships be as reliable as their younger, state-of-the-art international counterparts.  If the merchant fleet were large enough to provide meaningful support, this would be a national security issue. 

Maintenance in China by Jones Act Ships. Fourth, “Jones Act shipping companies regularly make use of shipyards outside the United States for repairs, maintenance, and upgrades of their vessels, including facilities in China (Creaking Jones Act Ships Turn to Chinese Shipyards for Maintenance Needs | Cato at Liberty Blog.). It is nonsensical to prohibit the use of ships built by one of our allies such as South Korea (where we have approximately 28,500 troops stationed) for US domestic shipping, but Jones Act ships can be repaired in China. 

Conclusion.  According to the Cato Institute “Contrasting the Jones Act’s stated objectives with observable results, the law is revealed to be a national security failure. With dwindling numbers of ships, mariners, and shipyards, the U.S. military’s ability to leverage these civilian assets during times of war has been deeply compromised.” (Rust Buckets: How the Jones Act Undermines U.S. Shipbuilding and National Security | Cato Institute). 

Advice to avoid or repeal the Jones Act and reduce inflation was given in 1919 (Shipping Under the Jones Act: Legislative and Regulatory Background (congress.gov)) and by noted economists (such as Milton Friedman) in a conference on inflation in 1974 (The Economists Conference on Inflation - Google Drive).  That advice has been oft repeated since.  The US can improve efficiency and reduce the costs of shipping goods and services within the US and hence reduce inflation.  This can be done without national security concerns; this can be done simply by repealing the Jones Act of 1920.  Better late than never, no matter how much water is under the bridge.

Additional References: 

Congressional Research: Service Shipping Under the Jones Act: Legislative and Regulatory Background Updated November 21, 2019 Shipping Under the Jones Act: Legislative and Regulatory Background (congress.gov).

John W. Dawson and John J. Seater, “Federal Regulation and Aggregate Economic Growth,” Journal of Economic Growth 12, no. 2 (2013): 137–77. (Dawson & Seater 2013).

The Economist, Apr 11th 2022. What is the Jones Act, the century-old law pushing up prices in America? (economist.com).

The Federalist Society, 2019: Is It Time to Repeal the Jones Act? [POLICYbrief] | The Federalist Society (fedsoc.org)

Forbes October 5, 2021: A Law That Deserves To Hit An Iceberg (forbes.com)

Patrick A. McLaughlin and Oliver Sherouse, RegData US 3.1 Annual (dataset), QuantGov, Mercatus Center at George Mason University, Arlington, VA, 2018.)

The Mecatus Center, May 2, 2017: An Economic Analysis of the Jones Act | Mercatus Center

National Taxpayers Union, July 2021: The Act that Ate Reasonably Priced Ocean Shipping - Foundation - National Taxpayers Union (ntu.org)

News is My Business, Feb. 2019: MIDA: Jones Act has ‘devastating effects’ on P.R. economy, with losses of up to $1.5B – News is My Business

Organization for Economic Cooperation and Development (OECD) Science, Technology and Industry Policy Papers April 2019: Local content requirements and their economic effect on shipbuilding: A quantitative assessment | READ online (oecd-ilibrary.org)

Thomas Jefferson Institute for Public Policy, May 2024 The Jones Act: A Hidden Cost to Farmers - Thomas Jefferson Institute for Public Policy

USDA Economic Research Service USDA ERS - Chart Detail

U.S. Forest Service, 1986: Impacts of the Jones Act on the Alaska forest products trade. | US Forest Service Research and Development (usda.gov) 

U.S. House Committee on the Merchant Marine and Fisheries, Protection of United States Coastwise Trade, 66th Congress, 1st Sess. H.Rept. 135, part 2, Minority Report, July 22, 1919

U.S. Maritime Administration, Jan. 1, 2016.  Merchant Fleets of the World Privately-Owned, Oceangoing Merchant Vessels of 1,000 Gross Tons and Over as of January 1, 2016,”