Tariffs, Tankers, and the Cost of Moving Energy

“Whether one is a conservative or a radical, a protectionist or a free trader, a cosmopolitan or a nationalist, a churchman or a heathen, it is useful to know the causes and consequences of economic phenomena.”
— George J. Stigler

Sometimes the most interesting economic contradictions show up when markets get tight.

We may be watching one unfold right now.

The same administration that has leaned heavily on tariffs to bring manufacturing back to the United States is reportedly considering temporarily lifting the Jones Act to help ease domestic fuel prices.

And maybe by the time this piece is published, the administration has already suspended the Jones Act.

That should make people pause for a moment.

The Jones Act is essentially a protectionist policy for the U.S. shipping industry. It requires that cargo shipped between U.S. ports travel on vessels that are built in the United States, owned by U.S. citizens, and crewed primarily by Americans.

On paper, that protects American maritime capacity.

In practice, it can make it far more expensive to move energy around our own country.

And when energy markets tighten, those costs start showing up everywhere.

Including construction.

One of the more striking examples involves the movement of fuels from the U.S. Gulf Coast.

It can often be cheaper to ship liquefied natural gas or refined fuels from Texas to Canada than it is to ship those same fuels to the U.S. Northeast.

Think about that for a second.

American energy moving to a foreign country can cost less than moving that same energy to American consumers.

Why?

Because international shipments can use the global tanker fleet.

Domestic shipments between U.S. ports must use Jones Act vessels.

Those ships are limited in number and significantly more expensive to operate.

In some cases, shipping fuel from the Gulf Coast to New England on a Jones Act tanker can cost two to three times more than sending the same cargo overseas on a foreign vessel.

That is not a market outcome.

That is policy.

At the same time, global energy markets are tightening.

With the mess in Iran and disruptions around the Strait of Hormuz tightening global energy markets, China has responded by curbing exports of diesel and gasoline in order to prioritize its own domestic supply.

When a country that large pulls product off the global market, it tightens supply quickly.

Prices respond.

Logistics suddenly matter more.

And the ability to move energy efficiently inside your own country becomes a much bigger deal.

That is when policymakers start looking at rules like the Jones Act.

The idea being floated is a temporary waiver.

Allow foreign tankers to move fuel between U.S. ports.

Increase available shipping capacity.

Lower transportation costs.

Ease pressure on domestic fuel prices.

At least that is the theory.

But anyone who has watched government policy long enough knows that the word temporary has a flexible definition.

Programs introduced during a crisis have a way of sticking around.

We have talked about this dynamic before on the Concrete Logic Podcast website when discussing tariffs.

Protectionist policies often look good on paper.

Protect domestic industry.

Limit foreign competition.

Reshore production.

But once those policies collide with real-world supply chains, the unintended consequences start showing up.

If you missed those discussions, you can read them here.

McKinley’s Tariffs — A Lesson from History
https://www.concretelogicpodcast.com/blog/mckinleys-tariffs-a-lesson-from-history/

Reagan’s 1987 Tariffs on Japan — Impact & Trade Lessons
https://www.concretelogicpodcast.com/blog/reagans-1987-tariffs-on-japan-impact-trade-lessons/

The Jones Act operates under the same basic principle.

Limit competition.

Protect a domestic industry.

Raise costs.

Eventually those costs show up somewhere else in the economy.

Usually when the system is under stress.

And the stress is starting to show up in our industry.

This week, concrete and aggregate suppliers started sending out notices that fuel surcharges are coming back.

We have seen this before.

The same type of notices went out when diesel prices spiked after the Russia–Ukraine conflict began.

The message is simple.

When diesel prices rise, the cost of moving materials rises with it.

And those costs get passed through the supply chain.

Fuel moves everything in construction.

Fuel moves aggregates.

Fuel moves cement.

Fuel moves ready-mix trucks.

And when energy logistics become inefficient, those costs ripple through the entire industry.

Energy markets are brutally simple.

Fuel flows to where it is needed.

And it flows along the cheapest available path.

When policy blocks that path, markets eventually push back.

Sometimes through higher prices.

Sometimes through shortages.

And sometimes through policymakers quietly reconsidering long-standing rules.

Which brings us back to the irony.

An administration promoting tariffs to reshore manufacturing may now be considering removing one of the longest-standing protectionist shipping laws in the country.

Not because the ideology changed.

Because the market forced the conversation.

Physics has a way of doing that.