The Cabotage Clause

The problem

The Merchant Marine Act of 1920, known for the senator who wrote it as the Jones Act, has four requirements for any vessel carrying cargo between two points in the United States: it must be built in an American yard, owned by American citizens, crewed mostly by Americans, and registered under the American flag. The purpose was a merchant fleet and a shipbuilding industry that the Navy could call on in war. A century later the fleet that meets all four tests numbers 93 oceangoing ships, as of April 2025: 31 cargo vessels and 56 tankers and a few others, for a country with two ocean coasts, a Gulf, Alaska, Hawaii, Puerto Rico and Guam.

The reason is the first requirement. An American-built container ship or tanker costs several times what the same ship costs from a Korean or Japanese yard, and so the domestic fleet is small, old and expensive to run, and the places that depend on it most pay the most. A World Bank study estimated the law costs Puerto Rico about $203 a person a year, about 1.1 percent of household spending, in the price of everything that arrives by sea. Hawaii's Grassroot Institute puts the cost to each resident at as much as $1,800 a year, a figure the shipping lines dispute and nobody has independently settled. A 2025 Southern Methodist University study estimated that opening domestic shipping to foreign-built vessels would add about $3.2 billion a year to national output. When a hurricane or a fuel shortage strikes, the government waives the law for a few weeks, as it did in August 2026, and the cost of the ordinary arrangement becomes briefly visible in the price of fuel in Puerto Rico.

The law has also failed at its own purpose. American commercial shipyards deliver a handful of large ships in a good year; China's deliver hundreds, and South Korea's and Japan's dozens. The military sealift fleet the law was meant to guarantee relies, by the Maritime Administration's own account, largely on foreign-built ships under American flag through a separate subsidy programme. The build requirement has protected a small number of yards from competition without producing a shipbuilding industry, and the price has been paid by the islands.

The proposal

The Cabotage Clause: the American-flag, American-owned and American-crewed requirements of the Jones Act are kept in full. The American-built requirement is repealed for ships in domestic trade, with a permanent exemption taking effect immediately for Puerto Rico, Hawaii, Alaska, Guam and the other non-contiguous territories, and a five-year transition for the mainland. The shipyards are funded directly, in public, through the Shipyard Compact of № 123, with naval and government orders rather than a hidden tax on islands.

How it would work

1. Three of four requirements stay. A ship in domestic trade remains American-flagged, American-owned and American-crewed. The flag brings the ship under American law and the Navy's call; the crew keeps the seafaring jobs and the pool of mariners the sealift fleet needs. Neither of those depends on where the hull was welded.

1. The build rule goes, islands first. From the day of enactment, a foreign-built ship meeting the other three tests may serve Puerto Rico, Hawaii, Alaska, Guam, the Virgin Islands and the Northern Marianas. These are the places with no road to the mainland and the highest cost from the current rule, and they have waited a century. The mainland coastal and inland trades follow in five years, so that existing operators can plan.

1. Retrofit and reflag. A foreign-built ship entering domestic trade must pass Coast Guard inspection and be reflagged, crewed and owned under the rules that remain. The ships that will enter first are the modern, efficient vessels the domestic fleet cannot afford to build, and the effect on the price of moving a container from Jacksonville to San Juan will be visible in the first year.

1. The yards, funded honestly. № 123 orders the ships the country actually needs from American yards, warships, auxiliaries, icebreakers, the Hospital Fleet of № 059, on multi-year contracts that let a yard invest. That is a subsidy, and it is paid in the open by the whole country for a stated purpose, which is the honest form. The build requirement was a subsidy paid by Hawaii for the same purpose, and it did not work.

1. The count. Each year: the number of ships in domestic trade by origin of build, the freight rates on the island routes, the mariners employed, and the ships delivered by American yards under the Compact. If the clause has cost jobs at sea, the count will show it; if it has cut the island freight rate, the count will show that too.

The numbers

The fleet. 93 oceangoing ships qualify today. A modern container ship from a Korean yard costs on the order of a quarter to a third of the American-built price; the tankers that carry fuel to Puerto Rico and Hawaii, likewise.

The islands. $203 a person a year in Puerto Rico by the World Bank's estimate, about $650 million for the island; Hawaii's figure is disputed but not small; Alaska and Guam are not well studied, which is itself a finding.

The economy. $3.2 billion a year in additional output by the 2025 estimate, from cheaper coastal shipping that would take freight off highways as well as lower prices on the islands.

The jobs. American commercial shipyards employ tens of thousands, most of them on naval work that the Compact expands. The number of yard jobs that depend specifically on Jones Act commercial orders is small, in the low thousands, and the Compact is designed to absorb them. The mariners' jobs are unaffected, because the crew rule stays.

The honest objections

"This guts national security. A country without shipyards cannot fight a war at sea." The strongest objection and the reason the proposal is paired with № 123. The Navy's shipyards are funded by the Navy and untouched by this clause. The commercial yards that would lose Jones Act orders are the yards the Compact funds directly for the auxiliaries, icebreakers and hospital ships the country is short of. A shipbuilding base sustained by naval orders is how every serious maritime power maintains one; a base sustained by making Hawaii pay for its groceries has produced 93 ships.

"American mariners will lose their jobs." The crew requirement is kept in full. A foreign-built ship in domestic trade sails with an American crew, and a larger, cheaper fleet needs more of them, not fewer. The seafarers' unions have opposed every Jones Act reform because most of them repealed the whole law; this one repeals the part that does not employ a single sailor.

"The islands' freight costs are about market structure, not the build rule." Partly true: the Puerto Rico trade is served by a few carriers, and a protected market breeds concentration. That is an argument for the clause, not against it. A route that foreign-built ships may enter, under American flag and crew, is a route the incumbent carriers can no longer count on.

"Waivers already exist for emergencies." They exist for a few weeks after a hurricane, at the discretion of a Secretary, and the fact that the government reaches for one every time the islands are in trouble is the clearest evidence that the rule costs something the rest of the time.

"Foreign yards are subsidised and American yards cannot compete fairly." True, and the Compact answers it by funding American yards for the ships the country needs, openly. What the build requirement did was answer it by forbidding Americans to buy the cheaper ship, which is a policy of paying more for less and calling it strength.

Sources

• Merchant Marine Act of 1920, 46 U.S.C. § 55102; Congressional Research Service, Shipping Under the Jones Act: Legislative and Regulatory Background (R45725)
• U.S. Maritime Administration, United States Flag Privately-Owned Merchant Fleet Report, Jones Act-eligible oceangoing vessels, April 2025
• World Bank, The Impact of the Jones Act on Puerto Rico (working paper), on tariff-equivalent costs and per-capita welfare loss
• Grassroot Institute of Hawaii, Quantifying the Cost of the Jones Act to Hawaii (2020), and rebuttals from the Transportation Institute
• Southern Methodist University, 2025 study on the economic effects of Jones Act reform, cited in Econofact, The Jones Act and the Cost of Shipping Between U.S. Ports
• Cato Institute, The Jones Act: A Burden America Can No Longer Bear (2018)
• Proposals № 044 (The Atomic Compact); № 047 (The Arsenal Account); № 059 (The Hospital Fleet); № 123 (The Shipyard Compact, forthcoming)