The scandal of America’s industrial policy in commercial shipping
The United States has had an industrial policy aimed at boosting its domestic shipbuilding industry since the passage of the Merchant Marine Act of 1920, commonly known as the Jones Act. Whatever the arguments for the passage of the bill a century ago, it has over time been a disaster for the US maritime industry, and continues to impose significant costs on other parts of the US economy. Colin Grabow goes through the arguments in “Protectionism on Steroids: The Scandal of the Jones Act” (Milken Institute Review, Second Quarter 2024, pp. 44-53). The Jones Act “requires that vessels engaged in domestic transportation be registered and built in the United States as well as crewed and at least 75 percent owned by U.S. citizens.” However, the underlying rule goes back to an 1817 law “prohibiting foreign vessels from transporting goods within the U.S.”
Excellent write-up this by Timothy Tayler of the Conversable Economist
So inefficient and atrophied has American ship-building become that to talk of an American ship-building industry in the “global context” borders on the absurd.
As a result of this extraordinary imbalacne, as a Congressional Research Service Report notes, the US military is heavily dependent on Chinese-built vessels for its logistics:
“Three of the ten commercial oil tankers selected to ship fuel for DOD as part of the newly enacted Tanker Security Fleet are Chinese-built. As for dry cargo supplies for DOD, 7 of the 12 most recently built ships in the Maritime Security Fleet are Chinese-built.”
As the CRS hastens to add this is not a case of “China shock”. The decline of America’s shipbuilding industry long predates China’s rise:
The mantle of the world’s leading shipbuilder passed from the United Kingdom to Japan in the 1950s, from Japan to South Korea around 2000, and from South Korea to China in 2010. In 1999, in gross tons, China accounted for 5% of cargo ships built that year; Japan and Korea accounted for 42% and 34%, respectively; and the United States accounted for 0.25%. In 2006, China’s 11th National 5-Year Economic Plan (2006-2010) was the first of its economic plans to specifically mention shipbuilding with a plan to become a world leader. In 2007, China built about 18% of world tonnage, but it received about 30% (in tonnage) of new ship orders that year, second to Korea.
The CRS also has the good sense to warn against new industrial policy initiatives. It is an industry with chronic over-capacity and dubious profitability. If China-sourcing is a concern, far better to add orders to Korean, Japanese or European builders.