Getting the Gas (among other things)! | The Perryman Group

Getting the Gas (among other things)!

By: Dr. M. Ray Perryman
Published in syndication October 19, 2022

In the aftermath of World War I, Congress enacted The Merchant Marine Act of 1920 (commonly known as the Jones Act after its foremost proponent, Senator Wesley R. Jones from Washington). Essentially, the law requires that any cargo shipped between US ports must be shipped on vessels that are US built, owned, and crewed. It was designed to support the US maritime industry, but it's a protectionist measure leading to a variety of concerns. It has long outlived its usefulness (to the extent it ever had any).

Clearly, it's important for the US to have access to adequate resources, particularly during times of crisis. Much of the military equipment required for various operations moves best by water, for instance. The pandemic also demonstrated the risks of overreliance on foreign manufacturing, which can be subject to disruptions. The question, however, is whether the Jones Act is the best mechanism to accomplish these goals.

While the Act carves out a small volume of shipping and shipbuilding for US firms (when compared to international totals), it also increases costs for other businesses as well as consumers. Competition is reduced, and companies able to ship between US markets command premium prices. The supply chain, which has been anything but stellar of late, is also negatively affected.

To put a finer point on it, it is widely recognized that there could be blackouts in the northeastern United States this winter due to insufficient natural gas supplies. This region relies on liquefied natural gas (LNG) for a significant portion of its supply at times and, with Russian gas no longer available to Europe, worldwide demand for LNG will be particularly high and shortages could occur. (Expanding pipeline capacity is obviously the most efficient way to transport natural gas, but it has been extremely difficult to obtain permits – a topic for another day.)

In Texas, there is significant and increasing liquefaction capacity, and LNG ships leave the Gulf Coast daily for foreign destinations. However, very few LNG ships have been made domestically; thus, Texas LNG cannot be sent to the northeast. It can go to Bangkok, but not to Bangor. Similar issues arise for numerous other products, including agricultural goods. For Hawaii, Alaska, and Puerto Rico, the situation is much worse.

The proponents of the Jones Act suggest that US shipbuilding and shipping firms are at a competitive disadvantage due to subsidies in other countries. While true to a very modest extent, the World Trade Organization can deal with such matters and has done so for many other products (such as steel).

Protectionism inevitably leads to restrictions in output, higher prices, and consumer harms. It's time to get US goods to US markets! Stay safe!