U.S. President Donald Trump is weighing another suspension of the Jones Act as gasoline prices above $4 a gallon threaten to become a liability for Republicans heading into the midterm elections. The move would again open domestic oil and fuel shipments to cheaper foreign-flagged vessels, extending an emergency waiver Trump imposed after the Iran war sent crude prices sharply higher in March. The problem is that the first waiver barely moved gasoline prices. Shipping costs account for only a small part of what Americans pay at the pump, leaving Trump with limited room to cut prices through maritime policy as he turns up the pressure on ExxonMobil and Chevron over their soaring profits.
At the same time, Trump has stepped up pressure on Big Oil over high gasoline prices, lambasting Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) for making too much money amid high energy prices and global supply shortages. Trump has directed the Department of Justice to investigate Big Oil for possible price gouging, accusing oil companies of keeping gasoline prices high even as global crude prices have fallen.
The backlash followed the companies' bumper second quarter results, with Chevron's quarterly earnings surging to $12 billion, up from $2.5 billion the previous year while ExxonMobil's profits more than doubled to $14.5 billion.
With Big Oil showing no indication of heeding Trump’s threats, extending the Jones Act waiver is another lever to pull, from the perspective of the White House. The initial 60-day exemption, announced in March after oil prices spiked in the first weeks of the Middle East conflict, is set to expire on August 16. By temporarily lifting the law’s strict maritime restrictions, the White House has allowed foreign-flagged vessels to transport oil and refined petroleum products between domestic ports.
The Jones Act is a federal law that dictates that all cargo transported between U.S. ports must be carried on ships that are built in the U.S, owned by American citizens, and crewed predominantly by U.S. workers. It’s been waived a total of 40 times in its 105-year history, with former U.S. president Joe Biden also setting it aside in 2021 following the Colonial Pipeline ransomware attack.
The primary purpose of the Jones Act is to facilitate a steady pipeline of American-owned and operated commercial vessels available to assist national defense and logistics during wartime or national emergencies. It also guarantees employment for U.S. mariners and shipyard workers by eliminating cheap foreign competition on domestic shipping routes. Interestingly, there are some who are encouraging Trump to do away with the Jones Act altogether.
In his March Bloomberg Opinion piece, former New York City Mayor Michael Bloomberg argued that the temporary waiver of the Jones Act during the conflict with Iran demonstrated that the 1920 shipping law is an outdated, counterproductive protectionist measure. Bloomberg labeled the law "one of the most counterproductive protectionist measures of the last century," pointing out that its artificial inefficiencies unfairly penalize American consumers--costing typical families in isolated regions like Hawaii roughly $1,800 a year. He noted that the suspension helped restrain fuel prices and support domestic shipments without harming the broader industry, making a case for Congress to permanently repeal or relax the act.
However, whereas energy and agricultural sectors support the waiver for helping bypass supply bottlenecks, Trump is facing opposition to the idea of suspending the federal shipping law, including from members of his own party, with maritime industry critics warning it threatens American shipbuilding and domestic seafaring jobs.
Back in June, House Speaker Mike Johnson and over 50 Republican lawmakers sent a letter to the president urging him to let the Jones Act waiver expire as per the earlier schedule, arguing that it undermines American maritime jobs and national security. Data collected during the waiver showed that roughly 95% of the waiver voyages were handled by foreign operators, leading domestic maritime groups and congressional leaders to push for a return to standard protectionist rules. Meanwhile, Senator Maria Cantwell and other critics argue that the Jones Act waiver has failed to lower fuel prices while creating uncertainty and instability for the U.S. maritime and shipbuilding sectors.
And, the Washington senator has a valid point. Previously, we reported that suspension of the Jones Act in March did little to lower oil prices “It is estimated that it’s going to be about 3 cents on the East Coast and it might go up on the Gulf Coast, but these changes are so small that they’re overshadowed by the spikes in oil prices, and the oil prices keep going up,” Usha Haley, a professor of management at the Wichita State University, told Al Jazeera about a month after Trump suspended the Jones Act.
The political pressure to bring gasoline prices down will only intensify as the midterm elections approach. A late-July Politico poll found that 46% of respondents said gas prices would influence how they vote this fall.
By Alex Kimani for Oilprice.com
