In the age of the Internet, we often forget basic truths about commerce and prosperity. Behemoths of trade like Amazon succeed only because they can deliver goods to the right place at the right time. Delivery services like FedEx, UPS, and the Postal Service are what make online trade possible.
We should remember that goods don’t deliver themselves. A little-appreciated fact is that 90 percent of world trade goes by ship. Maritime routes are the great conduits making global markets work. As Themistocles of Athens said back in 500 B.C. or so, “He who controls the sea controls everything.”
So if other nations control the seas, then America’s greatness suffers.
Sadly, some are claiming that we should let China and others dominate the waterways because they can offer lower prices. The Chinese can—but only because they are using every scheme possible to undercut competition from the free world.
They’re applying another quote, this one from Vladimir Lenin, who taught that capitalists would sell the rope with which Communists would hang them.
Perhaps money is all that matters—for those satisfied with China’s Communism and human rights records. For those of us who cherish America’s values and imperfect-yet-great system of government, other issues are paramount.
At stake are the domestic waterways of the United States, which currently are closed to foreign competition due to the Jones Act, part of the Merchant Marine Act of 1920. Essentially, the law requires vessels sailing within our borders or between U.S. ports to be American-built, American-owned, and American-crewed.
Big interests are pushing to repeal or weaken the Jones Act, claiming it would be cheaper to rent out domestic shipping to foreign interests. If they succeed, our shorelines and rivers could resemble the situation on the world’s oceans.
Thanks to subsidies, Asian nations today control the fleets that carry 90 percent of the world’s cargo. The U.S. Bureau of Transportation Statistics reports that a mere 182 of 41,000 ocean-going cargo ships are American. The other 99.6 percent increasingly are from China or other highly subsidized shipyards in South Korea or Japan.
The impact of these subsidies on global shipbuilding is seen in the hard fact that of 2,995 new ocean-going vessels now under construction (as tracked by the shipbrokers BRS Group),China, Japan, and South Korea are responsible for nearly 83 percent of the outstanding order book. The United States? Only eight (ships, not percent).
It’s not accidental and it’s not due to free enterprise. China’s dominance is built on massive subsidies and the use of state-run enterprises. Beijing’s plan is to dominate the strategic area of ocean trade.
Years ago, China announced its “Belt and Road Initiative.” The country spends billions each year to subsidize shipbuilding and also to control ports all over the globe. The Chinese are slowly closing in on all the major global shipping lanes, taking over port facilities in Europe, South America, Africa, the Middle East, the Indian Ocean and of course the South China Sea. Their sole setback was when the Trump Administration forced China to divest itself of a major shipping terminal in Long Beach.
A Harvard study found that since 2006, “Chinese subsidies dramatically altered the geography of production and countries’ market shares,” giving them an estimated 13-20 percent advantage in ship construction costs. That advantage is widened further by lower wages and fewer regulations, as well as subsidies provided by the shipbuilder to offset the operating costs of these ships.
Without the Jones Act, China would be free to jump into the valuable U.S. domestic market, which now has 40,000 vessels like ore carriers on the Great Lakes, giant barges on the Mississippi and other rivers, and ships moving goods along our inland waterways. Their aggressive expansion in the rest of the world illustrates how eagerly they would move in on America’s domestic shipping.
Protectionism is not the right word for preventing authoritarian nations from using ill-gotten wealth to gain influence. The right word is patriotism.
In The Wealth of Nations, the father of capitalism, Adam Smith, wrote that his native United Kingdom was right to protect its maritime trade from unfair foreign competition. Americans today would do well to heed Smith’s counsel.