Hundred-Year-Old Mistake Comes Back to Bite US
In 1920, to protect American shipping from foreign competition, Congress passed the Merchant Marine Act, also known as the Jones Act. Section 27 requires that ships carrying goods from one US port to another be built and flagged in the US and owned and crewed mostly by Americans.
While they can make sense in terms of national defense if they prevent the country from becoming dependent on hostile foreign nations for commodities and manufactured goods critical for national defense, such protectionist laws never make sense in terms of the economy. All they do is restrict supply and thus raise the prices of the affected items or activities, leaving American consumers with less to spend on other things.
Today Hawaii is experiencing the unintended consequences of the Jones Act. Because of it, it’s cheaper for Hawaii to import oil from Russian than from domestic producers. But Russia, never particularly friendly to the US, has become openly hostile since its invasion of Ukraine.
Though Russia is over 3,700 nautical miles from Hawaii, while the US mainland is only 2,500 nautical miles away, importing from Russia is cheaper than importing from the mainland.
Why? Because it costs much more to build ships in America and operate them under American flags than under many foreign flags.
In the case of oil tankers, as the Grassroot Institute of Hawaii’s Jonathan Helton points out, building a tanker costs about twice as much per oil-capacity ton in the US as it costs elsewhere, and the annual operating cost for US-flagged tankers is about $6.2 million higher than for foreign-flagged.
Consequently, most US companies will use foreign vessels if possible to transport their oil and other goods.
Hawaii’s isolated location and lack of in-state or nearby offshore petroleum reserves already means it’s going to pay higher prices for oil and other energy than mainland states. The Jones Act only pushes those prices higher—even while pushing Hawaii to import more oil from Russia.
The hundred-year-old law was economic nonsense when it was adopted. The time for repeal is now.