The Jones Act: How Secretary Of Transportation Pete Buttigieg Will Keep Poor People Poor

The Jones Act, Section 27 the Merchant Marine Act of 1920, requires cargo ships traveling between U.S. ports to be built in the U.S., owned by U.S. companies, employing only U.S. workers.

That means a ship from Asia can’t stop in Hawaii, drop off food and other products, pick up other cargo and continue to the West Coast. As a result goods are generally shipped to the mainland and then from the mainland to Hawaii. That’s one reason why things are so much more expensive in Hawaii.

This isn’t just a problem for Hawaii. It’s also a big deal for Puerto Rico, where per capita GDP is half the U.S. average. We make goods more expensive to buy for people with the lowest incomes. And we do it on purpose. It’s also a problem for Alaska as well as places like Guam.

The Jones Act was waived in the aftermath of Hurricane Irma, Harvey, and Maria in 2017, because economics couldn’t take the double whammy of the Jones Act and a destructive hurricane.

But Secretary of Transportation designate Pete Buttigieg knows that the political voices of unions, and support from West Coast Senators whose constituents benefit, is more important to him than poor people who suffer under the law. Senator Maria Cantwell from Washington even put out a press release applauding herself for getting this support for her state.

Since the Jones Act drives up shipping costs, operators use older and less costly ships. Replacing ships only with those built in the U.S. is expensive, so companies avoid doing it. And as a result, maintenance aside, these ships aren’t equipped with the latest technology. So the Jones Act makes shipping less safe.

Proponents argue that the Jones Act is a necessary subsidy for U.S. ship manufacturers, so that those companies are able to produce ships for the military. But military ship producers have sold no more than 5% of heir ships as Jones Act merchant vessels so this doesn’t hold up. The late Senator John McCain, no slouch in his support for the military, proposed repealing the Jones Act.

They further argue that ‘we don’t want foreign ships traveling close to our waterways’ but we get that all the time, because foreign ships travel to California, Washington State, Florida, Texas, etc. all the time – the Jones Act just prevents them from stopping in Hawaii or Puerto Rico first.

It turns out that when it comes to the effect of transportation costs on the poor, Buttigieg prefers ‘thoughts and prayers’ over action.

The truth is that U.S. manufacturers and labor look at it as a subsidy and fight for it, and their voices ae heard far more loudly than residents in places like Puerto Rico who are made poorer by it.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Too bad, but no surprise. A much better administration with grownups but the Golden Rule still applies: “Those with the gold make the rules.”

  2. “Senator Buttigieg supports this ….” Might want to edit the lead in part to be correct.

  3. Last I heard Puerto Rico is not a state and the ocean freight costs are equalized so little to no value to Hawaii as they do not need a complete customs and inspection program. Ask an Hawaiian Senator if they want to get into the customs clearance and inspection business as their ocean front property is actually valuable and generates more income from tourism than as a commercial port.

  4. Hard to imagine you’ll find much sympathy for those living the Hawaiian dream. I’ll also say, I like Pete. He’s a hard worker from the (white collar) working class who tries to keep things positive.

    That said, this is legitimate criticism. I imagine those most impacted live in Guam, Puerto Rico, the US VI, et cetera, and that is disappointing. Thank you bringing this up, Gary.

  5. @paul “Ask a Hawaiian Senator.”

    How about ask a regular working class Hawaiian who has to buy groceries or goods to live their lives within limited budgets, and has to pay absurd prices for them thanks to the Jones Act?

    Mazie Hirono and Brian Schatz are both multi-millionaires much more interested in raising the millions of dollars necessary to sustain their cushy jobs than about how the average Hawaiian will be able to pay their bills. They have every perverse incentive to support the Jones Act to get campaign donations from well financed US shipbuilders in places like Louisiana, Mississippi and Texas, and US Merchant Seaman’s Unions, regardless of the effect on regular Hawaiians, who don’t make big campaign donations and most of whom don’t bother to vote given the hopelessness of our corrupt system that you want to maintain.

  6. Good read Gary

    Just from my observations… I was on tiny island of Molokai, HI couple of years ago. It’s absurd what they have to pay for grocery and fresh fruits. And the residents are mostly fishermen and v small local businesses.

  7. The same can be said for protectionism generally – it drives up costs and reduces efficiencies. It’s one of the few economics “rules” that is actually provable mathematically. One wouldn’t have expected Trump to understand anything that complicated, and it doesn’t suit an administration which relies on unions for its votes to worry about making people poorer but it’s sad that neither party in the US nowadays is interested in helping the poor. Both claim to want to do this, and both are proud of policies specifically designed to do the opposite.

    And now, there’s a further excuse called COVID which will be used to justify all manner of protectionist actions.

  8. Go to any island, regardless of US affiliation, and prices are extremely high for goods. The cost of living in Hawaii and Puerto Rico is not because they are using Americans to deliver goods.

    An employee making hamburgers at Wendy’s has to be a citizen yet someone delivering goods in the US shouldn’t be? Seems hypocritical.

    Did our reliance on foreign states for basic things such as drugs and PPE not teach any of you anything?

  9. Soon to be secretary Ballgag already sucking. We can expect the same for the rest of this illegitimate administration

  10. Gary, your post seems a bit off the wall. Jones Act is law not DOT regulation. Perhaps should be changed but that’s for Congress not DOT.

  11. I think the idea was the US didn’t want foreign ships hopping around the eastern seaboard. However, with Hawaii and Puerto Rico maybe it’s time to update the rules

  12. This is such an incredibly biased article. The Jones Act was passed in 1920 and has remained in effect since then with no action from either party. Criticism is deserved on both sides of the spectrum and we can have a substantive conversation about the Jones Act but this article positions it as the Democrats and Pete wanting to keep people poor. I’m sure Gary wrote an article just like this when Trump and the Republicans were in power.

  13. @Jamie Reed – I have been critical of the Jones Act for years. Gosh, usually readers complain I’m too left wing. Now some think I’m a Trump supporter, have you read the blog before?

  14. @Jack – we should at a minimum exempt Puerto Rico, Hawaii and Guam. But it doesn’t stop ships from coming up the US coasts, foreign ships do that all the time! It just prevents them from stopping first, unloading cargo and picking up more.

  15. Isn’t this a travel blog? Stay in your lane. Why does boarding area post up this useless garbage?

  16. “Mayor Pete” couldn’t even manage to keep the roads in South Bend in decent shape, do you really expect him to do anything groundbreaking in his new job? He’s a classic pole turtle.

    Seems like exemptions for HI, PR, Guam, etc would be a good way to go.

  17. Will Secretary Pete personally keep poor people poor? For the purposes of this hearing especially, isn’t he representing the views of the President? And could he personally change this law or is it something Congress has declined to do SINCE 1920? (Note that Ted Cruz went on about 1000 union jobs lost from the cancelled pipeline, as if his state of Texas offers good workplace protections and strong unions).
    How about not complaining on Day 2 about something in a confirmation hearing. Want to go after each Senator who said something about bus routes in their state? Sheesh.

  18. Exceptions for the Jones Act have been made in the past. Norwegian Cruise Lines is the best example. Exceptions could be made for freighters as well. But food is going to be expensive. No matter where that food comes from. Hawaii’s location is closer to the Mainland versus other food producers in Austral-Asia. I think it is a moot point that it would cost less if it was imported. Adding import taxes and temperature controlled shipping for a longer distance, this all adds to the price.

    But I think it is disingenuous to blame either party, because the Jones Act was passed by a Republican Congress in June 1920. Named for Senator Wesley Jones, the Republican Majority Leader. Expecting Buttigieg to change the law, is not going to happen. Now, could Pres. Biden make changes by Executive Order? Sure! I doubt that the Jones Act is anywhere in Congress’ horizon.

  19. @Bill – in what way is questions to the DOT Secretary nominee not relevant to travel? in what way are restrictions on what ships can do not relevant to travel? and why do you think this is not ‘my lane’?

    And in what dimension is commentary on this policy ‘useless garbage’ – because you disagree with it (you fail to state how)? because you like buttigieg and he’s got a bad view?

  20. I rarely disagree with Gary, but I think he, like most Americans, knows only one side of the Jones Act.

    The public agrees on treating animals humanely even if grocery prices increase. Don’t human mariners deserve the same consideration? Read up on the slave-like working conditions on non-US ships. Commercial mariners work very hard for months on end without a break. No weekends, no family time. Their pay has been flat for decades while the dollar’s value has dropped by close to 50%. If you have sympathy for hard-working immigrants you should have the same for mariners.

    As to ship manufacturing, it’s a given that US military ships must be built in the USA. Otherwise we’d get more stories like our Moscow embassy which had to be demolished due to hundreds of microphones planted in the structural supports. If the US commercial shipbuilding industry dies like so many other manufacturing industries, taxpayers will end up paying more for military ships and paying more unemployment benefits. The combined public and private result could be a net loss of money, just as it has for loss of other domestic manufacturing. Standard libertarian logic on outsourcing everything possible to foreigners overlooks the externalities of taxpayer-funded government benefits and especially overlooks what happens to communities when formerly middle class workers slide into long-term unemployment and drug addiction. Out of sight, out of mind.

    All the above is why the Jones Act is not a partisan issue.

  21. A couple of comments. First, thanks for posting this. The Jones Act has been a terrible idea for a very long time and imposed additional costs on all states and territories not adjacent to the lower 48. These include the Virgin Islands, Puerto Rico, Alaska, Hawaii, Guam, American Samoa and the Northern Mariana Islands.

    Gary summed it up well when he said “… goods are generally shipped to the mainland and then from the mainland to Hawaii.” This is true for all the states/territories listed above. Alaska gets a small reprieve because they can ship via Canada by rail, but the rest of them pay exorbitant costs for shipping.

    The port situation wouldn’t change one bit other than adding Customs offices to handle the paperwork for containers being dropped off… they still need to import 99% of what they consume.

  22. I can’t believe you mention all this and didn’t cover the impact to cruise ships. For example, those going from Seattle to Alaska have to stop in Canada but Canada is closed. I understand the rule on this but it needs to be excluded right now until all borders are open.

  23. This and the overall support for the EAS were two of the most disappointing aspects of an otherwise impressive hearing. Repealing the Jones Act and Essential Air Services could both be done under the guise of climate action to drum up support from otherwise hesitant progressives. That said, the GOP’s turn toward protectionism might mean difficulty in finding support on either side of the aisle. Could be that Mayor Pete recognizes there is no appetite for repealing these programs, so it isn’t worth picking a losing fight. Political realities are often times less than optimal.

  24. @DaninMCI – it’s a non-sensical rule there too but I don’t have the same level of outrage or need to ‘do something’ about it as in the case of hardships imposed on people in Puerto Rico, Hawaii and Guam versus cruise lines and passengers

  25. So ignoring whether or not the rule itself is sensible. I don’t understand why building military ships means you have to ban foreign vessels. The UK builds all it’s naval vessels but allows for foreign container and cruise ships to visit and travel from multiple ports.

    Would it not make sense to allow ships to drop off cargo at say Hawaii and then continue to LA? If you are afraid of allowing them to compete for domestic only shipping then don’t let them pick up in Hawaii, this would be just like Qantas’ LA-NY sector where they can drop off in LA but not pick up.

  26. @nsx at FlyerTalk – if you’re worried about labor standards, the Jones Act doesn’t raise those it limits shipping. Look at the cruise industry, international cruises just don’t travel non-stop between US ports, wouldn’t you be far better and more targeted addressing labor standards than banning foreign competition? this issue is a fig leaf.

    And as noted in the post, less than 5% of the business of ship manufacturers who produce for the US military is driven by this act so what’s your argument how this subsidy is needed to make shipping manufacturers viable? And again, if that were true why wouldn’t you just factor this into the cost of procurement for ships rather than foisting the cost onto the backs of people in Puerto Rico?

    The reason that “the Jones Act is not a partisan issue” is concentrated benefits and dispersed costs, it benefits unions and US ship companies (concentrated benefits, beneficiaries lobby for it on a bipartisan basis) while the costs are dispersed across millions of poor Americans who may not even realize the cause of higher prices (and for whom learning about the cause is itself a cost).

  27. Anyone talking about this affecting the cruise ships in HA or AK, this has absolutely nothing to do with that. Those are covered under the Passenger Vessel Service Act, a completely different order.

  28. 2020 Jones Act study:

    – A market basket study of 200 consumer goods purchased from major retailers such as Costco, Home Depot, Target and Walmart found no significant difference in the price of consumer goods. 142 out of 200 items (71%) were precisely the same in stores in Hawaii as they were in California. In some cases, retail prices of goods were cheaper in Hawaii.
    – The study found that while Hawaii does have a high cost of living, that cost is primarily driven by housing expenses and other factors, not the type of consumer goods carried to Hawaii by Jones Act carriers.

    Homeboy wants to save $0.0001 on his OJ while vaca’ing in Maui.

    If you want things to be cheaper, look directly at the governments who tax everything related to tourism to high heaven.

  29. @ Gary, you are concerned about poor people which is good but only poor people in Puerto Rico, Guam and Hawaii. The Jones Act is minor compared to major issues facing poor people on islands or the mainland. Your arguments are logical, but If the Jones Act is repealed, how much would poor people on Guam, Hawaii and Puerto Rico benefit and how much would workers on ships and in shipyards lose?

  30. We don’t need to encourage more cheap foreign labor (as we see on most cruise ships) while paying billions in unemployment benefits to US citizens for not working. A better plan would address the obvious gaps (maybe allowing 1-stop at Hawaii/PR/Alaska for incoming ships) and seek to train and boost US employment.

    Eliminate of H1B and H2C during pandemic has not shut down any businesses. Let’s train US workers for these jobs (and eliminate age discrimination) before we open the gates again. Yet, this costs consumers more in the short run, but there are billions saved in government transfer payments.

    On a side note I can’t think of anyone worse than Pete for the DOT job. He mismanaged a small city and knows zippo about running mass transit, airlines, trucking, etc. As a veteran he would be more qualified to run DOT or maybe HUD (from his municipal experience).

  31. You can absolutely ship directly into Hawaii from China and elsewhere. Honolulu has an international port with customs. Saying that all HI bound goods go to the mainland first is incorrect.

    Regardless the Jones act stifles competition and raises rates for all goods to these island states and US territories. The cost to ship a 40 ft container twice as far from China to anywhere in the US west coast is less then half the price of a domestic trip of a 40fter from CA to HI because jones act shipping is a huge monopoly / oligarchy. There is major collusion and price setting going on. Cantwell supports it because one of the Jones act oligarchs is based in WA state and is the largest private business in WA. I’m a democrat and believe ship building is an important capacity to maintain domestically, but there is 0 competition in these routes. Matson and Saltchuck subsidiaries own the entire market for all these locales.

  32. @BallardFlyer – of course you CAN ship to Hawaii directly, it’s just not economical for many goods, many goods go to the mainland first not all

  33. Apparently Joe is both anti-LGBTQ as well as a Q Anon adherent – truly a disgusting human being. Probably really tiny hands too.

  34. @RFlight – care to explain why you disagree? it makes replacing older ships with newer ones more expensive, incentivizing keeping older ships in use longer.

  35. Where was your outrage, and editorials, about the Jones Act while every other administration since 1920 did nothing about it? Blaming someone who’s been in office for three days for it is utterly ridiculous. You sound like just another disgruntled Republican looking for anything to complain about.

  36. The Jones Act was originally written to keep foreign shippers from moving freight between Alaska and Seattle. It was definitely a protectionist act. Since then, there have been similar restrictions written into US aid laws, so that US ships have to deliver US foreign aid. Nevermind that the countries getting that aid could make it go further by using the money spent on food and shipping to buy food that their people prefer to eat in a nearby country. There may be a reason to support US merchant marine capability in case of a war, but it’s definitely inefficient otherwise.

  37. The Virgin Islands indirectly suffers from the Jones Act, despite being exempt. That’s because so much of its goods (particularly food) come to nearby Puerto Rico first and then St. Croix or St. Thomas. Interestingly, Puerto Rico is part of the U.S. custom zone. The Virgin Islands are outside U.S. customs, which means things are assessed duty if they’re brought into the U.S. territory. Guam really suffers from the Jones Act because it could be getting food, etc. from the Philippines or even Australia cheaper and easier.

    Don’t forget about the companion to the Jones Act: cabotage for airlines. Again, this really hurts places like Guam, which would benefit from a foreign-flagged airline stopping in Guam to and from the mainland. The same from American Samoa, perhaps parts of Maine, Michigan and even New York State where Air Canada or WestJet might be better carriers for those communities.

  38. Interesting debate and several good points. However, as someone who works with public policy I would respectfully suggest that you not attack the person when you are criticizing the policy. It is a cheap shot to imply that poor people are less important to Pete. When you make it about the person it literally makes your policy points less credible. Pete is a very reasonable/smart guy and would be eager to hear your points and maybe even change his mind (on a subject that is probably pretty new to him) if you didn’t come out of the gate attacking his principles in the first hours of his new role. His policy stances are totally in bounds but when you slide into motive you cross a line.

  39. @Phil in ATL +1

    Gary, love the blog and we’re usually in agreement. Not this time though. I haven’t commented in years, but this one caught my eye, and with due respect I believe your perspective is myopic. I never understood John McCain’s constant griping about the Jones Act as he’s the one person who should have known best of all given his role. His colleagues disagreed with him vehemently on this point.

    One can certainly argue that it makes a lot of things more expensive. You can also make a case that it’s primary intent is to create full employment for Admiralty Law attorneys…it has generated tons of unproductive legal disputes.

    But the bottom line argument in defense of the JA is our need to maintain private shipbuilding/repair capacity in the event of a national emergency such as war. The shipbuilding capacity of the US would be unsustainable if it were only used for military vessels. The US-built fleet goes far beyond merchant vessels (read transoceanic ships) to include coastal fleets, floating construction vessels, dredgers, bunkering vessels, etc. US shipyards are also producing vessels that can run on cleaner fuels such as LNG (we have an abundance). The unfortunate fact is these vessels cost 2.5-3x more to build in the US vs the global market.

    During WWII US shipyards produced merchant vessels, military vessels, and myriad other craft at an astonishing rate. Should we turn to China to produce these vessels in the event of the next global war? Shipbuilding capacity is a simply an extraordinarily expensive burden we must bear in the name of defense/deterrence.

  40. Please. Let’s be fair: both parties keep poor people poor and rich people get richer. Both are somewhat dishonest about how that happens. That’s why wealth inequality continues to grow, no matter who wins.

    Don’t like it? Become wealthy and join the club that does. =P

    PS – So that I’m not mistaken for Libertarian, I am not registered for either party but usually vote Democrat because they support universal healthcare, and I believe that should be a human right. That is somehow a controversial topic.

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