During the Cuban Revolution of 1959, Fidel Castro was able to successfully overthrow the government of President General Fulgencio Batista. Although supported at first by the United States, tensions between the two countries accelerated rapidly within the next 18 months. In 1960, Castro’s government seized private land and nationalized hundreds of private companies (several of them were U.S. corporation), and taxed American products so heavily that U.S. exports were halved in just two years. As a consequence, President Kennedy ended all diplomatic ties with Cuba, signing a permanent embargo on February 7, 1962. To this day, the trade embargo remains intact.
Currently, with tensions between the U.S. and Cuba lessening and Cuba’s government transitioning to a market economy, the possibility of the embargo being lifted in the near future is certainly realistic. Thus, Cuban policy makers have debated whether or not the country would actually gain from a bilateral trade agreement with the U.S. As an economist myself, I have analyzed this issue and believe that Cuba could benefit in a variety of ways with the lifting of the embargo. Specifically, Cuba will gain from a free trade agreement with the U.S. because its healthcare system would improve, its energy independence would improve, and the tourism industry would flourish.
It’s a foregone conclusion that Cuba’s healthcare system suffers without a bilateral trade agreement with the United States. Currently, the U.S. exports roughly 39.1% of all medical supplies worldwide, more than double any other country. Due to the current restrictions and the lack of a free trade agreement, U.S. medical companies strongly prefer not to ship to Cuba. That is why according to a 2011 report by the American Association for World Health revealed “Cuban doctors have access to less than 50% of drugs on the world market.” Cuba has to approach 3rd countries (non US countries) to get important medical supplies for the country. These 3rd countries use their negotiating power and charge about 40% more in transportation and product costs as a result of the embargo. Furthermore, in 2010, 12 Cuban children needed unnecessary heart surgery because they were not able to import American made catheters in a timely matter. Cubans would greatly benefit by having easy access to valuable medical discoveries that are made in the United States.
With free trade with the U.S., Cuba won’t have to rely on Venezuela exclusively for oil imports and economic prosperity. Currently, Cuba is dependent on foreign countries for Oil, specifically Venezuela. As of 2012, about 60% of Cuba’s petroleum demand relied on imports, with Venezuela being almost the single source of them (90%). Therefore, just as when GDP decreased by 34% following the collapse of the Soviet Union (which Cuba relied heavily on for oil imports), Cuba’s economy will suffer immensely if Venezuela is unable to supply oil in the future. U.S. companies can contribute to limiting this risk by helping in developing Cuba’s hydrocarbon reserves and its renewable energy such as solar, wind, and sugarcane ethanol.
If the trade embargo is lifted, Cuba will gain economically and socially with more U.S. citizens visiting country. Tourism is Cuba’s most important sector economically, and represents the largest source of foreign exchange for the country. As of 2011, the tourism industry in Cuba’s tourism industry comprised of just 2.71% of people from the U.S. The number of U.S. visitors to Cuba would increase to over 3 million people per year with a free trade agreement. Cuba’s airline and hotel industries would specifically gain from the increased supply of people into the country. Additionally, the increased demand for food consumption will increase Cuba’s agricultural industry by over 20%. Also, American tourists will help spread the liberal, democratic values that might lead to reforms promoting democracy and freedom.
It is evident that with the removal of the trade embargo between the U.S. and Cuba, Cuba will gain by improving its medical system, having more energy independent and diversification, and benefiting economically and socially due to increased U.S. tourism. In October 2013, the General Assembly at the United Nations adopted a resolution (backed by a 188 to 2 vote) calling for an end to the economic, commercial and financial blockade imposed by the U.S. on Cuba. Although President Obama has recently eased traveling and financial restrictions to the country, he has refused to fully negate the embargo. Therefore, despite the trade economics making sense, it’s unfortunate that Cuba is still unable to take advantage of its 90 mile proximity to the United States.