Elaine Chao’s conflicts of interests could have major consequences
SLIGHTLY SHOCKING NEWS out this week: Transportation Secretary Elaine Chao, wife of Senate Majority Leader Mitch McConnell, might have tried to leverage her political connections to benefit her family’s shipping company. According to reports, her request for government support for travel, lodging, and meetings between her family members and Chinese government officials during an official government trip in 2017 raised enough eyebrows that the whole thing was 86’ed.
Graft has been standard operating procedure for officials in this administration, so I can’t blame you for shrugging at this point. The opportunists currently in power consider the US government nothing more than a not-so-secret cave of riches waiting to be plundered by those smart enough (here’s looking at you, Jared Kushner), or connected enough (ibid), to get the magic password.
In Chao’s case, however, opportunism could have tremendous national costs. An informal advisor to the Trump administration tells me the zealously anti-regulation president may be open to undermining centuries-old maritime laws that have protected the industry since this nation’s founding. Though changing these laws would require an act of Congress, the agency under Chao has pushed to “cut programs intended to stabilize the financially troubled maritime industry in the US . . . cut new funding for federal grants to small commercial shipyards and federal loan guarantees to domestic shipbuilders . . . slash[ed] spending for a grant program that helps keep 60 American-flagged ships in service, and has tried to scale back plans to buy new ships that would train Americans as crew members,” reports the Times.
Over the years, McConnell and Chao have received approximately $26 million from Chao’s family via direct gifts or campaign contributions. Chao’s sister runs the family’s shipping company. More tangling of the web: Chao has myriad professional connections with Chinese officials overseas, which may be helping her family secure lucrative business deals.
The US Department of Transportation, over which Chao presides, oversees every aspect of anything in this country that rolls, flies, or sails, including the Federal Aviation Administration; the Federal Highway Administration; pipeline safety; and, most significantly, the Maritime Administration.
The media has dutifully repeated Chao’s assertion that her family’s company, Foremost Group, is small and American. That’s intended to reassure us that Chao, as transportation secretary, is keenly attuned and sympathetic to the interests of American small businesses and the maritime industry. “My family are patriotic Americans who have led purpose-driven lives and contributed much to this country,” Chao said in a response to the Times.
Except that no. Those familiar with the shipping industry know that when it comes to companies like Foremost Group, the term “American” is practically meaningless.
Yes, Foremost has an office in New York, but its ships — designed to carry dry bulk, including the coal and ore driving China’s insatiable development — are registered in Liberia. Foremost vessels are built in China, some financed with loans from the Chinese state, some constructed at shipyards subsidized by China. According to the report, the Chinese government holds Foremost loans for “hundreds of millions of dollars.”
It’s almost as if Foremost wasn’t an American company at all. As William Langewiesche details in his book, “Anarchy at Sea,” registering ships in a foreign country is a neat way to offshore literally everything about your business without changing your billing address. Doing so also has major regulatory and tax implications.
In contrast, ship owners who register their vessels in the US must follow American labor, environmental, and financial laws. Those working aboard the ship must be paid American-size wages, work regular hours, and receive time off and benefits that meet American standards. Chain of ownership needs to be clear and senior leadership must be American.
Of course, plenty of businesses offshore these days, making tiny Liberia the second largest ship registry in the world. Even American cruise ship lines register all of their vessels abroad.
But Elaine Chao, as a cabinet member, is in a unique position to thwart the laws that have protected American shipping from global market forces. For more than 200 years, shipping goods between American ports has been regulated by various versions of what’s now called the Jones Act — legislation that was written, in part, to fortify the American shipping industry in peacetime to ensure that we have a civilian navy at our disposal when and if we need it. American merchant ships, crewed by American mariners have been contracted to move troops, munitions, and supplies where they’re needed. (Notably, the Chaos first got into shipping as suppliers of rice to Vietnam in the 1960s.)
Since the passage of the Jones Act in 1920, however, free-market conservatives have waged a battle against the legislation. Because it stipulates that ships that move goods between American ports fly the US flag; are owned by Americans; are crewed primarily by Americans; and are built by Americans, it is unabashedly protectionist. Looser regulations would allow shipping companies like Foremost to enter the lucrative American market, which would benefit Chao’s family business.
The Jones Act is the one thing preventing the foreign countries like China from completely overtaking America’s domestic shipping industry. And that’s a big deal.
Right now, the Chinese are investing in ports around the world, including the US. They already have a stake in ports in Africa, South America, Eastern Europe, and Central Asia. This investment is part of an ambitious worldwide economic strategy to assert Chinese power and influence at every touchpoint worldwide. By controlling ports, China will be able to collect invaluable information about the movement of raw materials, food, and weapons around the globe — and the maneuvering of US Navy vessels.
“China is paving the way to sell and buy what it wants, according to economic and strategic policies produced by the CCP,” writes John Lee in the American Interest.
Those who own shipping rule the world. When Alexander Hamilton crafted America’s first maritime laws on which the Jones Act was built, he understood that concept implicitly.
Like other Trump cabinet members, Elaine Chao may live in the US, but her wealth is tied to a global industry. The Chaos’ interests are financial, not national. And that’s why we should keep an eye on any moves to abolish the Jones Act. Because what may seem like run-of-the-mill Trump administration graft may, in fact, be a red herring. Much greater ambitions — global hegemony-sized ambitions — are at play.