Where Do US-Cuba Trade Relations Go from Here?

By Craig Tarasoff

Over the past few months, the United States and Cuba have taken great strides to normalize their relationship. On December 17, 2014, U.S. President Obama and Cuban President Raul Castro announced that they would be lifting many of the decades-old restrictions between the two countries. After 54 years, some of the hostility and separation between US and Cuba may be heading toward an end. At the very least, by easing some of the travel and commerce restrictions, the two nations can distance themselves from the rigid policies of the past half-century. 

Notably, Obama has removed Cuba from the State Department’s list of state-sponsors of terrorism. The US placed Cuba on the list in 1982 for alleged “efforts to promote armed revolution by organizations that used terrorism,” including supporting leftist insurgent movements in Latin America. By removing Cuba’s label as a sponsor of terrorism, commerce between the two countries may increase substantially. According to the President of the U.S.-Cuba Trade and Economic Council, John Kavulich, Cuba should see lowered interest rates with the reduced perceived risk of doing business with Cuba.

But what does this historic step mean in practice? The US and Cuba have similarly relaxed trade restrictions in the past, but the optimism of the two sides was very short-lived. As a result, the business community is cautious about Cuba’s short-term economic potential.  Moreover, to many observers, removing trade barriers will not result in economic booms for either country just yet. Amended regulations certainly seem promising: US companies are now allowed to export, among other things, consumer communication devices, telecommunication services, building materials and supplies for private sector construction, and certain financial services. However, he US companies are still prohibited from engaging directly or indirectly in most transactions with Cuba. Only Congress can fully untangle the web of statutes and regulations.  On the demand size, the Cuban government controls a vast majority of the nation’s economy, and many of its potential consumers have little spending capacity. Additionally, Cuba might not be willing to provide protection to foreign investors, and it certainly does not want to let foreign investment run rampant throughout the country.

Even if it takes some time, Cuban citizens are likely to welcome the increased relations with the US. A recent Washington Post poll shows that less than 40% of Cubans are satisfied with their political system, less than 20% of Cubans are satisfied with their economic system and more than 90% of Cubans want to end the trade embargo. The Cuban population is more interested in access to basic US products than it is in high-end and luxury goods.

The Cuban Thaw is undoubtedly a positive development for the US, Cuba, and Latin America. But it is important for companies and consumers alike to temper expectations with regard to its immediate benefits. “[L]ack of clarity on the new rules, lingering questions about financial transactions and remaining provisions of the longstanding trade embargo…” will prevent many business experts from maintaining too much optimism, and many companies from seeing any economic gain. The arrival of American capital surely has the potential to attract other foreign investments and improve Cuban quality of life. But until then, potential is all that’s there.