DAVID OZGO: Want To Bring Back Manufacturing? Here’s How

The impact that President Trump’s tariffs, whatever form they take, will have on U.S. manufacturing is unknown, and likely will be for several years. Hopefully, they will be the impetus for the manufacturing renaissance that the Trump Administration is banking on. But, one sure way to immediately boost our manufacturing base would be to reduce the cost of two inputs that are key to all manufacturers. No matter if your widget of choice is a sophisticated automobile or something as humble as a paper clip, all manufactured goods use both energy and transportation.

With the Trump Administration’s “drill baby drill” mantra, much is already being done to lower energy costs. Thus far the other half of the equation, transportation, has not gotten much attention. This is unfortunate. In 2023 American businesses spent over $1.5 trillion on the transportation component of the logistics equation alone – over 5% of GDP. When you purchase lettuce at a supermarket, a sweater through an online service or a bottle of Bourbon at a liquor store you are buying transportation. Transportation is an embedded purchase that no one really cares about. Except that it is an expense. Anything that can be done to reduce business expenses will make American manufacturers more competitive. (RELATED: Democrat Governor Says She Agrees With Trump On End Goals For Manufacturing)

If Congress and the Trump Administration want an easy way to make American manufacturers more competitive, a good place to look is reform of the Merchant Marine Act of 1920, better known as the Jones Act. The Jones Act requires that any company engaged in maritime commerce between U.S. ports must be U.S. owned and can only use U.S. built ships crewed by at least 75% U.S. citizens or permanent residents.

The current rationale for continuation of Jones Act restrictions is that the Act ensures a reliable U.S. fleet and shipbuilding capacity will be available for national security purposes. Also, it is supposed to ensure that the U.S. will maintain an adequately trained merchant marine force. But, various studies have shown that this has not been the case. A 2019 Cato Institute report, “Rust Buckets: How the Jones Act Undermines U.S. Shipbuilding and National Security,” showed that of the 281 Ready Reserve Force (RFF) and commercial ships charted by the Military Sealift Command during the first Gulf War only eight were Jones Act compliant. Not surprisingly, with so few Jones Act ships it was also a struggle to find American mariners to man them.

While the U.S. gets no national security benefit from the Jones Act, it does act as an impediment to U.S. commerce. Requiring that ships operating between U.S. ports be made in U.S. shipyards simply makes them too expensive to operate. Ships built in U.S. shipyards are often four times the world price.

Naturally, all this means that the Gulf Coast, the Atlantic and Pacific Oceans are dramatically underutilized resources. A study by the Mercatus Center found that only two percent of U.S. domestic freight was transported by sea, compared to around 40 percent in European Union countries. The Gulf, Atlantic and Pacific – those are awfully big resources not to be using.

While all Americans lose because of the Jones Act, Alaska, Hawaii, the U.S. Virgin Islands and Puerto Rico are hardest hit. Since none of these state/territories can access the continental U.S. by pipeline, rail or truck they must rely upon either expensive air cargo or the oligopoly Jones Act carriers. Some estimates have shown, for example, it costs twice as much to ship to Puerto Rico as it does to the nearby Dominican Republic.

One Hawaiian shipper has filed a lawsuit claiming that the Jones Act explicitly discriminates against the state of Hawaii. And, the Alaska state legislature has introduced SJR 11, which urges the U.S. Congress to enact a Jones waiver to allow the transportation of domestic liquefied natural gas (LNG) between Alaskan ports. There are no LNG tankers that meet the Jones Act requirements. As a result, Alaska can export its abundant natural gas, but it cannot ship it for domestic purposes.

Hawaii and Alaska are two glaring examples of Jones Act economic harm. But, the biggest negative consequences are likely to be those that we don’t see. When rail, truck and airlines were deregulated in the late 1970’s and early 1980’s the economic benefits were not just the lower freight rates that ensued. The last round of deregulation led to new ways of doing business and helped position the U.S. economy for the 1980’s boom.

The Jones Act has had over 100 years to be successful but is a dramatic failure on both national security and economic grounds. After 100 years we can safely say that it is not a conduit to a dynamic ocean-going shipping industry – and never will be. To help reinvigorate the U.S. economy it is time for reform.

David M. Ozgo is Executive Director of the Center for Transportation Advancement and founder of Advocacy Analytics, LLC.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

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