December 22, 2014    3 minute read

The New Chapter Between the US and Cuba

   December 22, 2014    3 minute read

The New Chapter Between the US and Cuba

The release of Alan Gross by Cuba and three Cuban prisoners by the US has led to a dubbed “new chapter” of relations between the US and Cuba. Rhetoric has been framed in moral sense: Obama states the release was “the right thing to do”, masking the economic logic of this improving relationship.

The 54-year trade embargo has cost $1.1 trillion to the Cuban economy and $1.2 billion to the US economy (US Chamber of Commerce, Cuba Foreign Ministry, December 2014). So the potential free trade between the US and Cuba shows clear mutual benefits to this improving relationship. This cost-benefit trade based analysis suggests that the duration of the embargo is surprising: both countries have had a clear incentive to overcome their differences. So why has it taken so long for relations to improve?

Economic incentives such as liberalising small business have failed to revitalise the largely state planned Cuban economy. The collapsing Venezuelan economy is resulting in a crisis for Cuba: Venezuela will no longer be able to afford to give Cuba the millions of dollars of subsidised oil it has a tendency to do. This “new chapter” is therefore a necessity for Cuba. However, this “new chapter” does not mean that the trade embargo will be uplifted. This depends on the US Congressional approval. The newly Republican elected Senate and their tendency of theatrically based hyper-partisanship means this is unlikely in the short-term. Florida Senator Marco Rubio (Republican) has already launched criticism by saying that President Obama had “appeased the Castro brothers.”

Yet this does not mean that the improved relationship between the two nations will be unfruitful. Changes have occurred on the back of executive orders. For example, changes in remittances will result in increasing capital transfers between the US and Cuba. Currently, remittances are estimated to be around $2 billion, according to the US Department of State. Obama has increased the threshold that US citizens can send to Cuba from $500 to $2,000, showing a possible avenue from which the Cuban economy could boom.

So being in the “right” is not Cuba’s motivation for improving relations with the US. The current economic incentives to improve the relationship are imperious. Whether this improved relationship will result in the end of the trade embargo is unclear. What is clear is that the Cuban economy is set to benefit from this “new chapter.”

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