Thursday, January 6, 2011

Repeat Post: Merchant Marine Act of 1920 and the Jones Act (CNRD)

Forgot that I had done a post about the Jones Act in April. Now that I've posted the Conrad Industries (CNRD) long idea, here it is again:

I'm working on a maritime related long. How many of you are familiar with the Merchant Marine Act of 1920 and its provision known as the Jones Act? According to Wikipedia:
The Merchant Marine Act of 1920 (P.L. 66-261) is a United States Federal statute that regulates maritime commerce in U.S. waters and between U.S. ports.

Section 27, also known as the Jones Act, deals with cabotage (i.e., coastal shipping) and requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed wholly by U.S. citizens. The purpose of the law is to support the U.S. merchant marine industry, but agricultural interests generally oppose it because, they contend, it raises the cost of shipping their goods, making them less competitive with foreign sources.
The specific wording is:
No merchandise, including merchandise owned by the United States Government, a State [...], or a subdivision of a State, shall be transported by water, or by land and water, on penalty of forfeiture of the merchandise (or a monetary amount up to the value thereof as determined by the Secretary of the Treasury, or the actual cost of the transportation, whichever is greater, to be recovered from any consignor, seller, owner, importer, consignee, agent, or other person or persons so transporting or causing said merchandise to be transported), between points in the United States, including Districts, Territories, and possessions thereof embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States, or vessels to which the privilege of engaging in the coastwise trade is extended by section 808of this Appendix or section 22 of this Act.
A Credit Bubble Stocks correspondent observes
This pits populous coastal states against sparsely-populated corn, soybeans and wheat states. I bet on the Jones Act.
If petroleum becomes very expensive, the transport system will be re-aligned away from truck to trains and from trains to barges. The wild card is solar electricity--wind and sun.
I made a bit of a jab against protectionism in my write up of the Conrad Industries idea. But the truth is, there is something wrong with economic theories about trade if the result of free trade is having your country hollowed out.

Maybe the theories need to incorporate the option value of being able to produce any shoes, phones, ships, solar cells, or Vitamin C at all in the event that China decides they want to cut off your air supply?

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