It is something of a historical irony that, 250 years after the Declaration of Independence, Oliver Cromwell – Lord Protector of England in the years of the interregnum after the civil war and the execution of Charles I – continues to have an influence on the economic policy set-up of the United States.
In the late 1640s and early 1650s, the so-called Rump Parliament – controlled by Cromwell – passed the Navigation Acts. At the time, the English merchant navy was of negligible size, and overseas trade was dominated by, in particular, the Dutch and, to an extent, the Spanish.
In 1651, however, the Rump Parliament took steps to block and weaken the primacy of the Dutch who were acting as a kind of ‘storehouse’ for goods from all over the world, and were running a highly lucrative carrying trade to England and elsewhere in Europe. New regulations were put in place – the Navigation Ordinances – which effectively prevented the Dutch from having any part in England’s import trades. From now on only English shipping could convey foreign goods to England.
Those Acts were maintained – and to an extent broadened – following the restoration of the monarchy in the 1660s and lasted, in various guises, all the way until the 1840s, when, alongside the repeal of the Corn Laws, their ending was part of a wider swing towards the United Kingdom embracing global free trade.
The very first session of the new Congress in 1789 passed its own version of the Navigation Laws in the form of “An Act for Registering and Clearing Vessels, Regulating the Coasting Trade, and for other purposes”. Unlike the case across the Atlantic, the spirit of these laws lives on. The Merchant Marine Act of 1920, usually called the Jones Law, was passed in the aftermath of the Great War, a war which had seen concerns about the size and nature of the US merchant fleet.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That it is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is hereby declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine, and, in so far as may not be inconsistent with the express provisions of this Act, the United States Shipping Board shall, in the disposition of vessels and shipping property as hereinafter provided, in the making of rules and regulations, and in the administration of the shipping laws keep always in view this purpose and object as the primary end to be attained.
This is, rather clearly, simple protectionist legislation. The hope is that by restricting the US coastal trade to US vessels, it will encourage the development of a larger merchant marine. And, as one might expect, economists tend not to be especially keen on it.
We study how the Jones Act — a 100-year-old U.S. regulation that constrains domestic waterborne shipping — affects U.S. markets for crude oil and petroleum products. We collect data on U.S. Gulf Coast and East Coast fuel prices, movements, and consumption, and we estimate domestic non-Jones shipping costs using freight rates for Gulf Coast exports. We then model counterfactual prices and product movements absent the Jones Act, allowing shippers to arbitrage price differences between the Gulf and East Coasts when they exceed transport costs. Eliminating the Jones Act would have reduced average East Coast gasoline, jet fuel, and diesel prices by $0.63, $0.80, and $0.82 per barrel, respectively, during 2018–2019, with the largest price decreases occurring in the Lower Atlantic. The Gulf Coast gasoline price would increase by $0.30 per barrel. U.S. consumers’ surplus would increase by $769 million per year, and producers’ surplus would decrease by $367 million per year.
Faced with surging prices for refined crude products, the US government has announced a 60-day waiver from the Act to encourage easier movement of energy around the country.
This week, the Clark Center’s US Economic Experts Panel offered its own views.
The panel was not especially optimistic that a 60-day suspension would achieve a great deal. Asked whether “the 60-day waiver of the Jones Act (which requires that cargo moved between domestic ports is carried on US vessels) will deliver substantially lower average US gas prices at the pump than otherwise over the next two months”, 75% of respondents – weighted by confidence – either disagreed or strongly disagreed.
In sharp contrast, 74% of respondents – again weighted by confidence – either strongly agreed or agreed that “permanent repeal of the Jones Act would have a measurably bigger impact in lowering average US gas prices at the pump than a temporary suspension”.
Fundamentally, many of the experts simply believe 60 days is not enough time for a waiver to have a large impact. As Jose Scheinkman of Colombia put it, “The Jones Act should be repealed but the Jones Act’s first order effect on gasoline prices is distorting the relative prices between US Gulf and East Coast. And 60 days are probably too little, even for these relative price effects to obtain”.
Widening the issue out from energy, more than 80% of respondents, as ever weighted by confidence, either agree or strongly agreed that “any national security benefits from the Jones Act are more than offset by its negative economic effects”.
As Ivan Werning of MIT neatly summed it up, “It is ironic to supposedly have this Act in place for national security reasons, but suspend it during a war. Free markets and free trade in shipping is best”.
