The Practical Effects of U.S.-Cuban Trade Normalization

By Alex Yeager

Nearly a year after President Obama’s pronouncement of a goal to normalize trade relations with Cuba, minimal progress has been made on a path towards tangible trade growth.  To be fair, some real steps have been taken; most recently, the Obama administration issued regulations in September aimed at making it easier for U.S. companies to establish subsidiaries and do business in Cuba.  And, regulations regarding U.S. travel to Cuba have also been dramatically loosened.

But overall, what are the real trade effects as of now?  Virtually none.  In fact, aggregate trade numbers have actually dropped between the two countries in the time since President Obama’s proclamation.  Officials on both sides maintain that the long-standing embargo is still severely hampering any trade progress between the nations.  Some disagreement exists as to whether this is really the biggest hurdle, but it seems fairly intuitive that a trade embargo is not conducive to free trade between neighboring nations. 
There has been significant push to lift the embargo, but lawmakers have pushed back, highlighting the stalemate that has characterized the issue for much of 2015.  And, as a result of the Helms-Burton Act put into force during the Clinton presidency, the embargo can only be repealed with Congressional approval.  Such a repeal is further conditioned on Cuban economic and social progress, another hurdle to truly normalizing trade. 

There have, however, been some direct beneficiaries to these fairly ineffective talks. Regulatory overhaul has gone as far as to now allow certain U.S. industries such as banking and telecommunications to set up shop in the communist nation.  These industries have been permitted to additionally execute business functions such as creating joint ventures and establishing relationships with Cuban individuals and the Cuban government.  Among the early adopters have been Verizon, though other U.S. domestic business examples are somewhat few and far between at this stage.

The two industries most likely to benefit from further relaxed regulations are food and agriculture.  The U.S. Foreign Agricultural Service recently reported that Cuba imports nearly 80% of its food needs.  Despite the embargo, the nation already imports nearly $365 million a year in U.S. agricultural products.  Other providers of goods, such as capital and resource production companies, might also benefit from Cuba’s high import percentage.  This importation reliance does not appear to be industry related either; with 74% of its economy tied up in services, the Cuban economy simply does not produce many of its own goods.

Yet, just how much any of these industries stand to benefit is another question entirely.  Cuba’s planned economy has dramatically stagnated over the last 10 years.  Despite attempts by the Cuban government to open its markets to its own citizens, GDP growth has been well under 2%, a shockingly low number for a nation that stands to gain a great deal from economic development.  In terms of domestic Cuban industries, very little besides tourism is reportedly on the rise, though some estimate that relaxed travel standards could catalyze American tourism visits to rise as much as fourfold.  The lack of wealth creation in the nation is a major concern for foreign exporters; Cuban purchasing power is not very high, and economic officials have cited major problems with the nation’s ‘dual-currency’ dilemma as an additional hurdle to trade normalization

Yet despite ineffective talks and a stagnant economy, there is still reason for optimism; Cuba presents an untapped economy that is ripe for rapid growth if the proper steps are taken.  Opportunities exist both for overall US-Cuban trade expansion, as well as isolated unique business opportunities for domestic companies willing to invest in the Cuban market.  In just one example, studies have shown that the U.S. may stand to gain nearly $700 million in agricultural exports alone as a result of further loosened regulations.  And, if managed properly, trade offerings could also be used as leverage to influence Cuba to take positive steps in improving its notorious human rights practices.

So, in sum, not much has changed since last year.  Cuban opportunities are still largely untapped, but promise remains on the horizon; regulations have slowly been relaxed on certain industries, and the trend is clearly towards regulating liberally around the political black hole that is the embargo.  Just do not expect to see Cuban and U.S. trade shoot through the roof anytime soon.  But hey, on the plus side, you might finally be able to legally fly directly to Havana for New Years.