Reid Melillo

The Economic Impacts of an Embargo

            Beginning in 1959, when Fidel Castro and his group of revolutionaries seized power in the Cuban Capital of Havana, after overthrowing the former head of government is when the history of the mostly negative relations between the United States and Cuba first began to take roots. After the coup, Cuba immediately began to increase trade with the Soviet Union, while also nationalizing U.S.-owned properties and increasing taxes on American imports. The United States retaliated with its own economic sanctions by cutting Cuban sugar imports, banning nearly all exports to Cuba and eventually expanding into a full economic embargo and travel restrictions. The Cuban government would estimate that the impact of this embargo on Cuba had led to a loss of 1.126 trillion dollars.

            This loss of 1.126 trillion dollars is a direct reflection of the theoretical impact that an embargo has on different aspects of the economy and economic variables. As an example of the impacts; during the height of the Cuban embargo, the United States banned all exports to Cuba which caused the Cuban economy to lose a great deal of potential money, while also affecting the economy in the United States by not being able to conduct trade with Cuba at all. Also, since there were strict travel restrictions imposed, United States citizens were not traveling to Cuba to buying their goods and services, leading to further economic deficit and affecting both countries exports. Since Cuba was not importing any American goods, given that they are considered superior goods, Cuba may have been forced to settle on importing inferior goods from another country. This impacts them in the short run and in the long run by leading them to a gap in development between themselves and other developed nations. Another theoretical impact that a trade embargo would have on a countries economy is in terms of their net exports. According to SAS and the UN comtade Cuba’s top import is Mineral Fuels, including of course, oil and other fuel products. Their top export is nickel and products thereof, which is a profitable resource but based on these two resources, the cost of importing enough oil to supply the whole country certainly outweighs the money that they receive buy exporting their nickel and nickel products. Since the amount of foreign goods purchased by Cuba exceeds the amount of their goods purchased, this would cause the Net exports of Cuba to fall. This impact from a trade embargo can be seen happening similarly to many smaller countries where they have limited resources to export but must import many since they cannot trade goods and services from the country placing the embargo on them. The same effect would be seen on the impact of Net Capital Outflow since the country would invest more than is being invested into it. In terms of overall economic growth, you could assume that an embargo would stun economic growth primarily with the country enforcing the embargo, but also with other countries due to other regulations.

    Cites:

Renwick, Danielle. "U.S. Cuba Relations." Council on Foreign Relations. Council on Foreign Relations, n.d. Web. 21 Apr. 2016.

http://www.sas.com/software/visual-analytics/demos/un-comtrade-basic.html