Higher Petroleum Product Prices: Yet Another Reason to Get Rid of the Protectionist Jones Act

If there was a legislative act that wreaks havoc on the shipbuilding industry and made it more expensive for you to purchase goods, it would stand to reason that you would want that piece of legislation gone. Yet that is exactly what takes place in the U.S. economy. 

The Jones Act is legislation from 1920 that regulates maritime commerce between U.S. ports in U.S. waters. The Act states that all goods between U.S. ports need to be carried in U.S. flagships constructed in the U.S., owned by U.S. citizens, and manned by U.S. citizens or permanent residents. The Act was created after World War I with the idea of preventing U-boat attacks from the Germans. Given that it is 2023, I very much doubt the United States has to worry about a U-boat attack. 

Much like with any other forms of protectionism, it only benefits those who are bequeathed the rent-seeking. For the Jones Act, it primarily is the manufacturers of U.S. flagships and those employed by U.S. ports. Everyone else gets screwed over in the process.  Last week, the National Bureau of Economic Research (NBER) released a research paper on the effects of the Jones Act on the markets for crude oil and petroleum products (Kellogg and Sweeney, 2023). What would happen if the Jones Act were eliminated? It is not flattering for the Jones Act:

Eliminating the Jones Act would have reduced average East Coast gasoline, jet fuel, and diesel prices by $0.63, $0.80, and $0.82 per barrel, respectively, during 2018-2019, with the largest prices decreases occurring the Lower Atlantic. The Gulf Coast gasoline prices would increase by $0.30 per barrel. U.S. consumers' surplus would increase by $769 million per year, and producers' surplus would decrease by $367 million per year. 

Keep in mind that this is only the crude oil and petroleum products markets shipped in ports in certain regions. There are other industries that use U.S. ports to ship goods. The fact that the Jones Act drives up consumer prices does not surprise me. In 2017, I conducted an analysis about how the increased shipping costs make consumer good more expensive and reduce the GDP. As this 2018 research paper from Cato Institute points out, it is ridiculous that a bill whose national security rationale ceased to exist for decades can still exist. The repeal of the Jones Act is long overdue and could not come sooner.