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News Every Day |

Your Summer Cruise Just Got Cabotaged

pa href=https://www.cato.org/people/scott-lincicome hreflang=undScott Lincicome/a/p div class=fs-sm pDear Capitolisters,/p /div , div class=fs-sm pA minor travel industry scandal—to the extent such things exist—erupted last week when the Canadian government extended its pandemic‐​related moratorium on foreign port arrivals, thus imperiling U.S. cruises to not only coastal Canada (which is delightful) but also Alaska. This promptednbsp;a href=https://twitter.com/scottlincicome/status/1358108242619072520 target=_blankimmediate outrage/anbsp;from Alaska’s congressional delegation, given the numerous jobs at stake in tourism‐​reliant places along the Alaskan coast. Tellingly unmentioned by the congresscritters, however, wasnbsp;emwhy/emnbsp;cruises run by American companies, primarily serving Americans, and both startingnbsp;emand/emnbsp;ending at American ports even need to stop in Canada in the first place. The reason: Laws regulating “cabotage”—a fun word meaning “the right to operate sea, air, or other transport services within anbsp;particular territory”—dramatically restrict the transport of goods and people between domestic ports. This causes all sorts of problems, which Alaska’s senators and representatives, all of whom support those laws, would rather not discuss.nbsp;/p pBut discuss them we will, and in the process draw some broader lessons about American industrial policy and trendy efforts to make producers, not consumers, anbsp;central focus of U.S. economic policy./p /div , aside class=aside--right aside--large aside div class=pullquote p-mb-last-child-0 pWhy shipping restrictions are counterproductive. /p /div /aside , div class=fs-sm pstrongThe Cabotage Laws/strong/p pThe United States’ stranglehold on coastwise shipping and transportation has been implemented through several laws, each supposedly passed to boost the domestic shipbuilding industry and, by extension, national security. Shipping restrictions actually date back to the founding, when Congress in 1789 placed prohibitive tariffs on the use of foreign ships in domestic trade in order to support local shipyards and the fledgling U.S. Navy. Cabotage laws have since been refined and expanded several times, with the two most prominent laws in force today being the “Jones Act” and the Passenger Vehicle Services Act (PVSA):/p ul li pstrongThe Jones Act.nbsp;/strongThe Merchant Marine Act of 1920 was presented as anbsp;plan to ensure adequate domestic shipbuilding capacity and anbsp;ready supply of merchant mariners in times of war or other national emergencies. Section 27 of the law—the “Jones Act”—revised existing U.S. cabotage laws and today restricts the domestic shipping of waterborne goods to vessels that are U.S.-built, U.S.-owned, U.S.-flagged, and U.S.-staffed. As anbsp;result of the Jones Act, the United States has one of the most (if notnbsp;emthe/emnbsp;most)nbsp;a href=https://reports.weforum.org/global-enabling-trade-2013/shipping-co/ target=_blankrestrictive shipping/anbsp;systems in the world:/p /li /ul /div , figure class=figure responsive-embed-no-margin-wrapper div class=figure__media img width=700 height=479 alt=summer-c-1.jpg class=lozad image-style-pubs-2x component-image loading=lazy data-src=/sites/cato.org/files/styles/pubs_2x/public/2021-02/summer-c-1.jpg?itok=wRRUQnW0 typeof=Image / /div /figure , div class=fs-sm ul li pstrongThe PVSA./strongnbsp;The PVSA was passed in 1886 and applies essentially the same restrictive rules to waterborne transportation ofnbsp;empassengers/em, instead of goods. Thus, cruises between two U.S. ports (with no international stops in between) are restricted to vessels that are U.S.-registered, U.S.-built and (mostly) U.S.-crewed and owned./p /li /ul pSimilar laws apply tonbsp;a href=https://www.americanmaritimepartnership.com/u-s-maritime-industry/overview/ target=_blanksalvage, towing, and dredging/a—each intended to boost the U.S. shipbuilding industry, the merchant marine, and national defense./p pstrongThe Economic Harms and Failed Objectives/strong/p pAs summarized in anbsp;2018 Cato Institutenbsp;a href=https://www.cato.org/sites/cato.org/files/2019-09/The%20Jones%20Act.pdf target=_blankpaper/a, U.S. cabotage laws have imposed substantial economic costs while utterly failing to produce anbsp;vibrant domestic shipbuilding industry and workforce, or anbsp;thriving merchant marine./p pFirst, Jones Act restrictions have inflated U.S. shipping costs because the transport of cargo between U.S. ports and on inland waterways is off‐​limits to foreign competition. Estimates of the direct economic damage vary widely, ranging from about $650 million to almost $10 billion per year, because the act has so distorted the U.S. market that it’s difficult to construct a “free market” counterfactual. One of the most recent and comprehensive analyses, by thenbsp;a href=https://read.oecd-ilibrary.org/science-and-technology/local-content-requirements-and-their-economic-effect-on-shipbuilding_90316781-en#page21 target=_blankOECD/a, found that repeal of the Jones Act would increase U.S. domestic output by $40 billion to $135 billion, thanks primarily to increased industrial activity in other sectors: reduced freight rates would stimulate demand for intra‐​national trade (via U.S. waterways), thus generating economic growth. These harms are particularly acute for places that lack alternative means of transport, such as Hawaii, Alaska, and Puerto Rico, and are anbsp;core reason Jones Act restrictions werenbsp;a href=https://www.nytimes.com/2017/09/28/us/jones-act-waived.html target=_blankoften waived/anbsp;during times of crisis (e.g., Hurricane Maria in 2017)./p pHowever, the OECD report also shows how the Jones Act hurts thenbsp;emU.S. commercial shipbuilding industry/em, which is struggling mightily despite (or, more likely, because of) government protection. It is estimated that anbsp;U.S.-built, Jones Act‐​compliant ship costsnbsp;a href=https://fas.org/sgp/crs/misc/R45725.pdf target=_blankfour to five times/anbsp;as much to build as anbsp;ship made abroad, even though U.S. shipbuilding labor rates arenbsp;a href=https://www.nassco.com/pdfs/Shipbuilder-Assessment-American-Marine-Highway-NASSCO.pdf target=_blankrelatively low/a:/p /div , figure class=figure responsive-embed-no-margin-wrapper div class=figure__media img width=700 height=542 alt=summer-c2.jpg class=lozad image-style-pubs-2x component-image loading=lazy data-src=/sites/cato.org/files/styles/pubs_2x/public/2021-02/summer-c2.jpg?itok=rXmb2EQ0 typeof=Image / /div /figure , div class=fs-sm pThese eye‐​popping numbers show why foreign subsidies—long an excuse for the Jones Act’s restrictions—are relatively meaningless: leaving aside lower U.S. labor rates and the fact that domestic shipyards receivenbsp;a href=https://www.maritime.dot.gov/grants-finances/small-shipyard-grants target=_blankmultiple/aa href=https://maritime.dot.gov/grants/title-xi/federal-ship-financing-program-title-xi target=_blankfederal/a,nbsp;a href=https://www.motherjones.com/politics/2001/05/subsidies-sea/ target=_blankstate, and local/anbsp;subsidies themselves,nbsp;a href=https://microeconomicinsights.org/chinas-hidden-shipbuilding-subsidies-impact-industrial-dominance/ target=_blankvarious/aa href=https://twitter.com/cpgrabow/status/1172574554956455938 target=_blankestimates/anbsp;indicate that Chinese, Korean, and other subsidies improve foreign ships’ price‐​competitiveness by up to 25 percent. That might sound like anbsp;lot, until you recall that U.S. ships are aroundnbsp;em400 percent/emnbsp;more expensive than foreign ships, hence why the U.S. industry balked at anbsp;1990snbsp;a href=https://www.nytimes.com/1996/10/03/business/on-second-thought-us-decides-shipyard-subsidies-aren-t-so-bad.html target=_blankinternational agreement/anbsp;to pare back global shipping subsidies. Indeed, American shipyards are so uncompetitive that U.S. ships get routinely serviced abroad, even though such repairs are subject to anbsp;a href=https://www.federalregister.gov/documents/2001/03/26/01-7325/foreign-repairs-to-american-vessels#:~:text=A%2050%20percent%20ad%20valorem,Pacific%20Coast%20trade%20with%20Canada). target=_blank50 percent tariff/a./p pAnbsp;a href=https://www.cato.org/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national-security#essence-national-security-rationale target=_blankrecent paper/anbsp;from my Cato colleague Colin Grabow explained why U.S. ships are so dang expensive:nbsp;/p /div , blockquote div class=fs-lg pThe Jones Act’s U.S.-build requirement has incentivized American shipyards to orient themselves away from the competitive international market and toward this captive domestic shipbuilding market. This, in turn, means reduced output (a mere two or three oceangoing ships per year), less competition, and the failure to develop anbsp;specialized market niche. All of these missing elements are vital to increased productivity and lowered costs./p /div /blockquote , div class=fs-sm pIn short, cabotage restrictions have created anbsp;vicious cycle of ever‐​worsening domestic shipyard competitiveness: higher prices for U.S. ships depress demand for shipping services, thereby leading U.S. companies to purchase fewer American‐​made vessels. Producers, in turn, build fewer ships, thus preventing economies of scale and specialization and thereby making U.S. shipyards evennbsp;emless/emnbsp;competitive (and more expensive) going forward. Rinse and repeat until you have the zombie industry we see today.nbsp;/p pBy contrast, the OECD estimates anbsp;repeal of the Jones Act would increase domestic shipbuilding demand, output, and final value‐​added by hundreds of millions of dollars per year. In other words, it would actually benefit the U.S. industry!/p pWithout reform, those companies will inevitably continue to decline, and current trends arenbsp;ema href=https://www.cato.org/sites/cato.org/files/2019-09/The%20Jones%20Act.pdf target=_blankespecially/a/ema href=https://www.cato.org/sites/cato.org/files/2019-09/The%20Jones%20Act.pdf target=_blanknbsp;bleak/anbsp;for oceangoing vessels (i.e., the ships that the U.S. military would need in wartime):/p /div , blockquote div class=fs-lg pNearly 9nbsp;of every 10 commercial vessels produced in U.S. shipyards since 2010 have been barges or tugboats. Among oceangoing ships of at least 1,000 gross tons that transport cargo and meet Jones Act requirements, their numbers have declined from 193 to 99 since 2000, and only 78 of those 99 can be deemed militarily useful. Even in their expressions of support for the Jones Act, government officials concede that the U.S. shipping industry and its associated ecosystem have been depleted./p /div /blockquote , figure class=figure responsive-embed-no-margin-wrapper div class=figure__media img width=700 height=358 alt=summer-c3.jpg class=lozad image-style-pubs-2x component-image loading=lazy data-src=/sites/cato.org/files/styles/pubs_2x/public/2021-02/summer-c3.jpg?itok=M_a2ei83 typeof=Image / /div /figure , div class=fs-sm pThe Jones Act fleet is not just shrinking but also increasingly decrepit because replacement costs are so high. Of the mere 98 ships now in service (we’ve lost once since the quote above was published), more than one‐​third (34.7 percent) are past the age of 20, and anbsp;quarter of them (24.5 percent) are past 30.nbsp;Ridiculous examples abound, likenbsp;a href=http://www.boatnerd.com/pictures/fleet/stmaryschallenger.htm target=_blankthis barge/anbsp;on the Great Lakes built in 1907, ornbsp;a href=https://en.wikipedia.org/wiki/USS_LST-987#In_commercial_service target=_blankthis dredger/anbsp;built during WWII. Studies also show that these old vessels are not only inefficient but also dangerous./p pThe PVSA has had similar results: large, American‐​made oceangoing cruise ships are essentially nonexistent due to anbsp;combination of high prices and ineptitude. Indeed, there is only one large cruise ship—the hilariously‐​namednbsp;emPride of America/em—operating under the PVSA (in Hawaii), but it’s anbsp;a href=https://www.latimes.com/opinion/op-ed/la-oe-buchholz-pvsa-cruise-20170803-story.html target=_blanksad example/anbsp;of America’s cabotage problem:/p /div , blockquote div class=fs-lg pIn 2001, powerful Southern senators arranged for U.S. taxpayers to subsidize anbsp;shipyard in Mississippi so it could build anbsp;cruise vessel. It tried, and it failed. Within anbsp;year, anbsp;bungled, half‐​completed hull was declared “unfloatable” and was towed across the Atlantic to be completed in Germany for Norwegian Cruise Lines. But to avoid embarrassment to the U.S. government, the ship is still billed as “Made in America” and is free from the [PVSA rules]./p /div /blockquote , div class=fs-sm pAs thisnbsp;emNew York Timesnbsp;/ema href=https://www.nytimes.com/2003/12/14/us/political-savvy-gets-us-flags-on-foreign-ship.html target=_blankpiece/anbsp;on thenbsp;emPride of America/em’s sordid (and expensive!) history makes clear, that ship is not exactly something to be proud of. (In fact, no large cruise ship has been built in the United States since 1958, and that ship, the SSnbsp;emArgentina/em, needed major federal subsidies.)/p pWith fewer (and older) ships, fewer workers, and fewer (and increasingly uncompetitive) shipyards, U.S. cabotage laws have undoubtedly failed to achieve their economic and national security objectives—a conclusion made evident by the fact that U.S. carriersnbsp;a href=https://www.cato.org/blog/creaking-jones-act-ships-turn-chinese-shipyards-maintenance-needs?queryID=0f9f44575e380a407055c5d56e3bd9ba target=_blanknow turn/anbsp;tonbsp;emChinesenbsp;/emand other foreign shipyards for maintenance of Jones Act vessels, and that the U.S. military during the Gulf Warnbsp;a href=https://apps.dtic.mil/dtic/tr/fulltext/u2/a246480.pdf target=_blankrelied/anbsp;heavily on foreign‐​built ships to meet its sealift needs. (Only 29 of 191 dry cargo ships, for example, were U.S. flagged, and we even askednbsp;a href=https://www.jcs.mil/Portals/36/Documents/History/Monographs/Transcom.pdf target=_blankthe Soviets/a—the Soviets!—for help.)nbsp;/p pstrongThe Unintended Consequences/strong/p pOur cabotage laws have also unsurprisingly spawned anbsp;host of unintended consequences. For example, higher shipping costs caused by the Jones Act increase demand for alternative forms of transportation, including trucking, rail, and pipeline services, raising those modes’ rates and inflating business costs throughout the supply chain./p /div , figure class=figure responsive-embed-no-margin-wrapper div class=figure__media img width=595 height=341 alt=summer-c4.jpg class=lozad image-style-pubs-2x component-image loading=lazy data-src=/sites/cato.org/files/styles/pubs_2x/public/2021-02/summer-c4.jpg?itok=r90IePtN typeof=Image / /div /figure , div class=fs-sm pAs noted above, this imposes anbsp;significant cost on the economy andnbsp;emspecifically/emnbsp;the operations and finances of U.S. manufacturers that are involved in complex supply chains (and thus do anbsp;lot of shipping).nbsp;/p pBy raising domestic companies’ shipping costs, the Jones Act and related cabotage laws disadvantage these producers relative to their foreign competitors, meaning potential lost sales to lower‐​priced alternatives. Such transactions not only deny U.S. companies business, but also can undermine national security where the foreign producers at issue are in hostile places. For example, Russian and other foreign gas producers often service Northeastern U.S. cities like Boston due to the artificially high cost of shipping liquified natural gas (LNG) from Texas, Louisiana, and even nearby Cove Point, Maryland. (There are anbsp;grand total ofnbsp;a href=https://www.maritime-executive.com/article/garamendi-give-american-mariners-a-role-in-lng-exports#:~:text=At%20present%2C%20there%20are%20no,flagged%2C%20foreign%2Dcrewed%20vessels.amp;text=16%20LNG%20carriers%20were%20built,been%20flagged%20out%20or%20scrapped. target=_blankzero Jones Act LNG tan/akers.) Puerto Rico, meanwhile, buys ricenbsp;a href=https://www.ers.usda.gov/webdocs/outlooks/91018/rcs-18l.pdf?v=109.5 target=_blankfrom China/anbsp;and jet fuelnbsp;a href=https://www.gao.gov/assets/660/653046.pdf target=_blankfrom Venezuela/a./p pIf American producers can successfully pass on higher costs to U.S. consumers, on the other hand, then the resulting higher prices consume funds that U.S. households could have saved, spent, or invested elsewhere in the economy (likely on more productive ventures). This, again, hurts those consumers and the economy more broadly./p pHeightened use of trucks and freight trains means more wear on aging U.S. infrastructure (roads, rail lines, etc.), as well as increased environmental costs (surface transportation emits more carbon than ships and barges). It also raises safety issues (e.g., transporting toxic materials on U.S. highways) and increases traffic congestion—especially on highways running parallel to U.S. sea lanes—thereby costing American commuters time (possible wages/​output or leisure). The Jones Act also willnbsp;a href=https://www.aweablog.org/burdensome-and-unnecessary-regulation-could-hinder-offshore-wind-progress/ target=_blankraise costs/anbsp;fornbsp;a href=https://www.cato.org/blog/maritime-protectionism-raises-cost-offshore-wind target=_blankoffshore wind projects/a, discouraging their implementation and, by extension, Biden administrationnbsp;a href=https://www.perc.org/2021/02/05/a-lot-of-hot-air-about-offshore-wind/ target=_blankclimate goals/a.nbsp;/p pThe PVSA causes other unintended problems. For example, U.S. cruise lines will detour to foreign ports in order to escape the PVSA and use foreign‐​built ships. Thus, cruises from California to Hawaii might stop in Ensenada, Mexico or Vancouver, Canada—both thousands of miles out of the way and thus wasting time and fuel while increasing pollution. And, as we saw at the beginning of the newsletter, cruises that start or end in Alaska will also hit anbsp;Canadian port.nbsp;/p pAlternatively, U.S. cruise lines simply avoid the United States altogether, choosing instead to depart from Canada or Mexico and thusnbsp;a href=https://www.latimes.com/opinion/op-ed/la-oe-buchholz-pvsa-cruise-20170803-story.html target=_blankdepriving/anbsp;U.S. ports of revenue and jobs:/p /div , blockquote div class=fs-lg pThe cruise docks of San Diego sit vacant 90% of the year. Meanwhile, 80nbsp;miles south, Ensenada receives more than three times as many passengers as San Diego, and many more than New York, New Orleans and Boston. Vancouver hosts three times as many sailings as Seattle./p /div /blockquote , div class=fs-sm pWithout the PVSA, many of those cruises would start in America, thus generating jobs—at the port or in taxis, hotels, and restaurants—and economic growth at home instead of in foreign countries. Onenbsp;a href=http://commdocs.house.gov/committees/Trans/hpw105-65.000/hpw105-65_1.HTM target=_blankrecent study/anbsp;by the state of California, for example, found that PVSA repeal would dramatically increase total passenger visits to California and related port calls, thus increasing industry revenues, jobs, payrolls and taxes, whilenbsp;emdoubling/emnbsp;longshore positions supported by the cruise industry. No wonder thenbsp;emCanadian government/emnbsp;hasnbsp;a href=https://www.grassrootinstitute.org/2020/10/a-law-that-limits-ocean-cruising-for-hawaii/ target=_blankreportedly lobbied/anbsp;to keep the PVSA./p pEven where the cruise still starts in the U.S. and the line is straighter, such as for Alaskan cruises that stop in Canada, the current pandemic‐​related port closures show the risks of having anbsp;multibillion‐​dollar U.S. cruise industry rely on other countries’ hospitality. Unless Canada relents or the U.S. Congress amends the PVSA, Alaska’s 2021 cruise season—and all the Alaskan jobs and businesses it supports—will be effectively canceled./p pAnd then there are the “a href=https://www.latimes.com/opinion/op-ed/la-oe-buchholz-pvsa-cruise-20170803-story.html target=_blanktrue absurdities/a”:/p /div , blockquote div class=fs-lg pWhen anbsp;collision on the Mississippi led the U.S. Coast Guard to close access to the river in February 2004, two Carnival cruise ships that had left from New Orleans were forced to divert to Gulfport, Miss., and Mobile, Ala. The ships had nothing to do with the crash. Nonetheless, U.S. Customs and Border Protection authorities fined the company $2.8 million for daring to show up at the docks in Gulfport and Mobile and thereby violating the PVSA.nbsp;/p /div /blockquote , div class=fs-sm pFinally, U.S. cabotage laws have been anbsp;persistent irritant to important U.S. trade partners and are frequently exempted from U.S. trade agreements. Because trade negotiations are always reciprocal, U.S. intransigence on cabotage means other countries are less willing to make important market access concessions for American exporters and investors. These economic harms further undermine, rather than support, the U.S. economy and national security./p pstrongSo Why Are These Laws Still Here?/strong/p pDespite U.S. cabotage laws’ numerous failures, they not only persist but have actually been strengthened over the years, even as costs have skyrocketed. For example, the Congressional Research Servicenbsp;a href=https://fas.org/sgp/crs/misc/R45725.pdf target=_blanknotes/anbsp;that U.S.-built ships’ price premium increased from 20 percent in 1922 to 50 percent in the 1930s, doubled in the 1950s, tripled in the 1990s, and is now four‐​fold or five‐​fold. Congress’ response to this growing differential?nbsp;emTightening/emnbsp;the cabotage laws by, for example, expanding the U.S. build requirement to commercial fishing vessels in thenbsp;a href=https://www.govtrack.us/congress/bills/100/hr2598/text target=_blanklate 1980s/a, and just last yearnbsp;a href=https://www.cato.org/blog/new-legislation-restricts-presidential-ability-waive-jones-act?queryID=8031b2fe2f78b1ea5ea32016766afcca target=_blankcurtailing/anbsp;the executive branch’s ability to issue Jones Act waivers during times of emergency./p pThe government’s actions are anbsp;classic case ofnbsp;a href=https://www.econtalk.org/library/Enc1/PublicChoiceTheory.html target=_blankPublic Choice Theory/anbsp;in action: Because U.S. cabotage laws deliver concentrated benefits to anbsp;handful of U.S. producers, unions, and ship‐​owners while imposing diffuse costs upon anbsp;much larger group of consumers, the former is willing to expend the time, effort, and money to advocate (lobby) for these laws while the latter isn’t willing to do the same against them (if it even notices them at all). Put simply, pro‐​cabotage groups derive tens of millions of dollars in cabotage “rents” from the government, so spending anbsp;few million on lobbying is anbsp;great investment. Consumers, by contrast, often don’t pay attention to or lobby against these laws because the cost of doing so would far exceed any potential benefits that reform or repeal might deliver./p pThis dynamic produces three (at least) bad outcomes, all of which tend to accelerate over time:nbsp;/p ul li pA well‐​organized and highly motivatednbsp;strongdomestic lobbying and public relations machine/strongnbsp;whose singular focus is to oppose all possible cabotage reforms and consider ways to receive even more rents from legislators and the bureaucracy. Thenbsp;a href=https://twitter.com/cpgrabow/status/1359228530463305747 target=_blankJones Act lobby/anbsp;is notoriously active and influential, and there is even anbsp;think tank—the “a href=https://transportationinstitute.org/ target=_blankTransportation Institute/a”—whose board of directors is composed of Jones Act shipping executives and whose “corporate office” is located in thenbsp;a href=https://goo.gl/maps/UHURjvDyHN3Hpudi7 target=_blankparking lot/anbsp;of the Seafearers International Union. Unsurprisingly, there is no countervailing lobbying force in Washington. (Although some other U.S. business groups, such as the oil industry, occasionally lobby against the Jones Act, they have other interests.) As noted above, moreover, the laws’ unintended consequences also create other concentrated benefits, and thus rent‐​seeking interests like the pro‐​PVSA Canadians./p /li li pSignificantnbsp;strongsupport from elected officials/strong—even ones in places like Alaska and Hawaii that are disproportionately harmed—who are primarily interested in re‐​election (instead of the “public interest”) and thus respond logically to the domestic interest groups (i.e., the shipbuilders and unions) that are located in their districts/​states and have established cabotage support as anbsp;litmus test for votes and campaign contributions./p /li li pA regulatory apparatus that, due to longstanding/​frequent interaction and congressional pressure, has beennbsp;strong“captured”/strongnbsp;by the very entities it regulates. In this case, there is ample evidence that both the Department of Transportation and its Maritime Administration are, as Grabow recently put it,nbsp;a href=https://www.cato.org/blog/washington-examiner-story-exposes-jones-act-swamp target=_blank“properly viewed as taxpayer‐​funded Jones Act lobbyists/a.”/p /li /ul pThese issues were onnbsp;a href=https://www.cato.org/blog/washington-examiner-story-exposes-jones-act-swamp target=_blankfull display/anbsp;in 2019 when President Trump’s staff proposed anbsp;10‐​year Jones Act waiver for transporting liquified natural gas, given the size of the U.S. oil and gas industry, the lack of U.S.-flagged LNG vessels, and the various geopolitical implications. Despite support from Trump’s economicnbsp;emand/emnbsp;national security teams, the waiver plan died on the vine after vigorous lobbying from the domestic industry, members of Congress (who didn’t even know what they were opposing!), and Transportation Secretary Elaine Chao, who was subsequently named the American Maritime Partnership’s inaugural “Maritime Hero”:/p /div , figure class=figure responsive-embed-no-margin-wrapper div class=figure__media img width=700 height=399 alt=summer-c5.jpg class=lozad image-style-pubs-2x component-image loading=lazy data-src=/sites/cato.org/files/styles/pubs_2x/public/2021-02/summer-c5.jpg?itok=zrXSipcd typeof=Image / /div /figure , div class=fs-sm pYes, you heard that right: They made up an award and, in delivering it, compared Secretary Chao to WWII vets. It’d all be funny if it weren’t, you know,nbsp;emnot really funny at all/em./p pstrongSumming It All Up/strong/p pCenturies of U.S. cabotage laws have not only caused high prices and anbsp;host of unintended (occasionally ridiculous) consequences, but also presided over (if not caused) the steady decline of American shipbuilding competitiveness and thenbsp;a href=https://news.usni.org/2019/06/04/keeping-up-with-the-jones-act target=_blankembarrassing degradation/anbsp;of the merchant marine fleet. As anbsp;result, cabotage laws have undermined the very national security objectives they were supposed to support. But instead of reforming these policies to account for radical changes in the U.S. industry and global manufacturing supply chains since the 1700s(!), Congress and the administrative state have doubled down on an increasingly uncompetitive industry, due in large part to the immense resources that domestic shipyards, unions and shipowners devote to lobbying and P.R. (instead of productive things like research and development, capital expenditures, or skills upgrading). Even today, the suggestednbsp;a href=https://news.usni.org/2019/06/04/keeping-up-with-the-jones-act target=_blanksolution/anbsp;to our maritime problems is to … further expand U.S. cabotage laws.nbsp;emSigh./em/p pAs depressing as the situation is, however, here’s anbsp;silver lining: As Inbsp;explain innbsp;a href=https://www.cato.org/publications/policy-analysis/manufactured-crisis-deindustrialization-free-markets-national-security?queryID=37abb4677d46544fd451b9e7f28bbe2a target=_blankmy latest paper/a, U.S. cabotage laws are anbsp;fantastic example of the perils of local content restrictions and “producer‐​centric” economic policy more broadly, both of which have become fashionable again, especially on the populist right. Here, we see:/p ul li pHow government protection and support of anbsp;particular industry can both be costly for consumers (companies and individuals)nbsp;emand/emnbsp;discourage, rather than encourage, that industry’s innovation and growth–creating “zombie firms” that devote their resources to the political process instead of the industrial process./p /li li pHow industrial policies can have anbsp;host of harmful—and often absurd—unintended consequences that are usually not included in accounts of these programs’ costs./p /li li pHow the political and regulatory process inherently disadvantages diffuse groups of taxpayers and consumers, and thus why the lawnbsp;emshould/emnbsp;be strongly biased in these groups’ favor to check stronger, more organized interest groups who would disproportionately benefit from government support (in amounts that far exceed the cost of lobbying for it)./p /li li pHow government policy is less likely than private markets to discipline failure and may, in fact,nbsp;emreward/emnbsp;it./p /li /ul pNone of this, of course, means that free markets are perfect or that government support is never needed. But more than anbsp;century of U.S. cabotage failure does (I hope) show the perils of an economic policy that elevates the interests of certain producers and workers over those of consumers and other industries, even, or perhapsnbsp;emespecially/em, where “national security” is involved./p pstrongChart of the Week/strong/p pa href=https://t.co/g457ywWFzf?amp=1 target=_blankCrisis averted!/a/p /div , figure class=figure responsive-embed-no-margin-wrapper div class=figure__media img width=700 height=700 alt=summer-c6.jpg class=lozad image-style-pubs-2x component-image loading=lazy data-src=/sites/cato.org/files/styles/pubs_2x/public/2021-02/summer-c6.jpg?itok=ZwKmJoV0 typeof=Image / /div /figure , div class=fs-sm pstrongThe Links/strong/p pa href=https://www.cato.org/blog/antidumping-gets-its-moment-economic-sun target=_blankMe on the costs and inefficacy of the U.S. antidumping law/a/p pa href=https://www.cbo.gov/publication/56975 target=_blankThe CBO’s new analysis of the Raise the Wage Act again finds those pesky tradeoffs/a/p pa href=https://www.piie.com/blogs/trade-and-investment-policy-watch/anatomy-flop-why-trumps-us-china-phase-one-trade-deal-fell target=_blankMore proof of the U.S.-China “Phase One” deal’s failure/a/p pa href=https://t.co/JQIJ1okPEz?amp=1 target=_blankTrump’s trade deficit failure/a/p pa href=https://twitter.com/davidmwessel/status/1357454836665638913 target=_blankCEOs need less office space/a/p pa href=https://twitter.com/profthomlambert/status/1357192882676002817 target=_blankOn Josh Hawley on GameStop/a/p pa href=https://t.co/v8mWpY0pUw?amp=1 target=_blankThe state and local government funding crisis never materialized/a/p pa href=https://t.co/ZnghiLhvCJ?amp=1 target=_blankYoung Americans used stimulus checks to pay off debt/a/p pa href=https://t.co/2c5FtlCyhf?amp=1 target=_blankPfizer ramping up vaccine efficiencies and output/a/p pa href=https://www.piie.com/blogs/realtime-economic-issues-watch/its-taking-too-long-get-vaccine-doses-refrigerators-arms target=_blankGood stats on state vaccine turnaround times/a/p pa href=https://t.co/MJF7wnVJJX?amp=1 target=_blank“Millions of COVID‐​Vaccine Doses, Just Sitting There”/a/p pa href=https://t.co/p5pMF4kfAq?amp=1 target=_blankAirlines are ditching business hubs for beaches/a/p pa href=https://twitter.com/emollick/status/1358240208559431680?s=20 target=_blankDigitization of booksnbsp;/aema href=https://twitter.com/emollick/status/1358240208559431680?s=20 target=_blankincreases/a/ema href=https://twitter.com/emollick/status/1358240208559431680?s=20 target=_blanknbsp;book sales/a/p pa href=https://t.co/t9dj3XNiLx?amp=1 target=_blank“We’re All Jacobins Now”/a/p pa href=https://t.co/FjXKDMm1i0?amp=1 target=_blankVaccine raids are insane/a/p pa href=https://www.cato.org/blog/how-bidens-covid-relief-bill-patriot-act target=_blankBeware “emergency” legislation/a/p pa href=https://twitter.com/NonWhiteHat/status/1357897612922339329 target=_blankWas Captain von Trapp anbsp;two‐​time war criminal? (I report, you decide)/a/p /div




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