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Jones Act Descended From Centuries of Lazy Protectionism (Bloomberg)

Repealing the so-called Jones Act, which is slowing desperately needed aid to Puerto Rico in the aftermath of Hurricane Maria, is obviously the right thing to do. But the growing movement in Congress to scrap it — including Republican Senators John McCain and Mike Lee — should know that they’re entering treacherous legislative waters.

Formally known as the Merchant Marine Act of 1920, the law stipulates that all goods entering or leaving Puerto Rico must be carried aboard ships built, crewed, and registered in the U.S. Ever since, the island’s economy has strained under the weight of expensive imports.

But the Jones Act is not some kind of aberration or mistake; it’s just one small part of an obscure but entrenched body of jurisprudence known as cabotage law that goes back hundreds of years. The accumulated statutes and regulations associated with cabotage have yielded one the most restrictive shipping policies in the world, shielding nearly 75,000 jobs behind a protectionist wall.

The word cabotage — likely derived from French, meaning “to coast” — governs shipping trade along coasts. The first cabotage laws date back to the early 16th century, when ships from northern Europe traveling to and from the Mediterranean sought to make their voyages more profitable. So they began making frequent stops along the coastline, moving goods and passengers along the way.

The first of their kind was rolled out by the kingdom of Portugal, which wanted to prevent other countries from dominating shipping along its coast. Other European kingdoms followed suit, recognizing that cabotage restrictions could help foster the growth of domestic shipping industries.

In 1651, England passed the Navigation Act, which required much of that nation’s imports and exports be carried aboard ships owned and crewed by British subjects. This legislation also contained a cabotage clause, reserving the coastal trade in England itself to British ships. This law also broadened the definition of cabotage to the point of absurdity, restricting much of the trade to and from North America in British ships, despite the fact that an ocean separated the colonies and the mother country.

Subsequent attempts to enforce the Navigation Acts helped precipitate the American Revolution, but after independence, the U.S. instinctively turned to English precedent when it came time to building its own merchant marine. Using so-called tonnage taxes — duties assessed on the size of the ship — it sought to reserve shipping for American vessels, particularly in the coastal trade.

Under the terms of this initial tariff, American-owned and -operated ships paid a tax of six cents per ton; ships built and owned by foreign interests paid 50 cents a ton. That alone deterred many foreign ships from the coastal trade, but a separate provision was nearly insurmountable. American ships paid the tax once a year; foreign ships paid it every time they made a port of call in the U.S. The practical effect of this legislation was to leave the vast majority of the coastal trade for American ships.

In 1817, Congress passed the Navigation Act, which largely resurrected the British legislation of the same name. Its provisions included a complete ban on foreign vessels from the coastal trade, enabling an already thriving merchant marine to further consolidate its position at home and abroad. One history of American shipping estimates that by 1818, the size of the coastal fleet — measured in tons — was the same as the oceangoing fleet.

The laws had unintended consequences. In the early 19th century, American shipyards and sailors could build and crew ships more cheaply and efficiently than almost any other nation, including Great Britain. Nonetheless, in the 1830s, British politicians chose not to retaliate. Instead, they opted to embrace free trade. In 1849, they stopped shielding their shipping industry from foreign competition.

This unilateral move prompted some Americans to consider doing the same. But the same year that the British steered toward free trade, the Americans discovered gold in California, prompting a massive movement of people and goods to and from the West. Though the east and west coasts weren’t actually continuous, that didn’t stop domestic shippers from invoking cabotage laws to chase out foreign competition from the new and extremely lucrative market.

But the British had the last laugh. It enjoyed a significant competitive advantage in ironworking, and in the 1850s, that country’s shipbuilders pioneered iron-hulled ships. These cheap sailing ships weighed less than American clippers and had more cargo space, and they quickly began to supplant the competition. In time, the British took the lead in building steam-powered ocean-going vessels as well. They quickly supplanted the Americans.

Increasingly, the American domination of domestic shipping rested on protectionism, not any real competitive advantage. Congress made matters worse in 1886 by passing the Passenger Vessel Services Act, which expanded cabotage laws to include people, not just cargo. Henceforth, passengers moving from one U.S. port to another must travel via ships built, registered, operated and crewed in the U.S.

When the U.S. began acquiring imperial possessions in the late 19th century, it increasingly began acting like the older British empire. It creatively defined its new possessions — Hawaii first, then Guam, the Philippines, and other territories — as part of the nation’s “coastal” trade. By the early 20th century, the U.S. had the most restrictive, protectionist shipping policies in the world.

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Source: Bloomberg

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