The Great Jones Act Debate

We finally did it. We finally did an episode on the Jones Act. For years on the podcast, we've been referencing this controversial law from 1920, which places restrictions on domestic port-to-port transport in the United States. But we had never actually done an episode on what it is, why it was created, and why people feel so fervently about either keeping or maintaining it. There are plenty of people who feel that this law is an inhibitor of US growth, because domestic water-based shipment of goods requires a US-flagged, US-crewed, and US-built vessel. And yet the law persists — for over a century now. At our live show in Washington DC, we spoked with the Cato Institute's Colin Grabow (who took the anti side) and the Transportation Institute's Sara Fuentes (who took the pro side). They explained their respective positions on questions of the economics and national security in a lively, heated (but polite) debate. Read more:Jones Act Descended From Centuries of Lazy ProtectionismEast Coast Gas Would Only Drop a Dime If Jones Act Lifted, Says JPMorganJones Act Ships Competitive for US Fuel Exports as Freight Soars Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 2:29Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 2:34Joe Weisenthal?

  And I'm Jill Weisenthal.

• 2:35Tracy Alloway?

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

• 2:42Joe Weisenthal?

  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.

• 3:02Tracy Alloway?

  That's right. And since we waited so long, I guess, we had to do it a little bit differently.

• 3:07Joe Weisenthal?

  In style.

• 3:07Tracy Alloway?

  In style. Yep. So for those of us who came to our live event in Washington DC 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.

• 3:29Joe Weisenthal?

  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, because, but actually, you know, it was like really intense and people feel very strongly about this law, which restricts if you're going to ship something from one point in the US to another point in the US by water, it has to be on a US-built, a US-crewed, and US-flagged ship. People feel very strongly about this law.

• 4:00Tracy Alloway?

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

• 4:06Joe Weisenthal?

  That's right.

• 4:07Tracy 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 Zada Fontes, the Vice President for Government Affairs at the Transportation Institute, and Colin Grabow, an Associate Director at the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies. Zada 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 got to ask, how many people have heard of the Jones Act here?

• 4:54Joe Weisenthal?

  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.

• 5:04Joe Weisenthal?

  And shout if you think we should keep the Jones Act.

• 5:09Tracy Alloway?

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

• 5:15Tracy Alloway?

  Yeah, all right. 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 going to be an all-thoughts debate, someone arguing the pro side and someone on the con side.

• 5:33Joe Weisenthal?

  That's right. We're not going to, like, formally declare a winner.

• 5:36Tracy Alloway?

  Everyone's a winner.

• 5:37Joe Weisenthal?

  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.

• 5:57Tracy Alloway?

  It's a rule at my house that you can't talk about politics or the Jones Act.

• 6:00Joe Weisenthal?

  That's right.

• 6:01Tracy Alloway?

  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.

• 6:22Joe Weisenthal?

  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?

• 6:41Speaker 06

  Well, Joe Tracy, first off, thanks for having me to debate this issue. Thanks for doing, 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-contiguous states and territories.

• 7:15Speaker 06

  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? Yeah. Well, the Jones Act...

• 7:43Tracy Alloway?

  Everyone's giving history lessons tonight, so you might as well go all the way back.

• 7:47Speaker 06

  Oh, so the Jones Act is Section 27 of the Merchant Marine Act of 1920, which 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 it 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 the US-flag requirement. That means 99% of the world's 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.

• 8:29Speaker 06

  The US-flagged ships are about four times more expensive to operate than foreign-flagged ships. 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. You know, 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 a neighboring Jamaica or the Dominican Republic. In 2017, the CEO of a Jones Act shipping company admitted the Jones Act tankers were three to four times more expensive than internationally-flagged tankers. I mean, just yesterday, a state senator in Connecticut, rather, testified before the

• 9:14Speaker 06

  state legislature, saying that his first job out of college, he 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 us doing business with each other.

• 9:38Tracy Alloway?

  Okay, so the one thing we can agree on is America is hashtag blessed in terms of inland waterways. But Sada, 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?

• 10:02Speaker 07

  Sure. 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 sabotage laws. Some form of sabotage law has existed. What's sabotage mean again? 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. Eighty percent of the world's coastline is governed by some form of sabotage. You see it in other industries, right? You can't take Air China from New York to LA, 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

• 10:46Speaker 07

  homeland security. Economic security is pretty obvious, right? Because of that US crew, US-owned requirement, it's created about 650,000 jobs, 615,001 if you include Collins.

• 11:01Speaker 07

  And also, all those

• 11:05Speaker 07

  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 seallet vessels in time of emergency. Not only that, but you also get a shipyard industrial base. I've heard you all talk on this 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.

• 11:49Speaker 07

  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 linking. 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.

• 12:28Joe Weisenthal?

  OK, 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 Colin's 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? Why should we be bearing that cost?

• 13:00Speaker 07

  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 and 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?

• 13:44Speaker 07

  Or you want it to be ameliorated and sort of baked into something? Does the cost of doing business in the United States?

• 13:50Tracy 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.

• 14:08Speaker 06

  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? And 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.

• 14:52Speaker 06

  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.

• 15:34Speaker 06

  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.

• 15:53Speaker 07

  Zara? I'm glad you asked that. A world without the Jones Act is a pretty scary place, right? Because I want you to remember, 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, right? They want the whole world to be dependent on them for shipping because they know that is the backbone of commerce, right, is how we transport these goods. So 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.

• 16:38Speaker 07

  You would basically eliminate the American shipbuilding industry overnight because even Japan, even South Korea cannot keep up with Chinese subsidies. They're 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.

• 17:22Speaker 07

  Right now, that, you know, Coast Guard, CBP, you know, 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.

• 18:00Speaker 00

  What's next for virtual assets? I'm Jacob Greaves, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 18:16Speaker 08

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service insocial clients.

• 18:25Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reece Merrick of Ripple says.

• 18:33Speaker 09

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 18:52Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 19:02Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices,

• 19:46Speaker 01

  but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 20:25Joe Weisenthal?

  To Colin's 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 US, the fact that we can't supply ourselves with our own raw materials in certain instances?

• 20:56Speaker 07

  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?

• 21:17Joe Weisenthal?

  Right. They're not into pipelines. I know, yeah, they're not into pipelines.

• 21:21Speaker 07

  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 gotta move it down a pipeline, you gotta liquefy it, and then move it, and then regasify it. And then you can only do this in very small amounts, right? Which is gonna 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?

• 22:06Speaker 07

  So even though it's free, you still are gonna 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 rates, right? We're in a capitalist society, so people are gonna look for the cheapest option, and sometimes the cheapest option is not gonna be American. So, the liquefied natural gas is a great example.

• 22:28Tracy 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.

• 22:40Speaker 06

  Yeah, so a couple of 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 and 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 US waters. It just regulates what you can do within US waters. So they're here. And talk about hazardous materials. I mean, they're, they're, all the tankers coming out of Houston, Corpus Christi with energy products, I mean, the vast majority are foreign. So they're, they're already here. We have Customs and Border Protection. We have the Coast Guard to inspect these vessels.

• 23:24Speaker 06

  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 Act shipping companies are some of the biggest patrons of Chinese shipyards. I mentioned earlier that US-built ships are incredibly expensive, you know, 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 Act 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.

• 24:08Speaker 06

  It's really critical for our national security to stop China. I mean, we're joking, but this is real life. I mean, two years ago, a Jones Act shipping company, 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 it to China, ripped out the steam power, put in LNG, spent tens of millions of dollars to do so, so it can keep running for years to come. And then we tell ourselves this is all about national security. I think it's farcical.

• 24:43Speaker 07

  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.

• 25:03Joe Weisenthal?

  Why isn't there 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 evident scarcity?

• 25:23Speaker 07

  Sure. 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 sized 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.

• 26:06Speaker 07

  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 have 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

• 26:50Speaker 07

  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 wolves, 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 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.

• 27:29Tracy 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. Good question. What would the response be? Zara, let's start with you.

• 27:49Speaker 07

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

• 27:56Tracy Alloway?

  Oh, okay. Colin?

• 27:58Speaker 06

  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 pay 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 weekend 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.

• 28:43Speaker 06

  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.

• 28:54Joe Weisenthal?

  Well, actually, I want to ask you about this. Do you accept, I mean, Cato, I associate with like 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?

• 29:11Speaker 06

  I think that we should have, you know, 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. 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 do a cost benefit analysis. The X much money gets you, you know, 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.

• 29:39Speaker 07

  I would take issue with the fact that you say that US shipbuilding is expensive. Shipbuilding is expensive, is 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, targeting market prices for their steel? No, of course not.

• 30:20Speaker 06

  If I may, so I think there may be a notion here that people think, okay, things are okay, and then China came along. Or, you know, the US is okay, and then South Korea came along. Things are okay, 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 on, and nobody is buying ships from Norway instead of the United States because of the cheap wages. That's absurd. You know, there was an article, I remember like 15, 20 years ago, that said that Dutch shipyards were building ships at one-third the US price and paying their workers 20 to 40% more. It's indefensible.

• 30:56Joe Weisenthal?

  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 YIMBY stuff and highways and stuff. And we were like, and Tracy said, well, what do you think about the, you know, would you put any effort towards repealing 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 this meager size of the US shipbuilding industry, is it perceived that this law is so hard to dislodge?

• 31:35Tracy Alloway?

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

• 31:38Speaker 06

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

• 31:51Joe Weisenthal?

  But it's apparently not a big one.

• 31:52Speaker 06

  I can, you know, there are-

• 31:53Joe Weisenthal?

  According to both of you.

• 31:54Speaker 06

  It's a small industry, yes. So Sarah 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 how you-

• 32:08Joe Weisenthal?

  So in theory, that should make it even less of a special interest.

• 32:10Speaker 06

  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's also what, Vice President, I believe, the Transportation Institute, the Lake Care Association, the Offshore Marine Services 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 DC in 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 if it's one, two, and three, I need the support of senators that support

• 32:52Speaker 06

  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. Those and then they allocate their resources accordingly. So it's just, you know, you can find any number of ridiculous laws, like the U.S. sugar program, same basic dynamic. We see it over and over and over again.

• 33:16Tracy Alloway?

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

• 33:19Speaker 07

  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 Seaford 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 seaford 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.

• 34:02Speaker 07

  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 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 this society here. We all share. We all enjoy these benefits. The savings that Colin is talking about is a rounding error. You know, the reason laws don't exist just to save us money, right? That's not the only, 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 save shippers a couple of pennies, right? Like, even if Colin's cost arguments are accurate, are those cost savings going to be passed down to the consumer?

• 34:46Joe Weisenthal?

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

• 34:51Tracy 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. Thank you so much.

• 35:17Joe Weisenthal?

  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.

• 35:26Tracy Alloway?

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

• 35:30Joe Weisenthal?

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

• 35:35Tracy Alloway?

  You don't have opinions.

• 35:36Joe Weisenthal?

  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.

• 35:52Tracy 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, right? 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.

• 36:22Joe Weisenthal?

  Yeah, still polarizing.

• 36:24Tracy Alloway?

  On the Jones Act.

• 36:25Joe Weisenthal?

  I know. It is really 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 and tense on stage. Of course, it was like very civil and a good conversation. But I thought from listening to Colin and Sada that, you know, you actually got a pretty good sense of how strongly the opposite sides feel about this, like, very old law.

• 36:49Tracy 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?

• 36:56Joe Weisenthal?

  Let's leave it there.

• 36:57Tracy Alloway?

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

• 37:03Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guests Colin Grabow, he's at CP Grabow and Sarah Fuentes. Actually, she's not on X, probably wisely, but you can follow the Transportation Institute at Trans underscore I N S T. Follow our producers, Kermit Rodriguez at Kermit Armadash, Joe Bennett at Dashbot and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg dot com slash Odd Lots. We have all of our episodes in a daily newsletter and you can chat about all of these topics, including plenty more Jones Act talk in our Discord, discord dot G G slash Odd Lots.

• 37:39Tracy 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 absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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