Colin Grabow on Current Trends in US Trade Policy and the Adverse Impact of the Jones Act

Episode Summary

Executive Summary: The episode contrasts U.S. trade policy under Trump and Biden, arguing that America has largely frozen rather than reversed protectionist policies. It then turns to the Jones Act, where Colin Grabow makes the case that maritime protectionism raises costs, weakens supply chains and national security, distorts energy and transport markets, and should be repealed or substantially reformed.

Main Topics: U.S. trade policy under Trump and Biden (Priority: 5/5): The discussion traces the shift from postwar liberalization to Trump-era tariffs and withdrawal from TPP, then argues Biden has mostly preserved this protectionist status quo rather than restoring freer trade. Why free trade matters economically (Priority: 5/5): Grabow emphasizes specialization, comparative advantage, lower consumer prices, and the role of imports as productive inputs, arguing trade makes the economy richer and more efficient. Protectionism, rent-seeking, and inflation (Priority: 4/5): The conversation links tariffs and trade barriers to concentrated industry benefits, diffuse consumer costs, and potentially higher inflation, with trade liberalization offered as a partial inflation relief measure. Globalization’s resilience and backlash (Priority: 4/5): The speakers discuss the pandemic, Brexit, geopolitical tensions with China, and reshoring rhetoric, but conclude that long-run globalization and supply-chain diversification are more likely than a full reversal. TPP and the missed strategic opportunity (Priority: 5/5): Grabow argues withdrawal from TPP harmed U.S. economic and geopolitical interests, and that CPTPP’s survival shows trade blocs continue without the U.S., potentially even creating incentives for China to reform and join. The Jones Act’s costs and failures (Priority: 5/5): The bulk of the interview examines how the Jones Act’s U.S.-build, U.S.-flag, U.S.-crew, and U.S.-ownership rules make shipping vastly more expensive, reduce fleet size, and fail to deliver promised security benefits. Reform ideas for maritime policy (Priority: 4/5): Grabow proposes repeal, direct military subsidies, waiver expansion, removal of the U.S.-built requirement, and exemptions for non-contiguous areas like Puerto Rico as pragmatic reform options.

Key Arguments: Trade liberalization historically supported growth, and the U.S. benefited from leading the postwar open trading system. Biden has not meaningfully rolled back Trump-era tariffs or trade restrictions, largely because of unions and bipartisan anti-China politics. 'Made in America' sounds appealing but ignores comparative advantage and the value of imported intermediate inputs. Tariffs and other barriers function as rent-seeking tools that protect concentrated interests at consumer expense. Trade barriers can raise the cost of living and may contribute to inflation; lowering tariffs could provide near-term relief. The Jones Act makes domestic coastal shipping unnecessarily expensive and pushes freight onto trucks and rail, increasing congestion, pollution, and infrastructure wear. The Jones Act has not produced a robust commercial shipbuilding base or adequate wartime sealift capacity. A direct subsidy model would be more transparent and efficient than forcing the entire economy to pay hidden costs through the Jones Act. TPP would likely have made the U.S. richer and more strategically positioned in Asia, while also pressuring China toward market reforms.

Data Points: Trump tariffs on steel: $900,000 to $1.2 million per steel job saved - Illustrates the high consumer cost of protecting domestic steel production. Tariff reduction and inflation: 2% reduction in tariffs -> 1.3% reduction in inflation - Cited from Peterson Institute research as an estimate of short-run inflation relief from trade liberalization. Jones Act operating cost premium: About 3x more expensive than foreign ships - Grabow says U.S.-compliant vessels cost roughly three times as much to operate. U.S.-built ship cost premium: 4 to 5 times more expensive than abroad - He contrasts U.S. shipbuilding costs with overseas shipbuilding costs. Tanker ship price: $30–35 million abroad vs. at least $150 million in the U.S. - Example of the Jones Act’s impact on vessel construction costs. Container ship price: $50 million abroad vs. about $250 million in the U.S. - Another shipbuilding cost comparison used to show the scale of distortion. Jones Act fleet size: 94 ships - Current number of ships compliant with the Jones Act. Global ship count: About 50,000 ships - Used to show how small the Jones Act fleet is relative to the world fleet. U.S. commercial ocean-going ships built annually: About 3 per year on average since 2000 - Grabow’s estimate of domestic commercial ship output. South Korean shipyard output: 60 ships in a year - A single South Korean shipyard can outproduce the entire U.S. commercial shipbuilding sector. U.S. shipbuilding last year: 0 commercial ocean-going ships - He notes that no commercial ocean-going ships were built in the U.S. last year. Maritime Security Program subsidy: 60 ships receive $5.2 million per year each - Current example of a targeted subsidy program already used to support sealift capacity. Puerto Rico poverty rate: 43% - Used to argue that Puerto Rico should not bear Jones Act shipping costs. Freight moved by ships in the U.S.: 2% by ton-miles - Shows how little domestic freight actually moves by water under current policy. Freight moved by barges plus ships: 6% by ton-miles - Adds barges to show waterborne transport remains limited in the U.S. Europe coastal shipping share: About 35% - Comparison suggesting other regions use maritime transport far more heavily. Wartime mariner shortfall: 1,839 mariners short of 13,607 needed - Cited from a 2017 MARAD report on sealift capacity. Saudi Arabia sealift during Gulf War: Only 1 ship from the U.S. commercial fleet used - Illustrates the Jones Act fleet’s limited wartime utility in 1990.

Pivotal Quotes: "There are no waivers given for purely commercial considerations." — Colin Grabow: On the Jones Act’s rigidity and the difficulty of using foreign vessels even when no U.S. ship is available. "I would abolish the Jones Act. I would just scrap it." — Colin Grabow: His ideal reform position on maritime protectionism. "The idea that the Jones Act is what maintains our shipment capability is something I really struggle with." — Colin Grabow: On the law’s failure to deliver the national security benefits its defenders claim.

Implications: Listeners should expect continued pressure against free trade and maritime reform, but also rising scrutiny of hidden protectionist costs. If Jones Act reforms gain traction, shipping, energy prices, supply chains, and infrastructure use could become more efficient.