Against Maritime Subsidies

Maritime subsidies are fiscally irresponsible and unlikely to help Americans

The American commercial fleet is a shell of its former self and poor policy decisions are to blame. There is disagreement, however, over whether deregulation or subsidies will save America’s commercial fleet. Advocates of subsidies overlook their enormous cost and limited potential for improvement.

America’s commercial ship production and the size of its merchant fleet has been shrinking for years. The United States has the 9th largest coastline and the largest GDP in the world, and yet it has a weak shipbuilding industry and a small fleet.

In 2024 the United States built commercial ships that amounted to just 30,782 gross tons—a measly 0.04% of the world’s commercial ship production in terms of gross tonnage. America now has just 93 Jones Act–compliant ocean-going vessels after the fleet has steadily declined from 434 Jones Act–compliant ocean-going vessels in 1950. The Jones Act is a shipping regulation that requires ships to be US built, US owned, US flagged, and US crewed to engage in cabotage (to ship goods between two US ports).

Real US GDP was 9.5 times higher in 2024 than in 1950, while the Jones Act ocean-going fleet in 2024 was just 21.2% of the size it was in 1950.

Some blame the Jones Act for the poor shape of the American commercial fleet.

The Jones Act was passed in 1920 ostensibly to promote a strong domestic shipbuilding capacity by offering economic protection to domestic shipbuilders. Of course, Americans want a strong domestic shipbuilding industry. Shipping is critical for America’s economy and commercial ships play an important role in military sea-lift capacity. But the Jones Act does little to build up our fleets and instead ships are more expensive, shipbuilding and the commercial fleet have declined, and the merchant marine now struggles to fill its ranks.

Even if defenders of the Jones Act refuse to recognize the role the Jones Act has played in holding back America’s maritime industry, they cannot deny that America’s maritime industry is in sorry shape. Instead, proponents blame the removal of subsidies for America’s decline in shipbuilding and propose subsidies to revitalize domestic shipbuilding.

The SHIPS Act, a bill introduced in Congress in April of this year, would introduce new subsidies for shipbuilders and a government-loan fund to provide shipbuilders with easy financing. While subsidies in general and the SHIPS Act in particular have garnered support from maritime protectionists, they consistently overlook the problems with subsidizing shipbuilding.

The federal government has already fueled a fiscal crisis with its profligate spending over the past few decades. From 1980 to 2024, federal debt has grown from 31% of GDP to 120% of GDP. Total federal spending last year was $7.3 trillion, making it 25% of GDP. The federal government has a spending problem, so any proposed new spending should undergo intense scrutiny.

Further, for the maritime subsidies to be effective at bolstering our fleet, they would have to be large. The Jones Act has smothered competitive pressures in shipbuilding, which has allowed the cost of building American ships to balloon relative to the rest of the world. Most sources estimate that American Jones Act ships cost 4 to 5 times what comparable foreign ships cost. Even ardent supporters of the Jones Act estimate that American ships are 3.7 times what comparable foreign ships cost.

Previously, the government subsidized shipbuilding to make the price of American ships equal to the world price through the Construction Differential Subsidy (CDS). If the SHIPS Act subsidy were to be modeled on that subsidy, the government would have to pay a subsidy well over half the price of any given ship. Jones Act container ships cost around $200 million, so a subsidy modeled on the CDS would cost taxpayers over $100 million for every ship built.

Even with America’s pitiful commercial ship output, such a subsidy would cost the government hundreds of millions of dollars. If the subsidies had the desired effect of increasing shipbuilding, the bill for the American taxpayer would quickly rise to billions of dollars.

During the post-war era, the United States had the CDS in place, and yet shipbuilding was still a weak industry. Colin Grabow of the Cato Institute notes that from “1951–1981, U.S. shipyards averaged 18 ship deliveries per year. For perspective, during this same period French shipyards averaged 28 deliveries, Swedish shipyards 41, U.K. and German shipyards more than 80, and Japanese shipyards 270.” During that period, the United States only produced more than 5% of the world’s ships in two years and typically did not exceed 3%.

American shipbuilding struggled to survive in the aftermath of World War II even with subsidies. Domestic shipbuilding has declined even further since the removal of those subsidies. America cannot prudently bring back shipbuilding subsidies after years of running massive budget deficits.

Even if there was room in the budget for shipbuilding subsidies, they would run up large costs while having only modest potential for gains.

Repealing the Jones Act and opening America’s maritime industries up to foreign competition is better for Americans. It would lower domestic shipping costs, and those savings would be passed on to consumers. It would force American shipbuilders to become more efficient if they wanted to survive competitive pressures from efficient foreign producers.

Maritime subsidies prop up inefficient producers that are already shielded from competition. They put tax dollars in the hands of the well-organized maritime lobby, with little hope of meaningfully reviving American shipbuilding.

Caleb Petitt is a research associate at the Independent Institute in Oakland, Calif. @CalebDPetitt