What is the Real Cost of the Jones Act?

Why we shouldn't repeal the jones act

Why is a piece of legislation that was enacted almost one hundred years ago still relevant today? There has been a lot of discussion and debate on this very question recently when it comes to whether or not the Jones Act matters today.

Economic Cost of the Jones Act

The first part of determining if we still need the Jones Act is to examine the economic impact of the Jones Act, or its cost to the United States to maintain the legislation. The most common argument used by people who want to repeal the Jones Act is about reducing the cost of shipping a barrel of oil from the Gulf of Mexico to the Northeast United States (Houston to New York, for example). Currently, the cost is about $4.00 per barrel. The Americans for Tax reform have calculated that, if we repeal the Jones Act, the cost per barrel would drop to $1.20 per barrel. For argument's sake, let's say that these analysts are correct in their calculations. That would mean we could cut the operating expenses of transporting oil from Houston to New York by 70% simply by allowing foreign-flagged ships to make these trips for us. As a businessman, if I were to be presented with those numbers, it would be a no-brainer. Those numbers are game-changing for any business. The problem is, amending or repealing the Jones Act to allow foreign-flagged ships to transport oil between US ports impacts more than just the propsed 70% reduction in cost per barrel. 

The true cost of moving that oil from Houston to New York is much higher than $1.20 or $4.00 per barrel. There are more variables involved than a simple price reduction—variables that affect the economic security of the United States. We have to take into account the Jones Act shipyards, their suppliers, and their employees. We have to look at maritime employers, maritime insurers, and their employees. We have to consider the impact on the transportation system as a whole. 

Repealing the Jones Act Would Cost $36 Billion in Lost GDP Each Year

The income generated by the Jones Act industry each year translates into $36 Billion added to the United States' Gross Domestic Product (GDP) each year and $23.9 Billion added to labor income in the United States each year.1 The Jones Act also accounts for $11.4 Billion in tax dollars to federal, state, and local governments. More than 75,000 employees in the United States work directly for the maritime industry - employees whose jobs are directly affected by the Jones Act. These are the workers who build, repair, and maintain Jones Act vessels. And, if we consider indirect employment - all those companies in other industries that sell goods and servides to Jones Act companies as well as induced employment - all those industries that sell products or services to people earning and spending a paycheck from either indirect or direct Jones Act employment, we can easily estimate the number to be more than 500,000 jobs that are positively impacted by the Jones Act today. 

In repealing or amending the Jones Act to allow foreign-flagged vessels to transport goods and services to US ports, we would be wiping all that income and all those contributions to our nation's well-being off the table. To apply the 70% reduction in cost per barrel across the board to see how much repealing the Jones Act would affect the US economy, we would lose $7.98 Billion in tax dollars, $16.73 Billion in labor income, and $25.2 Billion in GDP revenue.  To take that much money out of the US economy would mean that transporting oil at $1.20 per barrel simply isn't feasible. Putting the loss in perspective, $25.2 Billion is the annual GDP of Nicaragua. 

The bottom line is that the Jones Act is an economic benefit, not a cost. The Jones Act is a major contributor to the overall wellbeing of the U.S. economy. Repealing the Jones Act would be a massive cost that would felt by every business, every citizen, and every level of government in the United States. 

Update: Senator John McCain has repeatedly filed an amendment to repeal the Jones Act

On January 13, 2015, and on July 13, 2017, Senator McCain filed an amendment to repeal the Jones Act. He is quoted as saying, "I have long advocated for a full repeal of the Jones Act, an antiquated law that has for too long hindered free trade, made U.S. industry less competitve, and raised prices for American consumers. The amendment I am introducing again today would eliminate this unnecessary, protectionist restriction. According to the Congressional Research Service, it costs $6 per barrel to move crude from the Gulf Coast to the Northeast United States on a Jones Act tanker, while a foreign-flag tanker can take that same crude to a refinery in Canada for $2 per barrel - taking money directly out of the pockets of American consumers..."2

1Source: https://transportation.house.gov/uploadedfiles/documents/2013-05-21-harris.pdf)%C2%A0today

2http://www.mccain.senate.gov/public/index.cfm/press-releases?ID=f7198acd-c54e-4595-987a-1d76410742c9

Brian Beckcom
Highest Possible 10/10 AVVO ranking. Husband. Father. Fisherman.