As oil prices continue to rise and fall due to conflict in the Middle East, the Trump administration is considering suspending the Jones Act to give a reprieve to customers facing higher prices at the pump.
The comments have drawn fresh attention to the 1920 shipping measure signed into law by President Woodrow Wilson.
What is the Jones Act?
The Jones Act requires vessels carrying goods by water between U.S. ports to be U.S.-owned, -built, registered under the U.S. flag, and crewed by Americans.
During World War I, officials discovered that the United States lacked the shipping capacity to successfully transport troops, supplies, and raw materials, causing the government to launch an emergency shipbuilding program.
After the war, Congress wanted to avoid emergency shipbuilding in other conflicts, so the Jones Act was passed as a part of the Merchant Marine Act.
The Jones Act was intended to support commercial shipping, and the U.S. economy, in times of peace. And in times of conflict, the U.S. would be prepared with its own navy auxiliary.
The act is heavily criticized for creating a protectionist, anticompetitive, and costly shipping environment. It is often blamed for driving up consumer costs and causing inefficiency in maritime transportation.
Out of more than 8,000 ships used to transport fuel and crude oil, only 45 comply with Jones Act requirements.
What will a Jones Act suspension look like?
The Jones Act’s shipping restrictions can be temporarily lifted when national defense demands it.
“In the interest of national defense, the White House is considering waiving the Jones Act for a limited period of time to ensure vital energy products and agriculture necessities are flowing freely to U.S. ports,” White House press secretary Karoline Leavitt told the Washington Examiner in a statement. “This action has not been finalized.”
Federal law allows the war secretary to request a waiver of the coastwise requirements when there is an immediate negative impact on military operations.
Separately, the president can authorize waivers when qualified U.S.-flagged vessels are not available to meet defense needs.
The war secretary can request “a waiver of the coastwise requirements when there is an immediate negative impact on military operations,” according to a report by Legal Clarity.
The president can also authorize waivers when Jones Act-compliant ships are not available to meet defense needs.
In the past 10 years, there have been several suspensions of the Jones Act. Natural disasters, such as hurricanes Fiona, Irma, and Sandy, resulted in suspensions of the Jones Act to deliver fuel and products to areas in need within the U.S. During the 2021 Colonial Pipeline Outage, there were waivers granted to ships to transport fine products from the Gulf Coast to the East Coast.
Generally, waivers have been narrow, given to just a handful of ships and lasting no more than 10 days.
This Jones Act suspension, however, might be around 30 days, according to reporting from Bloomberg. A suspension of this length has not been seen since World War II.
How will Jones Act waivers affect prices for consumers?
It is unclear how significantly the Jones Act waivers will change prices for the consumer.
“Directionally, we can be 100% sure which way it’s going,” Colin Grabow, an associate director at Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, said in a statement to the Washington Examiner.
Jones Act suspension “will put downward pressure, but how much, it’s not a game changer,” Grabow said.
He characterized the impact as “positive but modest.”
There are many other factors at play in the market, so retail prices could rise, mitigating the effect of the suspension.
The Cato Institute has long been critical of the Jones Act’s effects on the economy.
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“I think it’s extremely interesting and revealing that a law that is invariably justified on national security grounds,” Grabow said. “We’re hearing calls to waive it when we are at war and when pressure is melting on the economy.
“This is not unusual we’ve seen this happen before. It’s usually a crisis situation when things go bad. That’s when pressure ramps up to waive the Jones Act.”
