FederalIssuesIs this 1920’s Era Law Stifling Texas Energy Exports or Preserving American Jobs?

The Jones Act affects American and Texas commerce, but many are divided as to whether it is a net-positive for jobs or a net-negative for exports.
June 18, 2019
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Texas has paved the way for a massive energy surge in the United States, as the Lone Star State leads the nation in both crude oil and natural gas production.

In 2016, Texas accounted for over one-fifth of the entire country’s energy production, including over a quarter of the nation’s natural gas production and over a third of its crude oil production.

In 2017, Texas produced nearly a quarter of the United States’ natural gas and almost 40 percent of the nation’s crude oil.

And in 2018, Texas brought in nearly $8.5 trillion from natural gas production, oil production, and motor fuel taxes — a 24 percent increase from the year before.

Texas and the United States overall has profited immensely from the energy boom. But there is concern the overall reach is not being maximized due to a nearly 100-year-old law.

The Texan Mug

Enter, the Jones Act.

Passed at the dawn of the “Roaring Twenties,” the Merchant Marine Act of 1920 (contemporarily known as the Jones Act) “requires goods shipped between U.S. ports to be transported on ships that are built, owned, and operated by United States citizens or permanent residents.”

The Jones Act was originally instituted to ensure Americans’ participation in commerce between American ports. Passed in the wake of World War I, it was intended to be a stimulation of the American shipping economy, privileging American shippers over foreign ones.

Proponents of the law cite the American jobs it maintains, which they argue may otherwise be priced out by foreign workers, as justification enough for its importance.

The Transportation Institute (TI) — a non-profit “dedicated to maritime research education and promotion” — states on its website that just in 2006, “73,787 jobs were directly attributable to the Jones Act fleet and provided U.S. citizens with employment.”

The American Maritime Partnership lists Texas as its third-most benefited state by the Jones Act with a total employment impact of “56,290 American domestic maritime industry jobs” as of 2016 — a roughly 40 percent increase since 2011.

In a statement to The Texan, TI said, “According to a U.S. Maritime Administration study of American shipbuilding, Texas shipyards produce $2.6 billion in economic impact annually.”

TI continued, “In addition to these job creation benefits, the American maritime industry ensures an indispensable role to defense leaders, providing the vessels and the crews to project American forces overseas in a national emergency.”

Texas has its own proponents of the Jones Act, such as Congressman Brian Babin (R-TX-36).

On his website, he states the Jones Act “has protected the rights of American sailors, created and maintained American jobs, and has been one of the single largest factors in facilitating the strong American economy that we are enjoying.”

Babin emphasizes that “Worst of all, waiving the Jones Act would allow these foreign-operated ships into our waterways and could be opening the door to espionage.”

Opponents of the bill focus on what they say are the cost strains the Jones Act places on consumers and producers alike.

James Coleman — a law professor at Southern Methodist University Dedman School of Law — told The Texan that the Jones Act, “effectively forbids the transport of natural gas between U.S. ports and makes it more expensive to send oil to Philadelphia than to France.”

He continued, “The Jones Act is bad for Texas in two ways. For one thing, it cuts Texas oil and gas producers off from fuel-hungry markets on the East Coast. Even worse, by cutting off American consumers from the fracking boom, it makes Texas politically vulnerable.”

For example, a 2014 Congressional Research Service paper found the cost of shipping Texas oil to east coast refineries is three times more costly than shipping to Canadian refineries.

Some reforms Coleman mentioned include exempting goods such as liquefied natural gas (LNG) from the Jones Act requirements because there is “no practical option for transport on Jones Act-eligible shipping.”

In this case, opponents of the Jones Act say that overall value is lost since American producers must ship their product to other continents and American consumers have no choice but to import LNG from countries like Russia.

But, they say, the east coast isn’t the only population missing out on the monetary benefits of trade.

A 2017 study by the Grassroot Institute of Hawaii estimated the Jones Act costs locales heavily dependent on shipping, such as Alaska, Hawaii, and Puerto Rico, up to $15 billion a year.

Coleman also advocated for reforms such as loosening requirements for the waiver that is currently applied only in the invocation of national defense.

Nick Loris, an energy research fellow at the Heritage Foundation, said, “When an industry is shielded from competition, it reduces the incentive to innovate, lower costs, and provide your product at the most economically competitive price.”

Loris also added that it is not just the cost difference of individual transports that contributes to the overall burden, but also that “the ships are much more expensive to build here in the United States, and their maintenance costs are larger as well.”

“We shouldn’t be propping up specific jobs and then disperse the cost among the rest of us,” Loris concluded.

During what may be the peak of its energy boom, Texas’ energy sector has soared to new heights. But some believe the Jones Act is inhibiting the Lone Star State’s ability to maximize its benefits.

As with any legislation regulating economic activity, winners and losers are picked. Jones Act proponents consider the benefits of safeguarding American jobs outweigh those of maximizing American energy production and consumption.

The debate over the Jones Act is, at its root, a continuation of the same debate that Americans have had over outsourcing during the last half-century.

Should the government prioritize American workers over American consumers? Or should the market make those determinations?

Regardless of whether the Jones Act remains law, there will be winners and losers.

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Brad Johnson

Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad watching and quoting Monty Python productions.