There is a persistent claim that the Jones Act damages Puerto Rico’s economy, forces high prices, and prevents the Island from receiving goods from other countries. We’ve said before that this is not true, but we continue to see the claim, so we’re having another look.
What is the Jones Act?
The Jones Act, formally known as Section 27 of the Merchant Marine Act of 1920, is a United States federal law that regulates maritime shipping within the country. It essentially requires that cargo transported by water between two U.S. ports must be carried on ships that are
- U.S.-built: The ship must have been constructed in a U.S. shipyard.
- U.S.-owned: The ship must be owned by U.S. citizens or corporations.
- U.S.-crewed: The majority (at least 75%) of the crew must be U.S. citizens or permanent residents.
The Jones Act was enacted to support the U.S. shipbuilding and maritime industries by ensuring they have a guaranteed share of the domestic shipping market. The thinking was that without peacetime experience with ships, the United States couldn’t expect to have a skilled navy during wartime.
What is the effect of the Jones Act?
We received personal communication from data analysts at Walmart, a major retailer in Puerto Rico as well as in the states, saying that the Jones act does not affect prices of goods sold in Puerto Rico.
A 2018 report, Impact of the U.S. Jones Act on Puerto Rico, from Reeve & Associates and Estudios Técnicos, Inc., confirms that the Jones Act has no measurable impact on prices in Puerto Rico. “Shipping costs between the mainland and Puerto Rico make up only a small percentage of the retail prices of goods on the island,” they determined; “for example, ocean shipping costs account for only 3 cents (or 2 percent) in the retail price of $1.58 for a can of chicken noodle soup sold in San Juan…and the retail price for the same soup from the same retailer is the same in San Juan as in Jacksonville, Florida from where it was shipped.” The report includes numerous comparisons of retail prices in San Juan and Jacksonville, showing that the prices are comparable, and in fact usually identical.
A 2013 report from the Government Accountability Office acknowledges that “The prices of goods sold in Puerto Rico are determined by a host of supply and demand factors, similar to freight rates, and therefore, the impact of any costs to ship between the United States and Puerto Rico on the average prices of goods in Puerto Rico is difficult, if not impossible, to determine with precision.” The report went on to say that “Some shippers we interviewed told us that transportation costs to Puerto Rico from the United States represent a minimal portion of the costs of goods they sell in Puerto Rico, while other shippers stated that these costs were more significant.” In particular, shipping of refrigerated goods could be more expensive — but this is not a result of the Jones Act. This is also true for higher costs of storage and other business matters on the Island, which were also mentioned in the report.
The Cato Institute, a Libertarian think tank, argues that the Jones Act is harmful. However, their reasoning is that shipping is more expensive under the Jones Act. They have no evidence that the prices of goods in Puerto Rico are higher than in the states. They also point out that U.S. products can be cheaper than competing foreign products — again, not the result of the Jones Act. They also assume that shipping prices would be reduced without the Jones Act, but they may be wrong. Shippers say that the Jones Act provides for regular transport between Puerto Rico and Florida, which allows Puerto Rico’s manufacturers to take advantage of backhaul savings. Without the Jones Act, there might be less ship traffic between Puerto Rico and the mainland, causing higher prices for the shippers who need it.
What about goods that are not subject to the Jones Act?
Goods which arrive in Puerto Rico through interstate commerce from the states are subject to the Jones Act, but goods from foreign countries are not. Claims have been made on the internet that foreign countries are not allowed to sell goods to Puerto Rico, or that they have to stop in Florida before they are allowed to enter Puerto Rican ports. These claims are simply false.
Puerto Rico buys $30 billion in goods from the states each year, but 42% of the goods bought in Puerto Rico come from other countries. Laos provides the largest amount of sugar in Puerto Rico and China supplies much of the rice bought in Puerto Rico. More than half of the cargo ships arriving in Puerto Rico come from other countries.
This is not a matter of interpretation. This is just a matter of simple facts. If goods from the states are too costly because of the Jones Act, people in Puerto Rico can just buy them from foreign sources instead.
So why does this claim persist?
If retailers agree that shipping costs do not raise prices in Puerto Rico, prices in Puerto Rico are not actually uniformly higher than in the states, and the idea that the Jones Act limits shipping from foreign nations is false, then why does this story persist?
Despite studies, many Puerto Ricans believe the Jones Act contributes to high prices, influencing public opinion and policy discussions. The issue has also become politicized.
It’s important to note that the Jones Act will still apply to Puerto Rico under statehood, just as it applies to Hawaii and all the other states with seaports. As an independent nation, Puerto Rico would no longer be affected by the Jones Act — but could also lose all the advantages of its interstate trade relationships with the 50 states.
One response
The Jones Act certainly harms Puerto Rico, there are a plethora of studies that emphasize that point. But focusing on the Jones Act is a red herring when it comes to the discussion of the Puerto Rican economy. The real barrier to economic growth in Puerto Rico is their political status. Making Puerto Rico the 51st State would do far more for the economy than repealing this law ever would.