Catalyst with Shayle Kann - How an obscure, 100-year old law is disrupting U.S. energy

Episode Date: April 18, 2024

A little-known U.S. law called the Jones Act shapes climate tech in weird ways — like hindering offshore wind deployment and pushing up energy prices. The law, part of the Merchant Marine Act of 1920, requires all cargo shipped between U.S. ports to be carried by ships that meet strict standards. Those ships must be built in American shipyards, owned by an American company, registered in the U.S., and crewed by a majority American crew. As a result, building cargo ships in the U.S., and operating them between U.S. ports, is way more expensive than building and operating ships in other countries — and relatively few U.S. ships get built. So what are the impacts on climate tech? In this episode, Shayle talks to Colin Grabow, research fellow at the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies. They cover topics like: How the Jones Act increases the money and time required to deploy offshore wind turbines Why it costs less to ship U.S. oil and gas abroad than to domestic markets How it pushes domestic shipping to rely on trucks and trains instead of ships The history of the act and potential ways it could change Recommended Resources: WIRED: The US Has Big Plans for Wind Energy—but an Obscure 1920s Law Is Getting in the Way Cato Institute: Jones Act Leaves New England Vulnerable to Wintertime Calamity Cato Institute: Environmental Costs of the Jones Act Are growing concerns over AI’s power demand justified? Join us for our upcoming Transition-AI event featuring three experts with a range of views on how to address the energy needs of hyperscale computing, driven by artificial intelligence. Don’t miss this live, virtual event on May 8.

Latitude Media, podcast at the frontier of climate technology. I'm Shail Khan, and this is Catalyst. A few years ago, the Wall Street Journal estimated that to build an LNG tanker at the United States would cost around $700 million, whereas at that time, you could buy one for, I think, less than $200 million in South Korea. So you're looking at a $500 million delta for one ship, and that's just the capital cost. We're not even getting into operating costs. BuzzFeed headline for this podcast would be, quote, that one weird U.S. law that distorts shipping costs Americans billions of dollars a year and makes the offshore wind industry even harder

than it otherwise would be, unquote. It'd go viral, I'm sure. When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility built for the moments when utilities can't afford on. certainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energy hub.com. I'm Shayal Khan. I invest in revolutionary climate technologies at energy impact

partners. Welcome. Okay, so I was at dinner with a bunch of climate tech people a while, back and somebody brought up the Jones Act. Everybody at the table immediately became ridiculously animated as they talked about all the ways that this generally obscure century-old maritime law in the United States distorts the energy market among many other sectors. I can't think of another law that was passed over 100 years ago and still is on the books today that would have generated anything like this kind of reaction from this crowd. And if I'm being totally honest, I was a little confused because I'd heard of the Jones Act, but honestly, I had no idea why I should care about it. But no longer. I've effectively been Jones Act pilled. And if you haven't, you're about to be.

It's pretty crazy. So we're not normally in the business of dedicating an episode of this podcast in particular to a policy that's been on the books more than, I don't know, a year, let alone 100 years. But we're making an exception. So here's the conversation that I had with Colin Grabo from the Cato Institute about the Jones Act. Colin, welcome. Well, Shale, thanks for having me on. Let's talk about the Jones Act. Starting with a history lesson.

So give me the background. Why did we pass the Jones Act when and what was happening at the time that made it worthwhile politically? Yeah, so the Jones Act is formally Section 27 of the Merchant Marine Act of 1920. But it bears mentioning that laws like the Jones Act, you know, the Jones Act wasn't the first time we imposed restrictive laws on shipping. And I should get into what the Jones Act is. So the Jones Act basically mandates that if you're going to transport something by water within the United States, you have to use a vessel that meets four conditions. The vessel has to be flagged and registered in the United States. It has to be at least 75 percent owned by American citizens.

has to be crewed by American citizens, and it also has to be built in a U.S. shipyard. But again, so 1920, this is passed, but this doesn't mark, like, the adventists of these type of restrictions. It's not as though, you know, pre-1920, you could use whatever ship you wanted, built wherever, crewed by whoever. These types of restrictions go back to the country's founding. So this brings up, you know, an obvious question. Well, if these laws have always been around, what was the point of the Jones Act? of 1920. Well, if you go back to the country's founding, these laws are put in place basically

to try to ensure the United States had ships that could be relied upon in times of war, national emergency. It's worth keeping in mind that, you know, the British were big rivals. Back then, they had a big navy. We didn't want to be dependent on British shipping. And, you know, these ships could form a naval auxiliary. Also, this wasn't some big, expensive imposition. The country's founding, the United States has some of the world's best shipbuilding. That's not a huge surprise because the 13 colonies or 13 states all along the ocean. These are the days of wooden ships.

We had plenty of big forests, a nearby supply of wood to build those ships and sail. And so the U.S. was very competitive at this, but as time went on, that changed, and people started looking for ways around these laws. And it got to the point, this is especially accelerated when it gets to the age of steel and iron and steamships. And it got to the point whereby, I think, the late 1800s, that there was this court case where someone wanted to send 250 kegs of nails from New York to California. And the way they did it was not put on American ship, just go to California. No, no, no. They put it on a foreign ship and it went to Belgium. And they transferred it from that ship to another foreign ship.

It went from Belgium to California because these guys did the math and figured that was actually cheaper than using an American vessel. So Congress changed the law, said, no, you can't do that anymore. But there was still one more loophole. And this was you could send goods over land to a foreign port and then from that foreign port to a foreign port. and then from that foreign port to another part of the United States. So people living in Alaska. This is how shipping was done. Things would go up to Vancouver, then from Vancouver up to Alaska and the reverse.

Well, shipping companies in Seattle, Washington hated this. They said this is unfair foreign competition. This should be our shipping, done American ships. And they were represented in the Senate by Senator Wesley Jones of Washington State. Well, in 1920, the Merchant Marine Act is passed. The impetus for this was after World War I. The United States built a lot of ships during the war. Most of them were delivered after the war was over with.

The government found hundreds of, had hundreds of ships on its hands. They didn't know what to do with. So they passed the Merchant Marine Act. Primary objectives disposed of those ships. But also, you know, it comprised 30-some sections. And Section 27 was basically it changed the law, it tweaked it. so that you couldn't use foreign ships going, you couldn't use foreign ships going to and from Alaska.

So Alaska was kind of the impetus for this law that brings us to where we are today. It's funny as you describe this. So, okay, so the Jones Act was effectively closing a loophole on a series of policies that already existed, closing the final loophole. It's reminding me a lot of our listeners will probably be more familiar with all the import duties

that the U.S. has been trying to impose varying degrees of success on solar imports. imports, solar panel imports from China, where, like, there was an original set of import duties imposed, and then the entire supply chain shifted from China to Southeast Asia as a result. So then there was a new case that was gone to do that. So similar kind of thing. So, okay, in 1920, thanks to Wesley Jones of the state of Washington, we get the Jones Act that closes the final loophole, and now it's pretty airtight and basically to ship anything over water within the United States. It needs to be an American crude vessel owned by Americans constructed

in America, the United States of America. Let's sort of accelerate the history lesson. So since 1920, at that point that that was happening, as you said, it was relatively easy to comply. We had a big shipbuilding industry. There's a lot of reasons to do it militarily. What has happened since 1920 to intra-United States shipping and to the shipbuilding industry here. Yeah, so both have gone into pretty pronounced declines. If you look at the shipbuilding industry, so back, I think, in 1922, there's a government report that said around that time, a U.S. built ship was roughly 20% more expensive than one built abroad.

And that thought you can find similar stuff from like the late 1800s placing it, like, like 20 to 50%, somewhere in that range. Well, by the 1930s, it was up to a 50% premium for U.S. build ships. For 1950s, the U.S. build ship was double the cost of one built abroad. By the 1990s, it was triple the cost of one built abroad. And today, a U.S. built container ship is somewhere around five times more expensive than one built abroad. While a tanker, which may be more interest to your audience with the energy angle, tanker's about four times more expensive than one built abroad.

So, for example, a medium-range tanker built overseas is somewhere around $50 million where you're looking at least $200 million to build one here in the United States. Can we pause on that for one second? I want to come back to the energy angle to this, but why? Why? Yes. Is it material costs? Is it labor?

Is it lack of capacity? Is it all those things? Yeah, that's a pretty logical question because, you know, we can, build lots of things pretty competitively. Airplane, you know, commercial aircraft. We're an aerospace leader. We have a pretty big auto industry. So why is it when it comes to ships that Americans are so uncompetitive? And shipbuilding is a lot about economies of scale. So, you consume huge amounts of steel, all kinds of inputs that go into these things. And you need, there's big capital investments. You have the way ships are built today,

for example, you have, they're basically assembled in blocks. It's kind of like, you know, Legos. You take big blocks and you lift them into, and you put them all together. Well, you need big, huge cranes to lift these big, heavy blocks into place. Well, you buy one of those huge cranes, and, you know, if you're spreading that cost over, say, you're building 50 ships a year. Well, that's one thing. Well, American shipyards typically build two ships a year, something like that. So you're spreading, you know, capital costs.

For example, when American shipyards, they go to buy steel. Well, you know, if you're building 50 ships, you know, the steel plant's going to quote you one price, where if you, you know, buy enough steel for two ships, you're going to like different price. Same thing with the engines, all the components, things like that. And so it's this, this is kind of vicious cycle where U.S. shipyards, they don't build large quantities. So the price goes up, which means in turn there's even less demand. So demand goes down, which means the quantity is declined. which means that the costs further increase. So that's kind of where we're at.

Right. It's just a classic chicken or egg problem that gets worse. As time goes on, once the cycle starts. So one interesting thing is a lot of people assume that there's a wage angle that the reason is, you know, Americans are well paid. And it's, you know, that's why I say more ships are built in China. Well, the data suggests, actually,

that workers in South Korea and Japan and Europe, They make more than Americans, and yet the ships are still significantly cheaper, so that's interesting. So you've got this vicious cycle, but, you know, the point of the Jones Act and all the other policies that preceded it, presumably, I think the underlying assumption was, well, look, we're going to want the United States, it's a big country, it's an economic powerhouse, we have a lot of waterways through which we're going to want to ship things. So at a bare minimum, because of the restrictions we're placing here, there's going to be enough of a U.S. shipbuilding industry. and shipping industry to serve our own domestic needs. There will have to be. Is that not true? Or I guess we didn't get to the other side of the equation.

We talked about the shipbuilding part of it. What about shipping? Like, how much are we doing now? You bring up a great point. So I think on the surface, that makes a lot of sense. If you just look at the geography of the United States, you would think, yeah, this is a country that requires a lot of ships. For no other reason than say, we have places where it's really only economical to ship

with waterborne transport. I'm thinking the non-contiguous states and territories, Hawaii, Alaska, Puerto Rico, Guam. But in addition to that, we also have thousands of miles of coastline. We have the Great Lakes. We have the Mississippi River and other important river systems. You would think that this is just geographically lend itself to a lot of water transportation. But basically what's happened is we've made water transport so expensive

and uncompetitive in this country that we've shifted towards other modes of transport. You know, trucking, rail, pipeline. If you look at the data, something like only 2% of freight in the United States

is transported by ships. You add in barges, that's like another 4%. So we're well under 10% for water transport in the U.S. So I think it's a combination of A that our shipping has become very uncompetitive.

And then also, you know, we have a, the development of the interstate highway system, our railroads are some of the best in the world. So some of these others are very attractive and also shipping has become very unattractive. I'm curious if you, I don't know if you have this data on hand, but purely from an emissions perspective, I mean, you know, the greenhouse gas emissions per ton mile transported on a boat tend to be, on large boats in particular, tend to be lower than, for example, trucking. Now, I think rail is a little bit more complicated.

But to the extent that what we ended up doing was mode shifting from at least some of what would have been transport over water to instead transport over roads, that probably had a fairly significant emissions impact. Yeah, it certainly stands to reason. As you pointed out, if you compare CO2 emissions, ships, I mean, they blow trucking away. And then there's the data I've seen suggest it's better than rail. not massively better than rail. There's some difference. There's an advantage to using water transport versus rail. But yes, it's absolutely more advantageous from a CO2 perspective. Also, I think it's worth considering that shipping obviously takes place over water on the coast, whereas trucks can be going right through populated areas. So beyond CO2, just other forms of pollution.

And yes, so we've taken what should be what is a very CO2 friendly means of moving goods around the United States. And shipping today in the United States in terms of actual ships, it's basically done for two reasons. Number one, you're sending something to, again, the non-contiguous states and territories, Alaska, Hawaii, Guam, Puerto Rico, or you're transporting energy products, either oil or refined products, to places that aren't served by pipelines. So basically we only use shipping as a general rule when there's no other alternative. It's become so uncompetive. Well, so that's a good segue. So let's talk about the impacts on energy, which is the main reason I want to have this conversation of the Jones Act and all the surrounding policies.

Let's talk about fuel. I mean, you mentioned sending fuel to places that don't have pipelines. So, like, high level, what is the impacts on the world of fuel supply thanks to all the rules that we have imposed? about shipping in the United States? Yeah, so the Jones Act makes it often, usually, more attractive to send U.S. oil to foreign countries than other parts of the United States. So, for example, East Coast refineries, say in the Mid-Atlantic, they import more oil from places like Libya or the Middle East or Nigeria than they do from Texas, from the Gulf Coast.

And then, so we have this bizarre situation where the Gulf Coast is exporting their oil to, say, Latin America and the refined products internationally. And instead of other parts of the United States, and then those other parts of the United States, say the East Coast, they will import oil from Africa or the Middle East, or they'll get the refined products from Europe instead of other parts of the United States. because once you factor in the cost of transportation, it doesn't make sense to buy American. So they can come from thousands of miles further away, and yet economically, it still has a logic to it because of the transportation costs involved. You talk about sort of what that has resulted on the LNG side as well? I think that's another place that this is sort of like a weird twisted outcome. Yes. So the United States, we are the world's leading exporter, I believe, of liquefied natural gas. and yet we are in this bizarre situation where we can't transport it by water to other parts of the United States

because there are no LNG tankers that comply with the Jones Act. So as a result, New England, you know, they import a few cargoes a year, and that's all international. Typically comes from Trinidad and Tobago. And then Puerto Rico, they import a lot of LNG because they use natural gas for something like, you know, 40% of their electricity generation. And again, that all their bulk LNG imports are foreign. They can't get any of it from the U.S. mainland. So, for example, last year, I think their number one supplier was Nigeria.

Number two is Trinidad, but then they'll pull occasional cargoes from as far away as Oman. Meanwhile, Elba Island, LNG terminal near Savannah is like a three-day sale away from them. So, you know, we export LNG all over the world, 30-some. countries. As far as China, we can't send it to other parts of the United States. One bizarre thing is Puerto Rico also imports from Spain. I know last year there's one situation where they were importing from Spain, at the same time, there's an LNG tanker going from the Gulf Coast to Spain. So these bizarreo outcomes. Now, I imagine some people listen to this and think, well, this seems like an easy problem to solve. I mean, build the ship, put an American flag on

it, with Americans, and you're in business. The problem is that there is no economic case for building that ship. A few years ago, the Wall Street Journal estimated that to build an LNG tanker at the United States would cost around $700 million, or as at that time, you could buy one for, I think, less than $200 million in South Korea. So you're looking at a $500 million delta for one ship, and that's just the capital cost, we're not even getting into operating costs. So there's just no economic case for building that ship. So here we are. And one other note, there's the same dynamic that goes on with LPG, you know, look for a petroleum gas.

Hawaii uses LPG, and they import it from as far away as West Africa because they can't get it from the U.S. mainland because, again, there are no ships to transport it. Yeah, I mean, it seems like this has impacts everywhere, but like places like Puerto Rico and Hawaii are clearly the worst off as a result of this because they have to import everything,

and they basically can't import anything from mainland, you know, United States. Yeah, so they, you can make a strong case for Hawaii and Puerto Rico, but also we need to remember Alaska because they're in the other position where they're exporting this stuff. And so they have high Jones Act cost to send all that oil from Valdez, Alaska, down to the West Coast. In fact, back in like the late 90s, the GAO did a study. And they found Jones Act shipping was so expensive that it was actually cheaper to send a Alaska oil on a foreign tanker down around the tip of South America and to the U.S. Virgin Islands, which at the time was home to a massive oil refinery, and the Virgin Islands is exempt from the Jones. It was cheaper. It was like one-third the price to do that, and then to send that same barrel of oil to the U.S. Gulf Coast. Even though the journey was half the length. There was still one-third the cost to go to Virgin Islands, the U.S. three times farther.

I'm sorry, twice as far. Wait, you breeze past that. The Virgin Islands is exempt. So the Virgin Islands is exempt from the Jones Act. There are a few places that are exempt. It's American Samoa, the Virgin Islands, the Northern Mariana Islands, and Guam is nominally exempt from the build requirement of the Jones Act. Now, on a de facto basis, it's still subject to the Jones Act because anyone going to

Guam passes by Hawaii on the way. You're going to stop in Hawaii, and Hawaii is subject to the Jones Act. So they sort of have an exemption. But yes, the U.S. and Virgin Islands is exempt, while Puerto Rico, 60 miles away or whatever, very close by is fully subject to it. Fascinating. So weird. Okay, as we talked about fuel, I mean, the other more in nascent, but possibly more existential challenge opposed by the Jones Act in the context of energy, has to do with the emergent industry of offshore wind.

So what is the deal there? Yes. So you're right. We have, the United States is trying to launch. an offshore wind industry. It's pretty small, but there are plans to ramp up significantly. And the Jones Act is an obstacle here, not surprisingly, given that this is all taking place offshore. So, for example, one key vessel needed to install offshore wind turbines is wind turbine installation vessel.

This is a vessel that has a giant crane on it for lifting up the different turbine components and assembling them. So typically the way this works overseas is that a wind turbine installation vessel goes into port, loads up with components, and then goes offshore to do the installation. But in the United States, we can't do that because we don't have any vessels, wind turbine installation vessels, that comply with the Jones Act. So the workaround here is there's two possibilities. One is that you position the installation vessel, the foreign installation vessel, because they're all foreign at the installation site, and then you load the components onto a barge, and the barge goes out to where the installation vessel is, because that way the installation vessel doesn't engage in transportation, which is the thing prohibited by the Jones Act. And then the other alternative is you can just operate out of a foreign port.

So you load all the turbine components in, say, Canada and then do the installation down in the United States. And in fact, this is what Dominion Energy did for their offshore wind demonstration project off the coast of Virginia a few years ago. They installed, I think, two turbines, and they ran the whole thing out of Canada, I think St. John Canada. New York Times actually had a big article about this, and they quoted the project managers saying that his biggest hassle and the whole thing was the Jones Act. That basically, a process that normally would have taken a matter of weeks over, say, in Europe took the better part of a year because of all these delays introduced by the fact they couldn't operate out of, say, Virginia Beach or Norfolk. They had to operate out of a foreign port. Virtual power plants are becoming a reliable way for utilities to manage capacity, but enrolling devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched, and being able to prove it from the control room to the living room.

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And I would think there's basically two things that could be done about it. One is the government could put all of its efforts into mobilizing the U.S. shipbuilding industry. Like, as you said, the problem appears to be lack of volume. It's this vicious cycle. You can theoretically turn around that vicious cycle, right? We could have demand-side incentives.

We could subsidize U.S. ship-billum. for some number of years until we get up to scale. There's lots of different things you could do to just revitalize that industry. Or you get rid of the Jones Act, you say, okay, we're going to seed shipbuilding, or at least some portions of this industry. But in exchange, we'll stop sort of perverting trade flows and probably save a bunch of money for Americans on various things, including fuel. Am I right that those are kind of the two really high-level options at the table, and how do you think about the trade-offs between them?

Yeah, I think those are both solutions that have been put forward. So obviously, I'm more in the – I'm definitely in the Jones Act repeal camp. I think the most straightforward logical approach is to get rid of this law. But yes, other people have said, well, I think the better approach would be just to fix U.S. shipbuilding. So, yeah, they get those volumes so they can get competitive. and then this is less of an imposition. The problem with that, in my opinion, is that past efforts at that, because this has been tried before and hasn't worked out that well.

So, for example, from 1936 until 1981 or so, we had what were called construction differential subsidies. These were subsidies for U.S. built ships up to half the cost of the ship versus what it would cost to build abroad. Now, these were ships only that were used in four. foreign trade. These were not Jones Act ships. So if you wanted to operate internationally, you could get one of these subsidized ships to encourage people from buying from U.S. shipyards instead of foreign ones. But again, even then, U.S. shipyards never got close to being competitive.

They were still, I mean, as evidence by the fact, we needed these subsidies. And they were discarded early in the Reagan administration because they were not making U.S. ship shipbuilding competitive. And I think it's also worth bearing in mind that, you know, we have had during wartime, massive ramp up in the construction of ships, neither World War I nor World War II, each of which saw thousands of ships built in U.S. shipyards, left a legacy of competitive U.S. shipyards in their wake. And U.S. shipbuilding has been uncompetitive, literally, you know, since roughly the end of the Civil War. So, you know, 150 years, something like that.

So this is longstanding. The Delta, you know, has been getting worse. And I think, you know, I think we should just step back and say, well, the one constant here has been that we've had this protected shipbuilding industry. And I think as long as American shipbuilding isn't forced to compete internationally, they have this captive market. Plus, they have Navy contracts. This is unrelated to the Jones Act. but they also have, you know, Navy and military contracts. Really, they're bread and butter.

Jones Act is kind of a side show for most of them. The majority of revenue is from government contracts. As long as they have that, you know, what's their incentive to go out there and try to find a specialized niche and become competitive? I don't find that coincidence that we've protected these guys from competition and that they've also become grossly uncompetitive. So I think you mentioned we've tried various things.

What is the political dynamics around the general dynamics around the general? Jones Act. I think you're alluding to the constituency in support of it, which is probably whatever remains of the U.S. shipbuilding industry. But given that this thing has been in place since 1920, and given the dynamics you described around what's happened to the industry and all the ways in which it has changed our shipping, why haven't we repealed it? Or at least significantly changed it. Right, right. I think that's perhaps the big puzzle here is not only we haven't repealed it, but it's basically been left in place without any significant modifications. So why is this? And I think it's a classic case of dispersed costs and

concentrated benefits. So we have organizations like unsurprisingly the Shipbuilders Council of America that love the Jones Act, that endorseee and go to their website and they have a section devoted to the Jones Act and why it's a great law. And then of course, the people that operate ships. They also favor keeping it. The people that work on these ships, on these vessels, they support the Jones Act. So you have numerous organizations out there, like the American Maritime Partnership, which is here in Washington, D.C. You have the American Waterway operators. These are guys that work on inland waters on tugs and barges. You have the Offshore Marine Service Association that works out in the Gulf of Mexico. You have the Lake Carrier Association for the Great

lakes shipping and on and on and on. They're out there every day, you know, making the case for the Jones Act, for why we need it. And you don't really have, and it's pretty obvious why. This, for them, they consider this is an existential issue. This is the ballgame right here. So they devote a commensurate level of resources to that. Whereas the costs, you know, it hurts numerous industries, but is it a top three concern for them? You know, most industries, no. Furthermore, they know there's going to be a lot of blowback if they go after the Jones Act, so they don't touch it. I think what's really instructional here about the cost of the Jones Act and the dynamic here is that you would think, if you have just a superficial understanding

of the Jones Act, that the biggest opponents are going to be folks that live in Alaska, Hawaii, and Puerto Rico for obvious reasons. And you might suspect that the political dynamic is their members of Congress and senators show up in D.C. And they bang on the table about the Jones Act. We got to do something about this. It's killing us. And members from the other 48 states go, whatever, not my problem. Actually, we have a shipyard in my district, so suck it up.

And it's true that people in these parts of the United States, they don't like the Jones Act. Alaska in 1984 passed a referendum that made it a duty. It's one of the governor's duties to lobby Congress for repeal of the Jones Act. And yet... Wait, that is a, still today, that is a duty of the governor? It is written into Alaska state law. It is the duty of the governor to lobby for the Jones Act's repeal. And yet, all three members of the Alaska delegation are pro-Jones Act.

Well, why is that? How does that work? Well, you know, places that are disproportionately affected by the Jones Act, harm by the Jones Act, are also disproportionately home to maritime interest groups, the lobby in favor of it. You know, Hawaii, for example, it's a Matson, which is the largest Jones Act shipping company for container shipping. They're headquartered in Halu.

You can bet they're out there every day. The Hawaii delegation, three of the four members are pro-Jones Act. And the one member who supports reform of the Jones Act, Ed Case, he gave an interview a few years ago. And he said, look, I was a member of the state legislature. And I just said, can we just study the Jones Act? He wasn't even making the case for repeal. Can we just look at this and see, you know, what the effects are? And he said, people lost their minds.

and it's been really tough for him. He's faced last election, for example. He had a primary opponent who staked a lot of his opposition, his run, his candidacy on support of the Jones Act. Then the general election, the other guy was also bankrolled by pro-Jones Act interests. So this is the dynamic that legislators face when they come to Washington. If you support the Jones Act, you will get votes, you'll get campaign contributions. you'll get endorsements, including from unions.

And if you oppose it, all those interest groups will be against you. So, you know, the path of least resistance is just go with the flow. And all they're asking is keep things the way they are. You know, JonesX folks, they're not saying, go out. We want you to introduce this ambitious new bill or something. They're just saying keep things the way they are. So, and your average person, they have no idea that Jones Act even exists. So I don't think they're getting a lot of hate mail over the Jones Act.

So just the political logic lends itself to maintain the law the way things are. You mentioned the possibility of the government studying the impacts of the Jones Act. I presume lots of third parties and think tanks have analyzed this. Has there ever been anything, or in recent years, has there been anything from the government that has attempted to quantify the impacts the Jones Act? No. So the government, they used to, the U.S. International Trade Commission, back in the 9th. They put out a report periodically about the impact of various trade restrictions on the U.S. economy. So, for example, you know, the U.S. sugar program, which raises, doubles, triples the cost of sugar in the United States.

You know, they would sign a cost to that. And they looked at the Jones Act. But they haven't done that in analysis of the Jones Act. The last time they did that was 2002. And the GAO, they did a study back in the 80s about the cost to Alaska with the Jones Act. They concluded that it cost Alaskans. It was something like the equivalent of 2% of the state's income was the cost of the Jones Act. In 2013, the GAO did a study on the Jones Act's impact in Puerto Rico.

And it basically kind of threw up their hands and were like, well, this is too hard. We can't figure it out. So unfortunately, no, there hasn't been a good quantitative effort. And then as far as those USITC studies back in the 90s that ended in 2002, their original report back in, I think, 1993, something like that, said it was around $10 billion. And then their final report said it was $656 million. And the reason for this, I looked into it's like, well, why would the cost keep getting smaller? And their methodology was they said, well, what was the difference between U.S. and foreign shipping?

And you take that delta and you multiply that by the amount of shipping. Well, you know, if you take that kind of logic to its conclusion, if the Joneses, Jones Act succeeded in killing shipping entirely in the United States, well, then by that logic, there would be no cost to the Jones Act. So even then, you know, because much of it is an opportunity cost, you know, things, opportunities that we have to forego. So that, I think, accounts for why that last number of $656 million was so modest. All right. So final question for you. Clearly, you have a view on this and you'd like to see this repealed or significantly changed. But it also seems politically to be challenging. And that is buttressed by the fact that. that it has been on the books for over a century and has survived this long. Are you just shouting into the wind about this, or do you see a path? I do think that there is a path forward. Traditionally, the Jones Act, it's an irritant, right? It's like it's annoying, but people, but not to the extent that it prompts congressional action.

But I think we're an interesting moment right now where there's an increasing recognition of the shortcomings of the U.S. maritime industry. So part of this is driven by the sense of a growing competition with China and the fact that any conflict with China would have a strong maritime element to it, take place in the maritime domain just given the distances in the Asia Pacific, and shipping is obviously required in a scenario like that. But it's also cropping up in things like the Baltimore Bridge collapse of a couple weeks ago, The fact that numerous observers have pointed out that we don't really have the capabilities to do the salvage stuff.

For example, foreigners have much bigger cranes and more capable vessels for doing that kind of work than we do. So it's starting to crop up more and more. And I think as people probe and ask questions, they go, well, why can't, why is our maritime industry in such a mess? Why is it so uncompetitive? I think you can't really have that conversation without examining the, Jones Act, without the Jones Act figuring into that examination, into that conversation, I don't think that anybody that does an objective analysis will come to any positive conclusions about the Jones Act. So I think that's one vulnerability. And then also these situations like,

you know, with LNG, I mean, this is obviously absurd and insane that Americans cannot get access to American energy. And I think the more stuff like that crops up, it's bad news for the Jones Act, you don't have to do a deep dive in the weeds to understand how absurd this is, and this is obviously a ridiculous situation that kind of demands some kind of resolution. So I think those, now this is not a prediction on my part, but I think these are kinds of things if you look forward with possible reasons for optimism. And then just lastly, I'll say anecdotally, I've noticed, you know, I've been at this for a few years, and I increasingly feel less like I'm shouting to the wind that more people are paying attention.

and the issue does seem to crop up more and more. And there's just a growing recognition, at least here in the D.C., like policy circles and the think-take community of the Jones Act as a classic example of a policy failure. So I take some comfort from that. So I think, you know, again, not a prediction. I'm not saying that, you know, in 20 years we have this conversation, there will be no more Jones Act. But there's certainly, I think, increasing recognition of the shortcomings of this law. and the need that, a recognition of the need to change course, that the current policy is not meeting or needs,

either from a commercial perspective, economic perspective, or from a national security perspective, which is supposed to be what the Jones Act is all about. All right, Colin. Well, we're going to ship this podcast off to Oman, and then maybe the Spain will send it back. People will start listening to it here in the U.S. soon enough. But in the meantime, thank you so much for your time.

Well, thank you, Shail. Colin Gravow is a research fellow at the Cato Institute's Herbert Stiefel Center for Trade Policy Studies. This show is a production of Latitude Media. You can head over to Latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. Pralud Beck's visionaries accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more about their portfolio and investment strategy at Preludeventures.com. This episode was produced by Daniel Waldorf. Mixing by Roy Campanola and Sean Marquan.

theme song by Sean Marquand. I'm Shail Khan, and this is Catalyst.