Research Project: An Economic View of the Cuban Embargo

Research Project: An Economic View of the Cuban Embargo – A formal project by researching and identifying trade issues from lifting Cuba’s embargo…

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Research Project: An Economic View of the Cuban Embargo

Paper details

  • A formal project by researching and identifying trade issues from lifting Cuba’s embargo.
  • Research and identify how American industry will benefit from these new trade relations.
  • What industries were impacted when the trade embargo was enacted in 1960. How did that impact affect the U.S. GDP and its economy?
  • How the trade embargo affected the U.S. tourism industry.
  • On the concept of government actions. What did this embargo cost the U.S taxpayers?
  • How U.S industries will be affected by lifting the embargo.
  • How lifting the embargo will impact the U.S. economy and GDP.

Solution

An Economic View of the Cuban Embargo

The Cuban embargo refers to a series of measures taken by the United States government to prevent trade between Cuba and the U.S. Differences largely influenced the embargo in political ideologies. The United States perceived Cuba as a threat to the region due to its communist ideals. The embargo slowly began in 1958 following the United States restriction on the selling of arms to Cuba. The United States went ahead and imposed a total ban on exports to Cuba in 1960 and 1962.

Besides restricting American companies from conducting trade with Cuba, the embargo also prevents American nationals from traveling to Cuba. The severity of the Cuban embargo is seen in it is the longest in the world’s history. Recently, Cuba and the United States have shown commitments to rebuild their ties. The move is illustrated by the progressive easing of restrictions such as the 2015 removal of Cuba from the list of terrorist countries. The changes have been illustrated to open a new frontier for American businesses and its economy at large. The impact of lifting the Cuba embargo can be understood by reviewing its historical effect and its future for the American economy should it be lifted.

The 1960 enactment of the Cuban embargo was felt in diverse sectors of the American economy. The export market was the most affected. The embargo led the American government to ban all exports to Cuba, except in the food and medical supply products. Restrictions on exports led to the loss of sales revenue that American organizations had been receiving from Cuba. American industries that realized lost export business included the agricultural and tourism sectors.

The embargo also affected American businesses that relied on Cuban imports as it barred American organizations from getting goods from Cuba. Sugar imports were the critical items imported from Cuba into America. The quantity of sugar imports to America reduced from 3119655 tons that the nation had earlier been receiving to 700,000. The embargo also affected United States Foreign Direct Investments. The effect emerged following Cuba’s decision to nationalize American investments. The nationalization of American entities was forceful, and no compensations were given to the owners.

The first nationalization of American companies began with the Joint Resolution 1 of 1960, where 26 American companies were handed to the Cuban government.  A bulk of the nationalized companies comprised sugar firms.  The final resolution allowed the nationalization of all American companies dealing in different sectors (McKelvey, 2018).  The nationalization acts by the Cuban government ended up lowering Americas’ foreign direct investments. The economic impact of the embargo also sees in the GDP revenue that America losses annually. Data from the United States Chamber of Commerce points out that the country loses about $ 1.2 every year due to the embargo.

The coming into force of the Cuban embargo disrupted the American tourism industry. Cuba has been considered a tourism destination. The country boasts of unique sceneries such as beautiful beaches, historic architectural designs, and cultural sites. Before the embargo, Americans formed the bulk of tourists in Cuba. In particular, America was the leading nation in terms of tourists’ origin. American tourism organizations took advantage of the high number of citizens who visited Cuba and the two nations’ proximity to set up tourism agencies. The agencies engaged in making tourism arrangements for American citizens visiting Cuba.

The American tourism industry from Cuba was also characterized by the ownership of diverse resources used for tourism purposes. An example is seen in American companies owning several tourist hotels in Cuba. Enactment of the embargo brought with it adverse effects to the American tourism industry. The first effects were seen in the closure of American tourism entities by the Cuban government. 

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The nationalization drive by Cuba resulted in the closure of seven bars and eleven hotels owned by Americans. Therefore, the events meant that the American tourism industry had been adversely affected in regards to the loss of investments and operations. A reduction in tourists’ number depicted another blow to the American tourism sector following the embargo’s enactment. The embargo prevented American citizens from engaging Cuba in any form of trade. American tourism agencies, therefore, had to cease their operations. Also, the enactment of traveling restrictions into Cuba prevented American tourists from going to Cuba (Bristol, 2020).

The American government’s actions to enforce the Cuban embargo has led to taxpayers incurring the costs. Implementing the embargo meant that the American government had to put different measures for the blockade to be successful. However, the measures cannot be realized without the allocation of the appropriate resources. Therefore, the American government had to acquire the relevant resources needed for the implementation of the embargo. Therefore, American taxpayers are the ones who have financed the various actions used to enforce the embargo through their taxes (Bilbao et al. 2017).

An example of the embargo enforcement actions is seen in the formulation of an immigration department to verify Cubans’ authenticity entering the United States. The department also tracks down and prevents violation of the movement restrictions brought about by the embargo. The immigration department handling the Cuban embargo has been allocated billions of money over the years.

As of 2017, the department is highlighted to have cost American taxpayers over $ 2.45 billion over 10 years. Another action taken by the American government is using radio and tv marts to broadcast to the Cuban audience. The action has seen taxpayers incur about $27 million annually on broadcasting to Cuba despite the signal having been blocked (Engage Cuba, 2017).

American industries are likely to gain from an improved relationship with Cuba. The long duration of the embargo has seen Cuba realize almost slow growth. Cuba’s infrastructure has not advanced that much. Therefore, the situations provide a favorable opportunity for the American manufacturing industry to benefit by establishing their presence in Cuba. The extensive trail of undeveloped infrastructure, the underutilized beaches, and access to capital allow American entities to engage in infrastructure development. An increase in infrastructural development projects in Cuba will result in the growth of the American manufacturing industry.

Another American industry that will gain from enhanced relations with Cuba is the telecommunication industry. The enhanced relationship has allowed the American government to supply telecommunication equipment to the Cuban government partially. The telecommunication trade has, however, been limited between the governments and partnering organizations. Therefore, the improving relationship between the countries will see the American telecommunication industry growth due to the emergence of new projects in Cuba.  Also, the supply of telecommunication hardware and software to Cuba leads to increased sales, thereby facilitating the industry’s growth in America.

Additionally, the American service industry will gain from better relationships with Cuba. The Cuban service industry is still growing. The embargo is credited with locking Cuba from American business opportunities. The situation meant that Cuba could not develop its service systems to fit American standards. Failure to develop the service industry emerged from a lack of better interactions with the outside world, thereby failing to acquire the necessary expertise.

Likewise, the restriction of products into the country prevented Cuba from acquiring the appropriate equipment to improve its service sector.  The enhanced relationship between the two nations provides America with the opportunity to meet the developing Cuban service industry’s rising demands. The improved relationship between Cuba and America has led to exemptions regarding the trading of a wide array of services.

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American companies have embraced the opportunity and are now supplying Cuba with different internet-based products such as business design and management software. Exchange of services is also seen in America importing some products such as mobile applications made in Cuba. Influence on the service sectors from the enhanced relationship can also be pointed out by growth in the American banking sector.

The development means that individuals with American credit cards can now carry out banking transactions with banks operating in the two nations. Likewise, the developments mean that citizens of the two countries can now remit money back and forth. Enhanced remittance was allowed by removing the quarterly $ 2000 that had been placed on Cuban citizens.  The changes also allow people in Cuba to open American banking accounts. An increase in banking activities has expanded the American financial sector by allowing more customers and arising transactions.

The traveling sector has also been boosted by the changing relationship between America and Cuba. The economic embargo comprised several travel restrictions that controlled movement into Cuba. Individuals traveling to Cuba had to notify American officials in advance.  The request would then be reviewed based on the traveling grounds. Specific considerations, such as meeting family, supporting provision, and conducting research, were evaluated before an individual was allowed to travel to Cuba.

Recent developments in the relationship between the two countries have eased travel restrictions. The United States no longer requires its citizens to seek prior approval for them to travel. The changes have led to an increase in traveling instances between citizens from the two nations, thereby leading to the traveling industry’s growth. Doing away with the Cuban embargo will have diverse effects on American industries. Tourism is likely to realize growth as people will no longer be prevented from visiting the nation using America. The traveling sector will also grow as different transport means will be used to travel between the countries.

Other American industries will grow the telecommunication and finance sectors whose input will be required for the Cuban economy. However, specific industries will be affected by the lifting of the embargo. The cigar and rum industries are likely to decline performance due to the importation of high-quality and many known brands from Cuba. Lifting the Cuban embargo will have positive repercussions for the United States economy and GDP. In particular, the United States economy and GDP will grow. The economic growth will be facilitated by America’s access to a broader market. American organizations will have the capability to export goods to Cuba once again, thereby improving sales revenue.

The easing of travel means will enhance business operations between the two nations, thereby bolstering economic activities. America’s tourism sector will also grow as a movement to Cuba will be easy. Access to a broader market will also be allowed by the opening manufacturing and service industry that will not openly attract American equipment and absorb several Americans who will work as experts, thereby growing remittances back to the country.

In conclusion, the Cuban embargo has been depicted as having affected the United States economy and whose lifting could change America’s economic course.  The embargo restricting total engagement between America and Cuba came into force in 1960 and has affected America’s imports, exports, and foreign direct investments. Tourism has been illustrated as one of the most affected sectors. However, restoring better relationships between the two countries is illustrated to cause changes to the travel, telecommunication, banking, and manufacturing industries. Also, removing the restrictions will have positive gains for many American industries, thereby improving its economy and GDP.

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References

  • Bilbao, T., Travel, C. E., Huddleston, V., Ambassador, F. U., Cruises, P. S., Sabatini, C., & Americans, G. (2017). The Economic Impact of Tightening U.S. Regulations on Cuba.
  • Bristol Mia.2020. U.S. Involvement in Cuban Tourism. https://www.panoramas.pitt.edu/economy-and-development/us-involvement-cuban-tourism. Accessed November 25th, 2020
  • Engage Cuba. 2017.The Economic Impact of Tightening U.S. Regulations on Cuba. https://static1.squarespace.com/static/55806c54e4b0651373f7968a/t/592f36dbdb29d6c96a19e3ea/1496266459829/Economic+Impact+of+Tightening+U.S.+Regs+on+Cuba.pdf Accessed 25th 2020
  • Harrell, P. E. (2016). Cuba: U.S. sanctions policy after the embargo. Center on Global Energy Policy, New York.
  • McKelvey Charles. 2018. The Cuban Nationalization of U.S. Property in 1960: the Historical and Global Context. https://www.counterpunch.org/author/charles-mckelvey/ Accessed November 25th, 2020
  • Pepper Margot. 2009. The Costs of the Embargo. http://www.dollarsandsense.org/archives/2009/0309pepper.html. Accessed November 25th, 2020
  • Smith, Gambrel, and Russel. 2016. Opening the Door to Business Between the U.S. and Cuba. https://www.sgrlaw.com/ttl-articles/recent-developments-in-art-law/ Accessed November 25th 2020

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