The Great Jones Act Debate

Summary

Podcast Summary: Odd Lots – "The Great Jones Act Debate"

Podcast Information

• Title: Odd Lots
• Host/Author: Bloomberg
• Description: Bloomberg's Joe Weisenthal and Tracy Alloway explore the most interesting topics in finance, markets, and economics. Join the conversation every Monday and Thursday.
• Episode: The Great Jones Act Debate
• Release Date: March 20, 2025

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Introduction

In this episode of Odd Lots, hosts Tracy Alloway and Joe Weisenthal tackle a long-standing topic in U.S. maritime policy: the Jones Act. Traditionally a recurring theme in various contexts, the hosts decided to dedicate an entire episode to a structured debate format, featuring two experts with opposing views on the act's efficacy and impact.

Tracy Alloway introduces the episode by acknowledging the frequent mentions of the Jones Act in past discussions and sets the stage for a comprehensive debate, aiming to provide listeners with a balanced perspective on this pivotal legislation.

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Understanding the Jones Act

The Jones Act, officially known as Section 27 of the Merchant Marine Act of 1920, is a federal statute that governs maritime commerce in the United States. It mandates that goods transported by water between U.S. ports must be carried on ships that are:

1. U.S.-flagged
2. Built in the United States
3. Crewed by Americans
4. At least 75% owned by U.S. citizens

These provisions are designed to bolster national security, ensure economic self-sufficiency, and support the domestic maritime industry.

Joe Weisenthal provides a historical overview, explaining that the Jones Act was enacted to promote a strong U.S. maritime industry and ensure a reliable supply chain within the nation's extensive network of waterways.

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The Debate: Pro vs. Anti Jones Act

To delve deeper, Tracy Alloway introduces the two debaters:

• Zara Fuentes, Vice President for Government Affairs at the Transportation Institute, advocating for the Jones Act.
• Colin Grabow, Associate Director at the Cato Institute's Herbert A. Stifel Center for Trade Policy Studies, arguing against the Act.

Proponents' Arguments (Zara Fuentes)

Zara Fuentes presents a robust case in favor of the Jones Act, emphasizing three main pillars:

1. Economic Security: The Act supports approximately 650,000 American jobs, ensuring that the maritime industry remains a significant contributor to the U.S. economy. These jobs are stable and taxed appropriately, contributing to national revenue without direct subsidies.

   Quote:

   “These Americans are paying taxes. Those companies are paying American taxes.” [10:07]

2. National Security: By maintaining a fleet of U.S.-built and crewed vessels, the Act ensures that in times of crisis, such as wars or natural disasters, the U.S. can rely on its maritime infrastructure for rapid response and transportation of essential goods.

   Quote:

   “The men and women who crew our Jones Act vessels are the exact same people who crew our sealane vessels in times of emergency.” [11:00]

3. Homeland Security: The requirement for U.S. oversight ensures that vessels meet strict safety and environmental standards, reducing the risk of pollution and enhancing the security of inland waterways and ports.

   Quote:

   “We know that they're not polluting and leaking. It means that the mariners are known by the Coast Guard.” [11:55]

Zara also counters economic criticisms by pointing out that areas like the U.S. Virgin Islands, which are not subject to the Jones Act, face higher shipping costs compared to regions like Puerto Rico, which adhere to the Act. She argues that the stability and reliability provided by the Jones Act outweigh the additional costs.

Quote:

“What really matters to consumers isn't just cost anyway. It's reliability.” [12:20]

Opponents' Arguments (Colin Grabow)

Colin Grabow presents a compelling case against the Jones Act, focusing on its economic inefficiencies and restrictive nature:

1. Increased Shipping Costs: The Act restricts shipping to U.S.-built and crewed vessels, making domestic shipping up to four times more expensive than international options.

   Quote:

   “It was twice as expensive to send a container from the east coast to Puerto Rico, where the Jones Act applies, as to send to neighboring Jamaica or the Dominican Republic.” [08:30]

2. Limited Competition: With less than 1% of the world's ships complying with U.S. flag requirements, the Act significantly reduces competition, leading to higher prices and limited shipping options for American businesses and consumers.

   Quote:

   “We have foreign ships everywhere. We can't use them. So right there, that's less supply.” [08:15]

3. Hindrance to Business Efficiency: Industries that rely on shipping within the U.S., such as lumber and steel, find themselves unable to compete with foreign counterparts due to the prohibitive costs imposed by the Act. This results in the importation of goods from abroad even when domestic alternatives are feasible.

   Quote:

   “It's a barrier to just doing business with each other.” [09:00]

Colin also highlights the broader economic impact, noting that while the Act supports a segment of the maritime industry, it imposes significant costs on millions of Americans who are not employed within this sector.

Quote:

“There are 300 something million Americans who aren't employed by the Jones Act paying more for any goods.” [12:50]

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Counterarguments and Rebuttals

The debate intensifies as both sides address each other's points:

• Economic Impact: Colin emphasizes that the Act's financial burden on the broader economy outweighs the benefits of preserving maritime jobs. He argues that the limited number of jobs supported by the Act does not justify the widespread cost increases in goods and services.

  Quote:

  “Why should we be bearing that cost?” [12:55]

• National Security and Competitiveness: Zara counters by asserting that the Act is crucial for national security, ensuring that the U.S. maintains a capable maritime fleet independent of foreign influences. She warns that removing the Act could lead to a dependence on foreign vessels, particularly from strategic rivals like China.

  Quote:

  “China would swoop in and do that. You would also have ships of unknown provenance.” [17:50]

• Supply Chain Efficiency: Joe interjects to support Colin's stance, illustrating how the Act hampers efficient supply chains within the U.S., leading to higher costs and reduced competitiveness in global markets.

  Quote:

  “The difference between the US as is versus without the Jones Act, it would be a huge, huge gain.” [15:50]

• Maritime Industry Viability: Zara defends the Act by highlighting that foreign competitors, especially China, heavily subsidize their shipbuilding sectors, making it difficult for the U.S. to compete without the Jones Act’s protective provisions.

  Quote:

  “China has lowballed that market so, so much.” [25:30]

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Potential Reforms and Solutions

As the debate progresses, Tracy Alloway proposes a middle-ground approach: maintaining the Jones Act but implementing reforms to address its economic downsides. Both debaters respond to this proposition:

• Zara Fuentes suggests introducing shipbuilding subsidies to make U.S.-built ships more competitive, thereby reducing costs without dismantling the protective framework of the Jones Act.

  Quote:

  “The savings that Collins is talking about is a rounding error.” [34:00]

• Colin Grabow expresses skepticism about the possibility of meaningful reforms, emphasizing that the current structure of the Act is fundamentally flawed and does not serve the broader economic interests of the country.

  Quote:

  “Our guests... you actually got a pretty good sense of how strongly the opposite sides feel about this.” [35:30]

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Conclusion

The episode concludes with Tracy Alloway reflecting on the intensity and passion each side brought to the debate. Both Zara Fuentes and Colin Grabow acknowledge the complexity of the Jones Act, recognizing the trade-offs between national security and economic efficiency.

Tracy remarks:

“Everyone has an opinion on the Jones Act.” [35:00]

The hosts express gratitude to the debaters for their insightful contributions, highlighting the importance of such discussions in understanding and potentially reforming longstanding policies.

Colin Grabow adds:

“The Jones Act, our current structure is clearly not sufficing.” [35:20]

Tracy Alloway concurs:

“The outcome of the Jones Act, it hasn't actually been that successful in terms of American shipbuilding.” [35:45]

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Key Takeaways

1. Jones Act’s Dual Role: The Act serves both economic and national security purposes, balancing domestic maritime employment with strategic independence.

2. Economic Burden vs. Security Benefits: While the Act supports a fraction of the workforce, it imposes significant costs on the broader economy, raising questions about its overall efficacy.

3. International Competition: Global competitors, particularly China, leverage heavy subsidies to dominate shipbuilding, challenging the sustainability of the U.S. maritime industry under the current Jones Act framework.

4. Potential for Reform: While some advocate for maintaining the Act with reforms such as subsidies, others argue for a complete overhaul to enhance economic competitiveness without compromising national security.

5. Political and Industrial Influences: The persistence of the Jones Act is influenced by strong industrial and political interests, making reform challenging despite widespread economic criticisms.

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Notable Quotes

• Joe Weisenthal [08:30]:

  “It was twice as expensive to send a container from the east coast to Puerto Rico, where the Jones Act applies, as to send to neighboring Jamaica or the Dominican Republic.”

• Zara Fuentes [12:20]:

  “What really matters to consumers isn't just cost anyway. It's reliability.”

• Colin Grabow [12:50]:

  “There are 300 something million Americans who aren't employed by the Jones Act paying more for any goods.”

• Joe Weisenthal [15:50]:

  “The difference between the US as is versus without the Jones Act, it would be a huge, huge gain.”

• Zara Fuentes [17:50]:

  “China would swoop in and do that. You would also have ships of unknown provenance.”

• Tracy Alloway [35:00]:

  “Everyone has an opinion on the Jones Act.”

---

Final Thoughts

"The Great Jones Act Debate" episode of Odd Lots provides listeners with a nuanced exploration of a complex and divisive piece of legislation. Through candid discourse and expert analysis, the episode sheds light on the multifaceted implications of the Jones Act, encouraging informed perspectives on its future in U.S. maritime policy.

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For more insightful discussions and in-depth analyses, visit Bloomberg's Odd Lots.

Transcript

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[Tracy Alloway]

Hello and welcome to another episode of the Awe Thoughts Podcast. I'm Tracy Alloway.

[Colin Grabow]

And I'm Jill Weisenthal.

[Tracy Alloway]

Joe, this is the big one. We are about to ruin our most long running joke all for this.

[Colin Grabow]

What is our next most running joke anyway? Yes, we are ruining a lot. So we've joked for years and years and years about how we should do an episode on the Jones act because it's come up obviously in dozens of episodes. We did actually talk about it quite a bit in different contexts, but we've never done an episode actually talking about the infamous law.

[Tracy Alloway]

That's right. And since we waited so long. I guess we had to do it a little bit differently. We had to do it in style. Yep. So for those of us who came to our live event in Washington D.C. recently, you will have seen exactly what format we did this in, but it's a debate. So we had someone who is pro Jones act debating with someone who is anti Jones act live on stage. Things got heated, things got emotional, but always entertaining and informative.

[Colin Grabow]

It was heated. You know, I've joked, you know, like, people have very strong feelings about the Jones act. And when we did it live on stage, we separated our two guests at the end of the stage, you know, sort of tongue in cheek, you know, cause. But actually, you know, it was like really intense. And people feel very strongly about this law which restricts if you're gonna ship something from one point in the US to another point in the US by water, it has to be on a US built and US crewed and US flagged ship. People feel very strongly about this law.

[Tracy Alloway]

That's right. And it's kind of interesting also to look at it as a little petri dish of industrial policy.

[Colin Grabow]

That's right.

[Tracy Alloway]

I think is one of the reasons we first started getting interested in this, along with a lot of the supply chain disruptions that we were experiencing around the pandemic time. But our two debaters were Zara Fuentes, the Vice President for Government affairs at the Transportation Institute, and Colin Grabow, an Associate Director at the Cato Institute's Herbert A. Stifel center for Trade Policy State Studies. Sara took the pro side and Colin took the anti side. And as I said, we had some pretty good arguments on both sides. So take a listen, see if it changes your mind. I'm sure if you're listening to this, you probably already have an opinion, but here we go. Before we start, I gotta ask, how many people have heard of the Jones act here?

[Colin Grabow]

Wait, actually, let's hear. Let's just hear, like get a temperature of both sides. So shout if you think the Jones act should be repealed and shout if you think we should keep the Jones Act.

[Zara Fuentes]

Wow.

[Tracy Alloway]

Shout if you just feel strongly about the Jones Act. Either way.

[Zara Fuentes]

Yeah. All right.

[Tracy Alloway]

Everyone has an opinion. Okay. We are giving up on our longest running joke and finally doing the Jones act episode. We thought we'd do something a little bit special. Instead of just having one guest, we actually have two. It's to be an odd lots debate. Someone arguing the pro side and someone on the con side.

[Colin Grabow]

That's right. We're not gonna like formally declare a Winner.

[Tracy Alloway]

Everyone's a winner.

[Colin Grabow]

They're not formal rules in terms of, you know, there's no mic mute or anything. But we are hoping we are going to have a spirited discussion about this very controversial law. People feel really strongly about this law one way or another. And so we are going to finally. We don't actually do a lot of debates on the show. Actually.

[Tracy Alloway]

It's a rule at my house that you can't talk about politics or the Jones act or crypto at Thanksgiving. Okay. So without further ado, we do have the perfect guest. We're going to be speaking with Zada Fuentes. She is the vice president for government affairs at the Transportation Institute. And we have Colin Grabow. He is a policy analyst at the Cato Institute. So welcome to the stage, Zada and Colin.

[Colin Grabow]

All right, Colin and Sarah, thank you so much. We're finally talking the Jones Act. Colin, why don't we start with you? Why should we get rid of the. Why did you even agree to come out here and talk about some random shipping law from the early 1900s? And why do you devote time to it and why do you want to kill it?

[Joe Weisenthal]

Well, Joe, Tracy, first off, thanks for having me to debate this issue. Thanks for ending the long running joke and finally talking about it. So, yeah, the Jones Act. Well, why am I so against it? I think the US Maritime policy should try to achieve two goals. It should provide us with efficient domestic transportation by water, which is really important because we have lots of water in the United States. We have thousands of miles of coastline home to major metropolitan areas. We have the Great Lakes. We have a vast network of inland waterways. We have non configurate lakes and territories. So we have this big resource and we totally underutilize it by making the cost of transportation so expensive. The other thing we need to do is meet national security goals. We need to have shipyards, we need to have ships, we need to have mariners to crew those ships. And I don't think the Jones act does a good job of meeting either one of those goals. So I talked about shipping, water transfer being expensive. Why is that? Well, we should back up and say, what does the Jones act do?

[Tracy Alloway]

The Jones act, everyone's giving history lessons tonight, so you might as well go all the way back.

[Joe Weisenthal]

So the Jones act is section 27 of the Merchant Marine act of 1920 was essentially states that if you want to move goods by water, you have to use a vessel that meets four conditions. It has to be US flagged, it has to be US built, it has to be crewed by Americans and has to be at least 75% owned by Americans. Now, these provisions make water transportation extremely expensive. Less than 1% of the world's ships comply with US flag requirements. That means 99% of the world ships are off the table. If you want to move something within the United States. If you look at a map of all the ships operating in US Waters, they're full of foreign ships. We have foreign ships everywhere. We can't use them. So right there, that's less supply. The US Flagships are about four times more expensive to operate than foreign flagships. And when it comes to building that ship, they cost about four to five times more to build than those built overseas. So that has huge capital costs. You put that combination together, and you're going to get very expensive shipping. How expensive? There was a Federal Reserve bank of New York study in 2012 that found it was twice as expensive to send a container from the east coast to Puerto Rico, where the Jones act applies, as to send to neighboring Jamaica or the Dominican Republic. In 2017, the CEO of a Jones act shipping company admitted that Jones act tankers were three to four times more expensive than. Than internationally flagged tankers. I mean, just yesterday, a state senator in New York, in Connecticut rather, testified before the state legislature, saying that his first job out of college used to work in bulk shipping and that moving goods within the United States was five, sometimes 10 times more expensive than using internationally flagged vessels. So this is the profound cost. I mean, distance is a barrier to trade between Americans, and this makes water transportation incredibly expensive. It's a barrier to just doing business with each other.

[Tracy Alloway]

Okay, so the one thing we can agree on is America is hashtag blessed in terms of inland waterways. But, Sara, I want to bring you in, so feel free to give us your own history lesson. But the Jones act doesn't exist just to boost prices of shipping. There are other reasons, such as security. So why don't we go way back in history and talk a little bit more about why this act actually exists?

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[Zara Fuentes]

So the reasons for the Jones act are the same today as they were when it passed in 1920. And also some form of, you know, Jones act can also be referred to as cabotage laws. Some form of cabotage law has existed.

[Colin Grabow]

What's cabotage mean again?

[Zara Fuentes]

It basically means if you're moving goods between two points that you want those goods to move on a vessel registered to your country. Okay, Right. And it's really extremely common. 80% of the world's coastline is governed by some form of capitage. You see it in other industries, right? You can't take air China from New York to L. A, right? So it's extremely common across modes, across the world. But I love the Jones act and I love it so much. You can really. I like to put the reasons I like it into three categories. Economic security, national security and homeland security. Economic security is pretty obvious, right, because of that US crew, US owned requirements. It's created about 650,000 jobs. 615,001 if you include Collins. And also all those. And all those jobs are for Americans. Those Americans are paying taxes. Those companies are paying American taxes. That economic security also includes self sufficiency, which especially matters in our non contiguous trades, which I hope we get into a little bit more. The men and women who crew our Jones act vessels are the exact same people who crew our sealage vessels in time of emergency. Not only that, but you also get a shipyard industrial base. I've heard you all talk on the show. You all well know that Navy shipbuilding is really feast or famine, right? There's a lot of unpredictability in that market. And so the Jones act is kind of a final line of defense that ensures you do have some shipyard workers. You have a shipyard industrial base that can be spun up when needed. Third category is homeland security, right? That's pretty obvious. You don't want to just open up our beautiful inland waterways, our Great Lakes to the cheapest option. The US flag that Colin mentioned matters quite a bit, right? It means that our vessels are inspected by the Coast Guard. We know that they're not polluting and leaking. It means that the mariners are known by the Coast Guard. They've gone through background checks. They've been trained to the highest standard worldwide. And so, you know, think about those inland waterways. Those are, you know, those run by stadiums, they run by refineries, they run by personal homes. You don't want to just have whoever there just because they happen to be the cheapest and save a couple bucks.

[Colin Grabow]

Okay, but thank you first of all, and I take your point about the 650,000 jobs. But you know, there's 300 something million Americans who aren't employed by the Jones act, per Collins argument, paying more for any goods. Why should the rest of us, 330 million Americans who aren't employed, and me and Tracy, maybe partially because it comes up so often who aren't Jones act employed. What about the cost of that? So why should we be bearing that cost?

[Zara Fuentes]

So I take issue with the, with the cost argument. Right. I don't necessarily think that's true. You can look at the US Virgin Islands, right, which does not have the Jones act, and compare prices there to Puerto Rico and you'll see that the Virgin Islands is actually more expensive. And what matters to consumers isn't just cost anyway, Right. It's reliability. It's that stability in the marketplace in knowing everybody is playing by the same set of rules, knowing that shipment will show up, and that really matters. And also I would say the Jones act doesn't involve any government dollars, right. So the taxpayer is not paying to subsidize this fleet. But if you got rid of the Jones act, you would have to eventually pay for those mariners, pay for the shipyard workers and make those investments. So the government's going to pay for that regardless. So do you want it to be taxpayer dollars or do you want it to be ameliorated and sort of baked into something, just the cost of doing business in the United States?

[Tracy Alloway]

I think it's helpful for these types of things to think about the counterfactual sometimes. So I'm going to ask both of you to respond to this question. But if we got rid of the Jones act tomorrow, waved a magic maritime wand or whatever and it went away, what would the world look like? Let's do Colin first.

[Joe Weisenthal]

Well, I think that's a great question because the real cost of the Jones act is not that it costs X amount of dollars more to send a container to Puerto Rico. It's what does the United States look like with the Jones act versus what does the United States look like without the Jones Act? The United States without the Jones act is a country that is better connected to each other through more efficient supply chains. We can envision, for example, right now we make shipment of oil so expensive that we export it all over the place. But east coast refineries will import it from, say, Nigeria or Saudi Arabia instead of Texas because it's just not competitive. After you factor in the cost of shipping, some goods are impossible to ship within the United States because of the Jones Act. The United States is one of the world's leading exporters of liquefied petroleum gas, basically propane. Puerto Rico buys it from foreign sources. Hawaii buys it from as far away as West Africa. Not because it's more expensive. There are zero ships to transport. It's literally impossible because of the Jones Act. We've seen examples of lumber producers in Pacific Northwest saying, look, when we go to send our lumber to other parts of the United States, we're getting beat out by Canadian competitors that can use more efficient international shipping. So we're being put on the back foot. We've seen government reports cite examples of steel in the western United States being purchased from Asia instead of eastern producers. Why? Because multiple times it says Jones act shipping makes it uncompetitive for Americans to sell to other Americans. So we think about all the supply chains to be better connected, all the efficiencies that would bring on the more micro level, you can think of, say ferry operators in Washington State that could buy ferries at half a third of the cost of what they're paying now to modernize their fleets and improve transportation. So I think that the difference between the US as is versus without the Jones act, it would be a huge, huge gain.

[Zara Fuentes]

Zara, I'm glad you asked that. World without the Jones act is a pretty scary place, Right? Because I want you to remember the context. I'm serious. I want you to think about the context we're living in. Right. The People's Republic of China has made a strategic decision to over invest in its own maritime capability. They are deliberately undermining the prices, lowballing the prices for shipbuilding, for shipping services, for ship to shore cranes. They want to be the only provider out there. They want the whole world to be dependent on them for shipping because they know that is the backbone of commerce is how we transport these goods. If we wave that magic wand, first off. So 650,000 people would be out of work, which would be a drain on your taxpayers. Right. So we would have to pay for that. You would basically eliminate the American shipbuilding industry overnight because even Japan, even South Korea cannot keep up with Chinese subsidies. They are exiting the container ship market, they're exiting other shipbuilding markets. So absolutely, China would swoop in and do that. You would also have ships of unknown province. Right. But they'd probably be owned by China through various shell companies, crewed by unbedded mariners, sailing, moving hazardous materials at best case, up and down our inland waterways past all these soft targets. So if you wanted to keep that security on the seas, right, you would have to, I don't know, quadruple the size of the Coast Guard or the CBP to do those vessel inspections. Right now, Coast Guard CBP are active at international ports, certain ports where foreign vessels can come and visit, but you would have to really increase that. I mean, keep in mind the Coast Guard is smaller than the nypd. They do not have the bandwidth to handle all these unregistered ships that we don't know how safe they are. We don't know how much they're polluting. You don't know who's on there. I think it is very scary. I was totally serious. Foreign.

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[Colin Grabow]

Point about, you know, various entities within the United States having to import and you talked about national security or economic security and the fact that for like basic commodities, you know, for example, at times when there's a really tough winter in New England that we can't ship LNG from Houston to New England, doesn't that create an economic vulnerability for the U.S. the fact that we can't supply ourselves with our own raw materials in certain instances.

[Zara Fuentes]

So I don't think that's true. And I think that your New England LNG example is a really good one. Right. Because what happens all too frequently is the Jones act becomes a cover and a scapegoat for other policy failures. Right. New England has an energy policy issue that I love. Ships. But the cheapest, most efficient way to move natural gas is as gas in a pipeline. Right, Right.

[Colin Grabow]

They're not into pipeline. I know. Yeah, they're not into pipelines.

[Zara Fuentes]

If they. And so if they want, they also don't have storage capacity. Right. Which means they cannot buy natural gas during low season. They're only ever buying it at peak and their need is erratic. So they don't have a long term charter. They're buying it on the spot market. And what's really expensive about liquefied natural gas is that liquefaction. So if you were to take gas out of Pennsylvania, first you got to move it down a pipeline, you got to liquefy it and then move it and then regasify it. And then you can only do this in very small amounts. Right. Which is going to be more expensive because what really matters is that kind of volume. So even if the transportation were free, you're already looking at having to charge quite a lot of money for gas in New England. Right. So even though it's free, you still are going to bear that cost. So in order for gas in New England to be cheap, you would have to force energy producers and those kind of liquefying facilities to do this at below market rate. Right. We're in a capitalist society, so people are going to look for the cheapest option. And sometimes the cheapest option is not going to be American. So the liquefied natural gas is a great example.

[Tracy Alloway]

Colin, could I ask you to respond to the sort of national security point? Because when you hear statistics like the Coast Guard is smaller than the New York police force, that seems pretty worrying.

[Joe Weisenthal]

Yeah. So a couple arguments that have been made here. One is about the alleged danger of foreign ships and having them in our waters. Folks, the choice here is not do we let foreign ships into our waters or do we not? They're here, they're already here. You can go on like Marinetraffic.com it will show you all the ships in US waters. You can find foreign ships sailing up to Albany, New York. You can see them sailing past Philadelphia, up to New Orleans, up to Sacramento. The Jones act doesn't say you can't come into U.S. waters. It just regulates what you can do within U.S. waters. So they're here and talk about hazardous materials. I mean, all the tankers coming out of Houston, Corpus Christi with energy products, I mean, the vast majority are foreign. So they're already here. We have Customs and border Protection, we have the Coast Guard to inspect these vessels. They are subject to port state control. So I find that a bit of a red herring with regard to the issue with China. I find this ironic because Jones X shipping companies are some of the biggest patrons of Chinese shipyards. I mentioned earlier that US built ships are incredibly expensive. Four to five times more. Well, one result of this is that people don't want to buy new ships, so they keep old ships going for a long time. Internationally, ships are used for 20, 25, 30 years. The last 17 Jones X ships that were scrapped had an average age of like 43. So they keep these old ships running and they do it by sending them to China to get maintained at Chinese state owned shipyards. And they turn around and use the money they save from going to China instead of a US or an allied shipyard and say, please keep the Jones act in place. It's really critical for national security to stop China. I mean, we're joking, but this is real life. I mean, two years ago at Jones Act Shipping Co. Pasha, they took a 43 year old ship built in 1980 and it was built with steam power. So instead of supporting US shipyards buying a new ship, no, no, no. They sent to China, ripped out the steam power, put in lng, spent tens of millions of dollars to do so. So we can keep running for years to come. And then we tell ourselves this is all about national security. I think it's farcical, Sarah.

[Zara Fuentes]

Shipyard repair and shipbuilding are two very distinct industries. And you're correct, we don't have the shipyard repair work in the United States that we should have. I'm very glad I'm not a businessman. I don't have to make these types of business decisions. But frankly, you can't really get ship repair work done even in our allies, because China has lowballed that market so, so much.

[Colin Grabow]

Why is it they're more of a shipbuilding industry given the existence of the Jones act and the theoretical natural demand or the theoretical demand that creates. Why is shipbuilding so meager in the United States? And why aren't they building more Jones act compliant ships right now, given the evidence? Scarcity.

[Flight Customer Service]

Sure.

[Zara Fuentes]

So the reason you don't see as much shipping as I would like is frankly because we've chosen as a nation to make investments in other modes. Right. If shipping was subsidized in the same way that trucking was. Right. Think about the highway system, think about pipelines, think about all these other areas where a lot of goods have moved. So the shipbuilding market is. Right size for the Jones Act. Right. So we are, you know, right now, we build enough ships that we need for the Jones act market. We don't scrap super easily like China does, because scrapping is expensive and bad for the environment. So, yeah, we like to extend the useful life of our vessels as much as possible. We don't do a scrap and rebuild pricing scheme like China does. Right. Which is a big, big part of it. And I wish that we did build more ships for the international market. And I think we may see a shift in that, right, like from the Ships for America act and some other areas. But what's really been happening is in the 1980s, the United States decided to step away from construction subsidies, which are very, very strong in the rest of the world. Right. So the United States decides, we're not going to do any more shipbuilding subsidies. You have to build here. But you know, you had to use American laws, American workers, et cetera. And at the same time that we did that, South Korea, Japan, Europe, all invested trillions in terms of subsidies, in terms of financial schemes and other options. What China has done is really astounding. CSIS has a new report out this year about how they're just flooding the market with tonnage to try and drive out all other shipbuilders. So you're seeing even our allies having to close their shipyards and decrease their shipbuilding because of the unfair playing field that's done by China. So if you say, let's get rid of the Jones act, let's get rid of this US Build requirement, you're basically throwing our shipyards to the walls, right. And saying, okay, you keep fighting by American rules. You have to pay minimum wage standards, you had to have safety standards, and you have to go Fight against a ship shipyard in China where people don't even have shoes on. Right. You know, it's not a fair fight. So if we were living in a perfect free market world, we'd be having a different discussion. But we're not. Shipbuilding is a strategic asset.

[Tracy Alloway]

All right, I'm going to ask a sort of middle ground question in an attempt to reconcile both positions, but let's say you don't get to throw away the Jones act, but you get to make a change to it, and you get to keep the Jones act, but you have to make a change to it.

[Colin Grabow]

Good question.

[Tracy Alloway]

What would the response be? Zarda, let's start with you.

[Zara Fuentes]

The change I would make to the Jones act is that I would add shipbuilding subsidies.

[Tracy Alloway]

Okay.

[Joe Weisenthal]

Colin, I would absolutely get rid of the US Build requirement. The notion that we promote. I mean, forget the economic effects here, just the notion that we promote a healthy maritime industry by forcing Americans to be outrageous prices for new ships is, on its face, absurd. We heard talk earlier about what we needed to preserve shipbuilding. Well, how's that worked out? A GAO report last month referenced the US Shipbuilding industry as in a state of near total collapse. The Wall Street Journal just last week had an article that referred to the US shipbuilding industry as tiny and rusty. In 2023, the most recent year for which we have data, the US accounted for 0.1% of global shipbuilding output. I mean, obviously we're well behind China, but folks, we're behind Norway, the Netherlands. I think in 2022, we're behind Croatia. This is the United States, one of the biggest manufacturers in the world, an incredibly inventive, dynamic economy, and this is what we've been reduced to. It's shameful and it's an indictment of what the Jones act has done.

[Colin Grabow]

Well, actually, I want to ask you about this. Do you accept, I mean, Cato, I associate with not industrial policy. Sort of true. Laissez faire. Do you accept the premise, Setting aside how we get there, do you accept the premise that the US should have more domestic shipbuilding?

[Joe Weisenthal]

I think that we should have. I defer to the national security experts, what we should have, but absolutely we should have it. And the Jones act does not give it to us. So I'm not against government intervention per se. So, for example, I think we need ships, and I'm not against subsidizing ships where the government says, here's money in exchange in time of war, we get to grab that ship and use that. That makes sense to me. You can go. Cost benefit analysis. The X Much money gets you this many ships. We can't do that with the Jones Act. Let's stop doing things that don't work and do things that do work.

[Zara Fuentes]

So I would take issue with the fact that you say that US Shipbuilding is expensive. Shipbuilding is expensive. It's expensive everywhere. Our shipbuilding is right, priced right. Everybody else is cheating is kind of what's going on. Like, all these countries you mentioned have heavy subsidies, financial schemes. Look at the two biggest cost drivers in shipbuilding are labor and steel components. Right? And so, of course, labor is more expensive in the United States. That's true for every American industry. Right. We have a higher standard of living. We pay taxes. And then look at steel. The top steel producer in the world is China. Do you think that they are selling, charging market prices for their steel? No, of course not.

[Joe Weisenthal]

If I may. So I think there may be a notion here that people think, okay, things were okay and then China came along, or the US Is okay, and then South Korea came along, things were okay, and then Japan came along. Folks, US Shipbuilding has been internationally uncompetitive since the Civil War, okay? This is not something that happened recently. It's been going. And nobody is buying ships from Norway instead of the United States because of the cheap wages. That's absurd. There was an article, I remember, like, 15, 20 years ago that said that Dutch shipyards were building ships of one third the US price and paying their workers 20 to 40% more. It's indefensible.

[Colin Grabow]

I actually, there's a question about the Jones act that I've had for a long time, and I want to get your take on it. Colin. We did this interview with John Arnold, the philanthropist. He does a lot of stuff, like, with, like, policies. And we asked him, you know, we talked about, like, Embi stuff and highways and stuff, and we're like. And Tracy said, well, what do you think about the. You know, would you put any effort towards appealing the Jones Act? He's like, I'm not even gonna try. That one's not going anywhere. Can you describe to me 650,000 people? I don't know, you know, whatever. Why, given the meager size of the US Shipbuilding industry, is it perceived that this law is so hard to dislodge?

[Tracy Alloway]

It seems like such a political hot potato for some reason.

[Joe Weisenthal]

Yeah. So the question is, why is this law so difficult? Why does it remain in place despite my criticism of people like me, whatnot? I would submit this as a tribute to the power of special interests. You know, I can come up with off the Top of my head, probably.

[Colin Grabow]

It's apparently not a big one.

[Joe Weisenthal]

I can.

[Colin Grabow]

Both of you.

[Joe Weisenthal]

It's a small industry. Yes. So Satter referenced 650,000 jobs. That's based on a study that calculated there were somewhere like 98,000 jobs actually in the domestic maritime industry. Each one of those has a multiplier of like five. And then you add those together and that's.

[Colin Grabow]

So in theory, that should make it even less.

[Joe Weisenthal]

Yeah. I mean, no, it's a small industry. Right. So why does it remain in place? The dynamic is this. There are any number of organizations dedicated to preserving the Jones Act. There's the American Maritime Partnership, where Sarah is also what? Vice president, I believe. The Transportation Institute, the Lake Carriers Association, Offshore Marine Service association, the American Waterway Operators, the Marine Engineers Beneficial Association, Seafarers International Union. I go on and on. I can't think of any industry in D.C. an association where task priority one, two, or three is get rid of the Jones Act. In fact, I've had conversations with folks where they say something like, look, I hate the Jones Act. I think it hurts our industry. But on my top 10 list of issues, it's like number four or five and versus one, two, and three. I need the support of senators that support the Jones Act. And this is a dynamic you see over and over again. It's concentrated benefits, dispersed costs. The people that care the most about the Jones act, that think this is existential to me are the people and the companies in the industry, and they allocate their resources accordingly. So it's just you can find any number of ridiculous laws like the US Sugar program. Same basic dynamic. We see it over and over and over again.

[Tracy Alloway]

Sara, I'm gonna give you the chance to respond. Why are you so good at your job?

[Zara Fuentes]

No, it's easy. The Jones act is popular. It's been popular with Republicans. It's popular with Democrats. It's popular across administrations. It's also really popular with the United States military. Heads of Transportation Command, military seized command. The Navy have been asked about this multiple times, and they all find a lot of value in it. They know that if you didn't have that, we would see our shipbuilding capability. And most importantly, we would lose those mariners, Right? These mariners that crew these seal of ships, they need time at sea to train, to be ready, to move up in their ratings. Right? So they need that work as well so they can be called upon when they need. And they answer the call. They've answered the call many, many times. You know, in every war you've had A merchant marine component, and it's critical. So it's successful because it's popular, it's well loved. Like, it's extreme. It's extremely effective. Like I said, you're going to pay these costs regardless. So do we want to spread it out? We're all in a society here. We all share. We all enjoy these benefits. The savings that Collins is talking about is a rounding error. You know, the reason laws don't exist just to save us money. Right. That's not how you determine if a law is good or not. Does it save people a couple of pennies? Or, let's be real, does it sa differs a couple of pennies? Right. Like, even if Collins cost arguments are accurate, are those cost savings going to be passed down to the consumer?

[Colin Grabow]

I mean, costs are costs. I mean, I don't know.

[Tracy Alloway]

All right, we could go on and on and on, but a big round of applause for these two. It's not easy to come on stage and debate these things. So thank you.

[Colin Grabow]

Thank you so much, Tracy. I'm so glad we finally did the Jones act episode. And to be honest, it actually fulfilled all of my hopes and wishes for the episode.

[Tracy Alloway]

That's good. Did it change your mind at all?

[Colin Grabow]

Did it change my mind? I mean, that presupposes that I had an opinion, I guess, what I would say.

[Tracy Alloway]

That's right. You don't have opinions.

[Colin Grabow]

What. I guess what I would say is that at least if we think that shipbuilding in the US Is important, and I think I am convinced of that, the Jones act, our current structure is clearly not sufficing.

[Tracy Alloway]

Yeah, I would broadly agree with that. Because if you look at. I guess it's sort of the proof is in the pudding.

[Colin Grabow]

Right.

[Tracy Alloway]

If you look at the outcome of the Jones act, it hasn't actually been that successful in terms of American shipbuilding. One funny thing, right before we recorded this, we asked the audience who was in favor of the Jones act and who was against it. And I swear, like, it was pretty evenly split. But also everyone in the audience raised their hand at one point or another. Everyone has an opinion on the Jones Act.

[Colin Grabow]

I know it is really poignant, polarizing, and I thought, like, our guests, like, you know, I wanted. I didn't want to. I did a good job of having it be kind of heated, intense on stage. Of course, it was, like, very civil and a good conversation. But I thought from listening to Colin and Sara that, you know, you actually got a pretty good sense of how strongly the opposite sides feel about this, like, very old law.

[Tracy Alloway]

Oh, yeah, totally. It was a great rundown of like, the arguments for and against for sure. All right, shall we leave it there?

[Colin Grabow]

Let's leave it there.

[Tracy Alloway]

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

[Colin Grabow]

And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guests Colin Grabow, he's at cpgrabow and Soto Fuentes. Actually, she's not on X, probably wisely, but you can follow the Transportation Institute at transinst, Follow our producers Carmen Rodriguez at Carmen Armand, Dashiell Bennett at dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to bloomberg.com oddlots where you have all of our episodes in a daily newsletter and you can chat about all of these topics, including plenty more Joan Zach talk in our Discord Discord GG Oddlots.

[Tracy Alloway]

And if you enjoy Odd Lots, if you want us to do more debates, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes at absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

[Flight Customer Service]

This podcast is supported by BetterHelp, offering licensed therapists you can connect with via video phone or chat. Here's BetterHelp head of clinical operations Hes u Jo discussing who can benefit from therapy I think a lot of people.

[Zara Fuentes]

Think that you're supposed to be going to therapy once you're like having panic attacks every day. But before you get to that point, I think once you start even noticing that you feel a little bit off and you can't maintain this harmony that you once had in relationships, that could be a sign that maybe you want to go talk to somebody. There's always a benefit in talking to.

[Colin Grabow]

Someone because we can all benefit from improved insight about ourselves and who we.

[Zara Fuentes]

Are and how we behave with other people. So if you're human, that's like a good indicator that you could benefit from talking to somebody.

[Flight Customer Service]

Find out if therapy is right for you. Visit betterhelp.com today.

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[Colin Grabow]

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