Cabotage Sabotage? The Curious Case of the Jones Act

This paper examines the economic implications of the Jones Act, which is a 1920 U.S. cabotage law that restricts domestic waterborne shipments to American vessels. Protection from foreign competition along with the rise of the Asian maritime industry has caused American shipbuilding to become uncompetitive. It is now approximately five times more expensive to build a large merchant ship in the U.S., and as a result most American shipyards have closed and the number of American built ships has plummeted. Thus, the Jones Act requirement that domestic shipments be transported on American built ships has become more onerous over time. This paper shows that this has reduced domestic waterborne shipment into U.S. states relative to other modes of transport and relative to waterborne imports. These results are stronger in coastal states and for commodities that are typically transported via water. There is also evidence that this reduction in domestic trade, due to the Jones Act, has increased consumer prices within U.S. states. These findings support common, but to date unverified, claims that the Jones Act impedes domestic trade and drives up prices.