President Trump bowed to political and industry pressure by abandoning reform of the controversial Jones Act shipping rule, according to officials who were present at the time and dislike the decision.
The dispute over the century-old law became a flashpoint in the bigger battle within the administration between the free trade contingent and those who want to protect domestic industries from foreign competition. The law requires goods shipped between American ports to be transported on ships built, owned, and operated by American citizens. To those in favor of reform, it’s an antiquated barrier to the free flow of goods among countries that makes things more expensive for people in the United States. But defenders argue that it is critical to maintaining the domestic shipbuilding industry and protecting national security.
Even as he moved to deregulate other industries, Trump backed off from overhauling the Jones Act. Officials who were on the losing side of the fight argue that Trump gave in to pressure from congressional Republicans aligned with industry, who they say deployed arguments about national security that the president’s national security advisers rejected.
“Trump had a bunch of senators come to his office who tried to stop him, and they did,” said Casey Mulligan, a University of Chicago professor who was the chief economist for the White House Council of Economic Advisers during the incident.
Mulligan and other senior administration officials say the president initially endorsed reforms of the Jones Act in internal deliberations.
In a forthcoming memoir of his time in the White House, You’re Hired!: Untold Successes and Failures of a Populist President, Mulligan writes that Trump “hates” the Jones Act, describing it as the “type of harmful regulation that he has succeeded in ending in health insurance, telecommunications, farming, and many other industries.” Mulligan also claims Trump dislikes the law on grounds of national interest as well as on free market principles. He says the president is dismayed that the American shipping industry lags far behind that of China and other countries and is irked that the U.S. doesn’t have ships to transport liquefied natural gas.
In a spring 2019 Oval Office meeting that included senior officials, trade adviser Peter Navarro, Transportation Secretary Elaine Chao, economic adviser Larry Kudlow, and senior members of his National Security Council, Trump endorsed the idea of easing Jones Act requirements, Mulligan’s book claims.
Trump favored granting a narrow waiver for shipments of liquefied natural gas to Massachusetts and Puerto Rico, where energy costs are high and rely on foreign shippers, such as Russian companies, instead of U.S. ones because of the high costs imposed by the Jones Act. The American Enterprise Institute, a conservative think tank, has concluded that both New England and Puerto Rico have significantly higher energy costs because of the law.
A week later in May, however, Trump turned against granting a waiver. Mulligan and other free-marketers blame the shipping industry’s influence for ending administration efforts to lessen the regulatory burden. Critics who worked in the administration at the time note that Trump changed his tune after a meeting with key Republicans, including the six senators from Louisiana, Mississippi, and Alaska.
“They convinced him that they would make [his] life so uncomfortable if he even did a waiver for the Jones Act, let alone repealed it,” Mulligan told the Washington Examiner.
Mulligan and the other officials say they saw their internal administration opponents as influenced by shipping industry lobbying. The six Republican senators and some members of Trump’s administration, such as Navarro and Chao, “want to continue this special favor to shipping companies,” Mulligan told the Washington Examiner.
Kudlow, the director of the president’s National Economic Council, told the Washington Examiner he supported a narrow waiver during the fight and would probably support a full waiver. He has long been an advocate of free markets. He once claimed, before joining the administration, that Trump and other Republicans “are flirting with protectionism. Protectionism is anti-growth. Protectionism led to the Depression of the 1930s.”
Mulligan and other former officials also say Navarro was instrumental in blocking the waiver.
During the key meeting with senators in May 2019 in which Trump backed off from the waiver, it was evident that the senators thought Trump wanted a full waiver, akin to repeal, instead of the narrow waiver for natural gas shipments that Trump was actually seeking, a person familiar with the matter said. This source blames Navarro for the confusion, which meant the Capitol Hill delegation came to the meeting ready to fight and unready to compromise. In a bitter comment in his book, Mulligan wrote: “Mr. Navarro’s reputation preceded him; even the president was annoyed with Mr. Navarro’s boorishness and double dealing and barred him from running meetings.”
In an equally blistering rebuttal to the Washington Examiner, included in full at the bottom of this article, Navarro said the Jones Act was “critical to rebuilding an American shipbuilding industry that is essential to our national security and economic prosperity” and said criticisms of the decision were merely “wild allegations and innuendoes” from anonymous sources.
Jones Act defenders generally argue that it is justified on national security grounds. The law, passed in 1920, less than two years after World War I, was intended to bolster the U.S. maritime industry. It was presented as a plan to ensure adequate domestic shipbuilding capacity and a ready supply of merchant mariners to be available in times of war or other national emergencies.
Many within the Trump administration and the Republican Party defend the law on that basis and did so throughout the events described by Mulligan. A senior Transportation Department official said the national security benefits of the Jones Act are “like medicine: It costs us money, but we need it to be healthy.”
Others who are no longer in the administration say, however, that the National Security Council had no major concerns about granting a waiver. “Trump’s National Security Council believes that the Jones Act does even more harm to our national security than it does to our economy,” Mulligan wrote.
Trump’s former senior director for strategy at the National Security Council, Robert Spalding, told the Washington Examiner that the Jones Act has contributed to the demise of the U.S. shipping industry and the U.S. naval presence by driving up costs and restricting the supply of ships. He noted that America’s biggest competitor, China, has more than 10,000 commercial ships, while the U.S. has only 98 that meet Jones Act criteria.
“There is a consensus at the NSC that the Jones Act has not enabled the success of the U.S. maritime industry in a manner that is promoting U.S. national interests,” said Spalding, who served in the NSC in 2018.
Several senior administration officials said that during the Jones Act fight, the Pentagon had no problem with the proposed waiver because it saw no national security concerns about it. The Department of Defense did not respond to requests for comment.
A senior official who was with the NSC at the time told the Washington Examiner, “There are no red flags national-security-wise that I’m aware of.” Trump wanted only a narrow waiver for natural gas shipments, not a full repeal. If Trump’s National Economic Council was convinced of the economic benefits of removing the law, the NSC would not stand in its way, the official added.
The nonpartisan Congressional Research Service found in 2019 that the Jones Act raises shipping costs by up to five times. “These costs are passed onto American households in the form of higher prices for energy and other commodities, added pollution and mortality, and lower real wages,” writes Mulligan.
A study by the Organization for Economic Cooperation and Development suggests that if the Jones Act was fully waived or repealed, it would add $19 billion-$64 billion (0.1%-0.36%) to the U.S. economy.
Mulligan, in his book, due out Sept. 3, also goes so far as to suggest that Chao had a conflict of interest because of her family’s involvement in the shipping business and her close ties to the shipping lobby, a suspicion shared by some former officials on Mulligan’s side in the Jones Act fight.
Such accusations are unusual for members of the same administration and illustrate the ferocity of the debate. The acting CEA chairman during the Jones Act fight, Tomas Philipson, said, “It was my understanding that she should’ve recused herself from the Jones Act waiver decision regardless of her own position on the issue because her family owns a business that is affected by the decision.”
None of those casting aspersions offer evidence that Chao broke any rules. She has no official affiliation with or stake in the shipping company, Foremost Maritime, owned by her father and sisters. Her father has given her and her husband, Senate Majority Leader Mitch McConnell, millions of dollars in the past, according to disclosure reports. Mulligan also noted that a few weeks after the waiver fight, Chao received an “American Maritime Hero” award from one of the biggest lobbying groups that defends the Jones Act, the American Maritime Partnership.
Other officials say, however, that such inferences are unwarranted and that the Transportation Department is inherently opposed to changing the Jones Act. “The Transport Department and Chao have always been against Jones Act changes, it’s in their nature,” said a senior administration official. “The agency exists to support the shipping industry. DOT and Chao can’t not support what the industry wants.”
Maritime Administrator Mark Buzby, a retired rear admiral, added in a statement: “These false and personal attacks are absolutely repugnant and factually incorrect. The Jones Act, which is the law of the land, is critical to maintaining America’s domestic shipbuilding and repair capacity, maritime infrastructure, and pool of trained mariners needed for military sealift to protect and sustain our Armed Forces around the world. It’s absurd to report that the Jones Act benefits international carriers.”
The White House did not respond to requests for comments.
Here is the full statement from Navarro: “Strict enforcement of the Jones Act is critical to rebuilding an American shipbuilding industry that is essential to our national security and economic prosperity. From Day One in the Trump Administration, I have fought every effort to weaken the Act, which is the oldest piece of Buy American legislation and has broad bipartisan support on Capitol Hill. As you read this article carefully, note that the wild allegations and innuendoes that appear are based on anonymous sources that mean to do both the president and the Jones Act harm. This is not ethical journalism, simply a hit piece that advances the cause of free market ideologues and corporate interests that want to offshore our shipbuilding industry to the sweat shops of China.”
View entirety: Washington Examiner