Trade Embargo Between the United States and Cuba

Kristen Tolbert
Dr. Kassens
ECON 122
4/21/16


The United States began a rough relationship with Cuba stemming from the Cold War.  Castro seized power in Havana, however the United States still recognized their government despite this political affiliation towards Communism.  Castro began trading with the Soviet Union and increased the taxes on American imports so the United States responded by stopping all Cuban sugar imports and banning all exports to Cuba- including creating travel restrictions.  The United States cut off diplomatic ties to Cuba and tried to overthrow Castro. The Bays of Pigs invasion, as well as the Cuban Missile Crisis, the Cuban Democracy Act of 1992, and the Helms Burton Act in 1996 only strengthened the stand off between Cuba and the United States.  The Helms Burton Act stated that the United States refused to lift the trade embargo until Cuba held free elections and ended their communist government.  There are been a few adjustments that allowed exports of medical supplies and a few agricultural products from the United States to Cuba.  Because of these trade restrictions, it is estimated that Cuba has lost around 1.126 trillion dollars that they could've made from exporting to the United States. By banning all exports to Cuba, the United States caused a loss of money for both Cuba and the United States.  The United States and Cuba's exports have decreased which causes a deficit in net exports (NX).  By creating travel restrictions, U.S. citizens are no longer purchases goods in Cuba which decreases imports and increases NX in the United States, however for Cuba this decreases exports and decreases NX. When we have a decrease in NX, this means that we have a negative Net capital outflow since NX=NCO.  Because there is a negative capital outflow, there is also little to no economic growth. However, since Obama entered office he has had plans to restore ties with Cuba. Obama began by reversing some of the restrictions on travel that the president before him, George W. Bush, had set.  Obama allowed for satellite service in Cuba and allowed citizens who had family in Cuba to travel there under license only for educational or religious purposes. In December of 2014, Obama and Raúl Castro announced that the diplomatic ties would be restored between the United States and Cuba.  In order to do this, there was a prisoner swap between each place and the U.S. decreased some of their restrictions on travel. Obama allowed for those traveling to Cuba to use credit and debit cards and purchase travel insurance. This means that the imports for the United States will rise because citizens will be purchasing foreign goods and NX will fall. For Cuba, this means that their exports will rise because a foreigner is purchasing their good and their NX will rise.   Also, the U.S. is now allowed to export building materials to Cuba, and people are allowed to invest in some small businesses.  For the United States, this means that U.S. exports will rise and NX will increase.  The United States is acquiring a foreign asset causing Net Capital Outflow to rise.  However, the Helms Burton Act has still not been repealed so there it doesn't appear that full trade between the two countries will happen anytime soon, which means that there still going to be negative net exports for the United States and Cuba.

"U.S-Cuba Relations." Council on Foreign Relations. Council on Foreign Relations, n.d. Web. 20 Apr. 2016. <http://www.cfr.org/cuba/us-cuba-relations/p11113>