November 15, 2019 at 5:00 am ET
Ending America’s Jones Act would surrender control of global trade to foreign countries and reward nations that keep pumping billions into subsidizing their merchant fleets.
China, for example, has a plan to dominate the 90 percent of world trade that goes by ship, and thanks to those massive subsidies, it is working. Of the over 41,000 ocean-going cargo ships today, only 182 are American (0.4 percent). Back in 1960, for context, American vessels comprised 17 percent of the global merchant fleet.
The Jones Act, which requires that vessels engaging in domestic commerce in the United States be at least 75 percent crewed by Americans and 75 percent American built, provides an important safeguard against these efforts to undermine America’s crucial domestic shipbuilding industry.
This issue is not about free enterprise, but about subsidies. Complainers about our Jones Act ignore this big picture, arguing that only lower shipping rates matter, thus rewarding the subsidizers rather than fighting for free and fair trade. This globalist approach says we should yield to unfair competition because it would be cheaper to let foreign ships take over our purely domestic routes, which the Jones Act now limits to U.S. ships. In like fashion, we also have laws restricting domestic-only air travel to use U.S.-flag airlines, not heavily subsidized foreign air carriers.
The anti-Jones Act mantra is akin to the old “peak oil” claim, which said to give up developing new production because America could never achieve energy independence. Yet by expanding domestic oil and gas supplies we ended our dependence on foreign oil and made America freer and stronger.
Once, world oil cartels strangled us. Today we’re in the chokehold of a monopoly on global trade. China, Japan and South Korea control 95 percent of shipbuilding, as tracked by the shipbroker BRS Group. Each of them provides massive subsidies.
Of about 2,900 commercial ships now under construction worldwide, the U.S. is only building eight. China is building 1,291; Japan 697; and South Korea 475. Ranked among other nations, the U.S. is in a very distant 17th place in shipbuilding.
As recently noted in the Wall Street Journal, recent mergers mean that two of China and South Korea’s multiple shipbuilders by themselves will control 46 percent of the market, aided by governments which have “bailed them out repeatedly.”
A Harvard study concluded that after China designated shipbuilding a “strategic industry” in 2006, “Chinese subsidies dramatically altered the geography of production and countries’ market shares.” Those subsidies yield an estimated 13-20 percent advantage in the cost of building a ship, boosted further by lower wages and regulations. Once they’re built, China offers additional subsidies to operate its ships, but bookkeeping camouflages the amounts. In an informal interview I conducted earlier this year, officials at the United States Maritime Administration (MARAD) estimated this subsidy amounts to $7 million per ship per year.
Controlling trade by ship is China’s soft power counterpart to its military buildup; it is a key part of its Belt and Road initiative that has created Chinese control of dozens of ports in strategic areas outside of its own borders. (However, the Trump administration forced China to divest its $1.8-billion cargo terminal at the Port of Long Beach.)
Things have gotten so bad that Japan and China, themselves major subsidizers, have formally complained to the World Trade Organization about the level of South Korea’s ship subsidies. The European Union has joined that WTO action, but so far the United States has not.
Other countries also provide similar support. Examples include: India underwriting 20 percent; France nationalizing its largest shipyard (Saint-Nazaire); South Korea arranging a $2.6 billion bailout of shipbuilder Daewoo. Techniques include direct payments, loans, guarantees, hidden incentives and a host of other mechanisms.
But for the United States, which ended shipbuilding subsidies during the Reagan years, only the Jones Act remains. This pales when compared with these foreign subsidies. Limits on use of foreign vessels was even supported by the great free-enterpriser, Adam Smith. And similar “cabotage” laws are common worldwide.
Foreign subsidies not only suppress American shipbuilding but also distort the entire equation of shipping costs. More American vessels would bring more price and service competition for carrying domestic cargo, as well as maintaining an industry vital to our security.
Should we surrender and “save money” by letting other countries control the means of trade and travel? If cost is the only issue, why don’t we let other countries build ships for the U.S. Navy? Warships and the Jones Act ships keep American shipyards afloat despite huge foreign assistance for their competitors.
America depends upon trade, which overwhelmingly (90 percent) depends upon ships. It would be a surrender of America’s interests to yield control of both domestic and global trade to foreign vessels.
Former Congressman Ernest Istook chaired the Transportation Subcommittee of the House Appropriations Committee. He is a fellow with Frontiers of Freedom and also teaches political science.
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