Puerto Rico is in a devastated state with 80 percent of its agriculture destroyed, only 15 percent of the hospitals with electricity, and nearly half the population without potable water. While the federal government issued a 10-day waiver of the Jones Act to aid disaster relief efforts for the island’s 3.4 million U.S. citizens, it expired on Sunday. The White House also refused to support a permanent exemption for Puerto Rico, even as a bill to do so was recently introduced in the Senate. Hurricane Maria has highlighted why protectionist policies are costly in the best of times, and potentially devastating in the worst of times. Temporarily waiving such policies is not enough. Instead, it is time to end the Jones Act altogether.
The Jones Act is a statute from 1920 which mandates that any ship transporting goods between two U.S. ports must be a U.S. vessel that is owned, operated and primarily built by Americans. Such a law is designed to protect U.S. shipping companies from foreign competition, preventing foreign vessels from shipping products between the mainland and Hawaii, Guam, Puerto Rico or other U.S. territories. For Hurricane Harvey and Hurricane Irma, the Jones Act was temporarily waived to allow for an expanded relief effort. Only after delay was Puerto Rico, arguably the most affected by the Jones Act even without a disaster, offered a similar waiver.
{mosads}The benefits to the protected industry, in this case American merchant marines, is obvious. However, water transportation workers make up less than one-tenth of 1 percent of total U.S. workers. The Jones Act, on the other hand, is not costless, since it comes at the expense of lower consumer prices and free market competition. A 2002 report from Puerto Rico’s Department of Economic Development and Commerce estimated that repealing the Jones Act would reduce the cost of Puerto Rican imports by 20 percent and save the island $200 million annually. These savings would be invaluable during this time of crisis. Additionally, the U.S. International Trade Commission estimated that eliminating the Jones Act would result in a net welfare gain of $656 million in the United States.
Previous American Action Forum research has reached similar conclusions. A 2015 report outlining reforms to improve economic growth suggested that should Puerto Rico be exempt from some or all of the Jones Act to bring down transport costs. American Action Forum has also found that “buy America,” a comparable policy that restricts transit infrastructure procurements to American companies, is likely bringing more harm than good. Metro cars, which are usually paid for from taxpayer subsidies, are on average 34 percent more expensive in the United States than abroad, at an increased cost of $700,000 per metro car. That higher cost is paid for by American taxpayers.
For the Jones Act, the higher cost of shipping is mostly paid for by U.S. islands that are reliant on the mainland for products, and must pay more for goods to be shipped via American vessels. Some proponents of the law argue that it is worthwhile as a national security policy, but the Government Accountability Office has put that idea into question, noting that even in Puerto Rico only one-third of ships entering ports are U.S. flagged. This begs the question, “What possible benefit is there to protecting the interests of U.S. shipping companies during a time of humanitarian crisis?”
It is doubtful that U.S. shipping companies will be forced to lay off workers due to a temporary suspension of the Jones Act, and there is no greater threat to the residents of Puerto Rico than a lack of access to food, water and energy. Havoc has already been wreaked on the island’s infrastructure and ports. The Jones Act is just one more burden that creates unnecessary inefficiency. This policy should be lifted to allow residents of the island to decide if U.S. vessels are the best capable and least costly sources of relief.
The United States has withstood every disaster in no small part because of the resilience of the free market and the strength of American enterprises. For instance, in the wake of Hurricane Harvey, Budweiser repurposed its breweries to provide drinking water to the people of Texas. Private corporations have donated more than $150 million to Harvey victims. A Delta passenger flight raced through Hurricane Irma to get Puerto Ricans safely off the island.
In the wake of disasters like Harvey, Irma and Maria, it makes no sense to impose restrictions that dictate who can or cannot offer relief. The Jones Act represents needless red tape, and the administration should offer more than a short reprieve from its restrictions. The Jones Act should be permanently eliminated to prevent barriers to disaster relief, increase private sector choice in the reconstruction, and reduce consumer prices for U.S. citizens in Puerto Rico.
Philip Rossetti is director of energy policy at the American Action Forum.
Jacqueline Varas is director of trade policy at American Action Forum.