The Cost of Crisis in Cuba
Dartmouth Business Journal
Food shortages, economic volatility, and human rights violations are only three of the many ailments that have plagued the floundering Cuba in the past decade. These problems originate in Cuba’s strangling government, which has been challenged by international sanctions since its origin in 1959. For the past half-century, the US has remained entrenched in its unsuccessful embargo of Cuban goods with the intent to undermine the Castro regime. Yet both the U.S. and Cuba stand to benefit from trade between the two nations.
The embargo was first imposed in 1962 following Cuba’s alignment with the Soviet Union. Since then, the Helms-Burton Act of 1996 codified the embargo into law and strengthened its reach by restricting trade of Cuban-made goods with foreign companies. The US has remained steadfast in its demand for Cuban democracy and dismantling of the current government, but few European and Latin American allies support its economic embargo. The source of current support for the embargo lies in the Cuban-American lobby, which sways the vote of Cuban- Americans in Florida. Currently, U.S. law has ceased trade apart from basic necessities—agricultural imports from the U.S. totaling $1 billion—with its southern neighbor, and has reduced trade between Cuba and other nations.
The large economic impact the lifting of the Cuban embargo would have on Cuba is closely tied to its dependence on trade. Historically, the socialist system of trade has left Cuba’s prosperity in the hands of the Soviet Union and, recently, Venezuela. In the period following the dissolution of the Soviet Union, Cuba’s GDP dropped 35% as Soviet subsidies were lost and 85% of Cuba’s trading partners ceased trade with the island. Shortages of basic goods and medicine, a plummeting standard of living, and rising debts all revealed Cuba’s dependence on international trade and subsidies from socialist allies. And while Cuba has recovered from this period, much of it was due to relaxed state control of the economy and increased humanitarian trade from the US.
Since 2004, Cuba has replaced its Soviet sponsorship with Venezuelan subsidies and trade. Amidst Cuban economic growth, open trade with the United States could relieve Cuban dependence on foreign support. As Cuba’s main trading partners are currently Venezuela, Canada, and the EU, Cuba could competitively export agricultural and fuel products to its close neighbor, the U.S. With the surplus earned from exports, the government could make balance debts and offer a greater variety of goods to its citizens.
The United States would also benefit greatly from lifting the embargo. In terms of U.S. exports, the U.S. International Trade Commission estimated that the annual U.S. export losses from the embargo are approximately $1 billion dollars. Additionally, the United States could also normalize relations with nations frustrated by their stubbornness over excluding Cuba. When choosing whether to continue or close the embargo, the U.S. must weigh its effectiveness against these forgone benefits.
The embargo has now been in place for 50 years and has been utterly unsuccessful. Broadly, the embargo was intended to push Cuba toward democracy and oust Fidel Castro as its leader, but instead Cuba has adapted to the loss of U.S. support and has distanced itself from its powerful neighbor. Independent of the embargo, Raul Castro—Fidel’s 80-year- old younger brother—has loosened government economic control. Cubans are now able to sell some private property and apply for 181 approved self-employment occupations. Although the work is predominantly menial labor, the 371,000 licenses granted for self-employment is nonetheless a step toward capitalism. As Cuba takes these small steps on its own, U.S. trade will expose the benefits of capitalism to the Cuban government.
The losses from trade that the United States incurs by imposing the Cuban embargo further exposes its absurdity. The U.S. government promises to lift the ineffective embargo on the condition that Cuba transitions to democracy, yet communist China remains America’s second largest trading partner. After 50 years, the embargo resembles more an outdated manifestation of the Cold War than an effort to improve the lives of Cuban citizens.nearly impossible for entrepreneurs to create successful businesses.