Tempting protectionism

Born of appeals to economics and national security, protectionism ultimately sabotages prosperity and defense. It happens every time.

A June 28 analysis published by the libertarian Cato Institute traces this corrosive pattern while calling for repeal of the Jones Act, enacted nearly 100 years ago to protect American shipping and shipbuilding. Jones Act history does not glisten with success. And it bears unsurprising resemblance to policies now in place and proposed to shield politically influential forms of energy from competition.

Dismal record

Signed into law less than 2 years after the end of World War I, the Jones Act—more properly the Merchant Marine Act of 1920—essentially reserved intracoastal shipping for US vessels and crews. It now requires that ships sailing among US ports fly US flags, be at least 75% US-owned, have crews at least 75% from the US, and be assembled entirely in the US with major parts of their hulls and superstructure fabricated in the US. Appeal to national security by namesake Sen. Wesley Jones (R-W.Va.) came naturally so soon after war. But Cato study authors Colin Grabow, Inu Manak, and Daniel Ikenson quote remarks by the senator that are clearly protectionist. “I want ships to fly the American flag on the Pacific,” Jones once said. And in an observation that might well have come from contemporary news reports, he added: “There is nobody nowadays to look after American interests except we Americans ourselves.”

As protection for American shipping, the Jones Act has a dismal record. Grabow, Manak, and Ikenson call the US fleet the law’s “first casualty.” Inevitably, protectionism raised the costs of domestically produced vessels. A coastal or feeder ship that costs $190-250 million to build in the US now can be purchased abroad for $30 million. “Accordingly,” the analysts write, “US shippers buy fewer ships, US shipyards build fewer ships, and merchant mariners have fewer employment opportunities to serve as crew on those nonexistent ships.” Because replacement costs are high, shippers stretch the lives of existing vessels, sacrificing efficiency and compromising safety.

The protected Jones Act fleet has fallen behind the evolving needs of the military in several areas, the authors note. For example, most of the Maritime Administration’s Ready Reserve Force, which helps move combat equipment and supplies early in a military mobilization, comprises vessels built outside the US. “Although worthy to serve in the country’s defense, these same ships are ineligible to engage in coastwise trade,” the analysts say. US shipbuilding capacity lags far behind those of Asia and Europe and depends heavily on purchases by the military.

Meanwhile, the Jones Act imposes “significant costs on the US economy” in the areas of transportation, the environment, lost wages and output, lost domestic revenue, lost foreign revenue, and infrastructure, according to the authors. That those costs haven’t been comprehensively examined partly explains why the law remains in effect. Further explanation comes from the inherent asymmetry of protectionist politics: “The small number of beneficiaries, which primarily include domestic shipyards and some labor unions, are more powerfully motivated to preserve the status quo than are the far more numerous adversely affected interests in seeking its repeal.”

Energy and tariffs

Identical analysis applies to protectionism of a different form—sales mandates—for fuel ethanol and other biofuels. Suppliers of the favored substances profit while everyone else pays. Original rationalizations for the costly and distortive program have been discredited. And the ethanol lobby still evokes national security to justify it. Meanwhile, the Trump administration illogically flaunts national security as a reason to protect coal and nuclear power from competition and to impose tariffs on goods from allies.

Politicians use protectionism to win favor from pet constituencies and national security to market the mischief. As recent history shows, the temptation is hard for them to resist. And as Jones Act and ethanol histories show, consequent problems are even harder for them to fix.