U.S-Cuba embargo

Rachel Haseley

Blog post 1

In 1961, the United States and Cuba severed all ties between each other. The two countries were making deals without the other knowing which caused a lot of tension between them. Cuba agreed to allow Russia to build missiles on their island, while the U.S attempted but failed to invade Cuba to overthrow the regime. These actions led to a trade embargo, meaning no imports or exports were to be transported between the two countries. This severely limited the amount of travel people could do between the two countries; the trade embargo reduced the amount of capital flowing through both country’s economies because their imports and exports declined causing their net exports to decline. When a sale is made between foreign countries both exports and imports are affected. A country’s exports are considered goods and services produced domestically but then sold and transported to another country. Due to the Cuban embargo there were no products being transported to Cuba. An import defines goods and services which are made abroad and transported and sold domestically. A country’s net exports are its exports minus its imports, and because there were absolutely no exports or imports between Cuba and the United States both countries net exports declined. Finally, net capital outflow refers to the purchase of foreign assets domestically, minus the purchase of domestic assets by foreigners. For example, if a U.S states citizen buys stock in a Cuban company there is an increase in the United States’ net capital outflow. A country’s net capital outflow equals its net exports because of an accounting principle that proves when one side of the equation is increased or decreased the other is increased or decreased by the same amount; these two equations measure imbalances in the economy. Net exports measures an imbalance between a country’s exports and imports while net capital outflow measures an imbalance between foreign assets bought by domestic residents and domestic assets bought by foreigners.  According to an article published by the Council on Foreign Relations (http://www.cfr.org/cuba/us-cuba-relations/p11113), since Barack Obama and Raul Castro announced the plan to restore diplomatic ties between the two countries in just one year the Department of Commerce has approved $4.3 billion worth of business transaction between the countries and 59,000 more U.S tourists traveled to Cuba in 2015 than had in the previous year. Additionally, even though the embargo has not been fully lifted the United States is Cuba’s fifth largest trading partner already. Restored trade between the two countries will impact the growth of both economies positively and will increase net exports and net capital outflow for the countries.