The recent spotlight on the Jones Act and Puerto Rico exhibits a broader truth about some protectionist policies: they often don't matter until they do.
The 1920s-era legislation that requires goods transported between U.S. ports be carried out by ships under the U.S. flag has garnered attention recent months in the wake of hurricanes in Texas, Florida and, most notably, Puerto Rico, with some lawmakers asking the act be scrapped or permanently waived. The effects of the law are generally so diffuse that they go unnoticed, allowing it to persist even though its critics say it benefits only a few.
The Merchant Marine Act of 1920, commonly referred to as the Jones Act, was initially passed to support the U.S. maritime industry and ensure the government had American ships and personnel to mobilize in case of emergency. Those who oppose it say it serves special interests -- namely, the shipping industry -- without benefiting the rest of the country and, in some cases, doing harm.
The detrimental effects of the Jones Act have come into view in the wake of Hurricane Maria, which devastated Puerto Rico. Under pressure, the White House waived the act for 10 days on September 28. That waiver has since expired. Also in the meantime, the Washington Post reported on Monday that a small Montana company, Whitefish Energy, landed a $300 million contract with the Puerto Rico Electric Power Authority to repair large portions of the island's electrical infrastructure. The company is two years old and when Hurricane Maria made landfall in Puerto Rico had just two full-time employees. It is based in Interior Secretary Ryan Zinke's home town.
"The cost of the Jones Act for Puerto Rico is built into the cost of everything in Puerto Rico," said Dan Bergstresser, Brandeis University finance professor and author of a recent EconoFact paper on the Jones Act's effects on shipping costs. "It becomes a focal problem now because the island is in such dire straits, but it's been a problem all along, and it will be a problem even after the relief from this hurricane."
A handful of Republican lawmakers have called for the Jones Act to permanently be waived for Puerto Rico.
Senator John McCain (R-AZ), a longtime opponent of the Jones Act, in September reintroduced legislation to exempt the U.S. territory. Senators Mike Lee (R-UT), James Lankford (R-OK) and Jeff Flake (R-AZ) have signed on as cosponsors.
Lee has said he wants 30 minutes on the floor to speak about a handful of items, including the Jones Act, as part of a debate over a relief package following the hurricanes which devastated Texas and Florida as well as Puerto Rico. The Senate approved a $36.5 billion disaster aid bill on Tuesday.
The Jones Act has proven resistant to its opponents in part because of a very concentrated but forceful effort to keep it around. Shipments from the U.S. mainland to Puerto Rico are controlled by a small group of Jones Act-enabled companies, The Intercept explained recently, including Corley Maritime Corporation, Trailer Bridge Inc., Sea Star Line LLC and National Shipping of America. Companies and third-party trade associations such as the Transportation Institute and the American Maritime Congress have lobbied in favor of the law.
"That's just the typical story for a lot of these protectionist measures," said Marc Melitz, a Harvard economist who authored the Jones Act paper with Bergstresser. "They protect a small group of people that are...very concentrated, so it means they are very politically involved both in terms of lobbying and political donations."
President Donald Trump seemed to acknowledge as much when addressing reporters ahead of the short-term Puerto Rico waiver last month. "We have a lot of shippers and a lot of people...who work in the shipping industry that don't want the Jones Act lifted," he said.
A 2015 paper indicated that Puerto Rico's debt problems, which have forced the island into bankruptcy, could in part be tied to the Jones Act pushing import costs higher. A 2012 Federal Reserve Bank of New York analysis found that shipping a 20-foot container from mainland U.S. to Puerto Rico cost twice what it did a shipment to the Dominican Republic.
And it's not just Puerto Rico that might have a Jones Act problem. New Jersey in 2014 ran out of road salt in a particularly severe winter and had to pay more and wait longer to get a shipment from Maine. The Jones Act has also been blamed for driving up gas prices.
The World Trade Organization in 2013 described the act as "the most restrictive" protectionist shipping or transport law in the world. As The New York Times notes, many studies have found that repealing the Jones Act would contribute hundreds of millions of dollars to the U.S. economy annually.
"When it comes at the cost of the larger economy, it doesn't make sense," said Bergstresser.
To be sure, there are arguments against scrapping the Jones Act. The AFL-CIO has warned lifting it could jeopardize the U.S. maritime sector and risk thousands of jobs being outsourced. The Times also points out that the law has created a predictable market between the mainland U.S. and Puerto Rico.
The New York Fed study suggests a possible remedy could be exempting Puerto Rico from the Jones Act for five years to track trends in shipping costs, volumes and business practices and "assess the costs and benefits to determine if this exemption should be made permanent."
"Puerto Ricans are Americans, Puerto Rico is the United States of America, this is absolutely something that should be on everybody's mind right now," Bergstresser said. "But the Jones Act is a more general thing, and it is a more general illustration of why policy can fail sometimes."
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Editors' pick: Originally published Oct. 24.