“I think it’s time for us to end the embargo on Cuba”, Barack Obama declared as he was running for the Senate in 2004, “The Cuban embargo has failed to provide for the sort of rising standard of living, has squeezed the innocents in Cuba, and utterly failed in the effort to overthrow Castro – who has now been there since I was born. So it’s time for us to acknowledge that that particular policy has failed.”
Since Obama recognized this matter-of-fact truth, the embargo on Cuba failed to overthrow the Castro regime for an additional 8 years, thusfar failing for a grand total of 52 years and achieving the dubious distinction of being the longest-running blockade in in the history of the world. It would be fair to say that the U.S. embargo on Cuba has been the worst trade policy ever made.
So why don’t we just call a spade a spade and finally open up trade with Cuba? Now more than ever, American businesses desperately need to access new markets and increase our exports to other countries. As the Obama administration has sold free trade agreements with Panama and Colombia as part of the Recovery Agenda, it’s time to repackage trade with Cuba as a means of expanding markets for American farmers and manufacturers and creating more American jobs.
Trade sanctions are more than just a means of making a statement; they are economic policies with real world ramifications for the markets of the United States, the targeted country, and third party markets as well. Trade sanctions must be subject to the same cost-benefit analysis as any other economic policy. If Congress were to ban the export of tear gas to Bahrain, that would have a targeted effect on the abilities of the Bahraini state to repress its own people and only a minimal effect on the U.S. economy. The benefits would far outweigh the costs.
However, if you compare such a nominal targeted sanction to our comprehensive embargo on Cuba which prohibits almost all economic activity with the island nation, this policy cannot withstand the scrutiny of any rational analysis. The costs of the United States' self-abnegation from the Cuban market disproportionately outweigh the benefits – that is, if there are any benefits at all.
In the 1960s when Castro was harboring Soviet nuclear weapons and threatening to foment Communist insurrection throughout the Americas, the Eisenhower and Kennedy administrations were arguably justified in restricting trade with Cuba. At a time when Pentagon hawks were advocating for a ground invasion to topple the regime and all-out war with the Soviet Union, economic blockade was a reasonable alternative to gambling with nuclear Armageddon.
But half a century later, the Cold War is over, the People’s Republic of China and the Socialist Republic of Vietnam are among our most important trading partners, and the strategic value of containing Cuba is paltry-to-nonexistant. Uncle Fidel is 85, ailing, and has relinquished all official powers; his anti-American subversion now consists of writing the occasional editorial on his sporadically-updated blog. In the year 2012, Cuba is no more a threat to the national security of the United States than the left-wing Caribbean nations of Dominica, Antigua and Barbuda, or Saint Vincent and the Grenadines.
On the other hand, the costs of the embargo on Cuba to the U.S. economy are enormous. Cuba is a market of 11 million consumers and a GDP of $57 billion. The island nation needs to import $9 billion worth of mostly food, refined oil, farm machinery and chemicals every year. And because of the Helms-Burton Act which codified the embargo into law, this promising market only 90 miles from the Florida coast is all but completely off-limits to American businesses, taking $9 billion in potential U.S. exports, untold billions more output from the ancillary commerce which could result, and effectively flushing them down the toilet.
It is still fair for observers of objectively-discernible reality to decry the Republic of Cuba's contemptible human rights record. The government remains a dictatorship which muzzles opposing views, jails political prisoners and the like. There is a convincing human rights-based argument that we shouldn’t sell them tanks, helicopters, rifles and bullets that could be used in the act of political repression.
But now that Communism is an anachronistic novelty, is there any reason why we shouldn’t be able to freely sell the Cuban people American-made food, clothing, medicine, and toys? Is there any reason why the U.S. should single out Cuba’s lack of multiparty elections to maintain the most restrictive trade sanctions on the books? Even in our own hemisphere, why is Cuba more deserving of embargo than, say, human rights abusing Venezuela ($55 billion in trade in 2011), Colombia ($35.7 billion), or Bolivia($1.5 billion)?
The U.S. embargo of Cuba is so severe that it severely infringes upon the rights of American citizens. Section 515.204 of the Cuban Assets Control Regulations prohibits any person subject to U.S. jurisdiction from engaging in any transaction relating to any product which is of Cuban origin. Section 515.204 doesn’t prohibit the travel per se of U.S. citizens to Cuba, but it does make it a crime for U.S. citizens to so much as pay the bill at a Havana restaurant without an elusive license from the Treasury Department. Any U.S. citizen found guilty of making such a transaction can be fined up to $250,000 and/or imprisoned for up to 10 years.
The cold winter of the unilateral U.S. embargo is beginning to thaw. In January 2011 President Obama quietly issued an executive order easing the travel ban to Cuba – allowing the Treasury and State Departments to authorize “purposeful travel” by academic, religious, and cultural groups to the island. Obama’s executive order also allows for the transfer of funds to Cuban religious and civil society groups – but pointedly refrained from allowing the unrestricted flow of remittances from Cuban-Americans to their family members on the island.
Imagine the possibilities for the U.S. economy if President Obama were to go further and act on his campaign pledge to completely do away with the draconian ban on travel, if he were to use his executive power to eliminate Section 515.204 of the Cuban Assets Control Regulations so that any American citizen could come and go as they please…
Analysts from the Cuba Policy Foundation estimate that if the federal government were to completely lift the travel ban, approximately 1 million Americans would take advantage of their newfound liberty in the first year alone. This would not only be a boon to the Cuban economy, but to the American tourist economy as well. Lifting the travel ban would create thousands of additional jobs at US airlines, cruise ships, tour operators, travel agents, hotels, restaurants, etc. The CPF estimates that in the first year the U.S. economy would grow by about $545 million in GDP and 3,797 new jobs in the first year. As business becomes more established we could be talking about the range of $2 billion in additional economic output and 12,180 new jobs in the United States alone.
Why stop there? Raúl Castro has taken significant steps to liberalize the Cuban economy by allowing private citizens to own their homes and establish small businesses. Why doesn’t the Obama administration allow U.S. citizens to travel to Cuba to meet aspiring entrepreneurs who might want to take out a micro-loan? If a Cuban guy in Holguín wants to open up a pizzeria, why should U.S. trade law prevent him from importing Cabot cheese and Hormel pepperoni?If a lady in Camagüey wants to open up a beauty parlor, is there any logical reason for the U.S. Treasury Department to prevent her from importing Revlon makeup and Pantene shampoo? As it now stands, draconian U.S. trade regulations are stifling Cuba’s transition to a market economy!
Thanks to a crack in the embargo enacted by Congress in 2000, the Treasury Department now allows a modest amount of food exports to Cuba for “humanitarian” reasons each year. Embargo notwithstanding, many Cubans are voracious consumers of American-made rice and beans, mayonnaise and hot sauce to the tune of $560 million a year. Nevertheless, these food exports are subject to extremely stifling banking regulations which prohibit direct wiring of money for transactions. Any wiring of funds must be conducted through third-party countries, and much of the transacting is relegated to cash. If Congress were to relax the Cuba-specific banking regulations to the same level as regulations on money transfers to, say, the Dominican Republic, American farmers could be making between $200 to $300 million in additional revenues.
The Cuban market imports $9 billion of refined oil, food, farm machinery and chemicals every year. It should be one of the greatest markets for U.S. goods. But U.S. goods now constitute only 6.3% of the country’s imports because the market is dominated by the Venezuelans, Chinese, and Spaniards whose governments allow essentially free trade to the country. Even the mighty Canadians are beating us in the competition to meet the Cuban market. We could add billions of dollars to the United States GDP by simply deleting a couple of antediluvian trade restrictions from the U.S. Code.
So why doesn’t Congress simply repeal the Helms-Burton Act and allow Americans to trade with Cubans? There remains the disproportionately powerful bloc of Cubans émigrés still smarting from the events of 1959. Both parties see Florida as the sine qua non of victory in the presidential and Congressional elections, so most "serious" candidates are scared of casting a vote that might let their opponents cast them as “soft on Communism.” Moreover, now that Cuba hawk Rep. Ileana Ros-Lehtinen (R-Fl.) is the Chairwoman of the Foreign Affairs Committee, the prospects for reform are stalled so long as the Republicans maintain a majority in the House.
But yesterday's electoral calculations of Cuban-American/Floridian politics are now as relevant to modern needs as a VHS rental store. Nowadays, a clear majority of Cuban-Americans are in favor of ending the embargo and normalizing relations with the Cuban government. Indeed, many second- and third-generation Cuban-Americans are willing to rethink the embargo because - historical injustices aside - they realize that they would stand the most to benefit if it were curtailed. Fluent hispanophone Cuban-American youth are going to be the most valuable employees in boomtown post-embargo Miami.
The embargo on Cuba has never been an effective means of strangling the Communist regime into submission, it never will be, and it’s about time that Congress finaly adopts a trade policy with Cuba which reflects the facts. It's also about time that Congress adopts a trade policy with Cuba which reflects the needs of the United States economy. The Cuba hawks who vote to uphold the 52-year-old embargo are like the Imperial Japanese soldiers found guarding Indonesian islets well into the 1970s because they never got the memo that their war was over. We can no longer afford to continue humoring the old Cold Warriors’ delusions. It’s time to finally open trade with Cuba.
A Bakers’ Dozen Economics Missteps - (Don Boudreaux) TweetAn insightful e-mail this morning from my colleague Pete Boettke prompted me to ask myself: What are the most regrettable missteps tak...