Impact of U.S. – Cuba Relationship on Trade Amit Kumar - 043008 Prashanth Prerepa - 191157
Comparison Cuba USA Capital Havana Washington DCOfficial Language Spanish None at Federal Level 65.1% Whites, 10.1% Africans & 64.7% Whites, 16% Hispanic, 12.2% Ethnic groups 24.8% Mulatto & Mestizo Africans & 5% Asians President Raul Castro Barack Obama Population 11,241,894 (2010 census) 312,946,000(2010 Census) GDP(PPP) $114.1 bn (2010) (Ranked 63rd) $14.82 tn (2010)GDP(Growth Rate) 1.5% (2010) 3% (2010) Unemployment Rate 1.6% (2010) 9.6% (2010) Currency Cuban Peso US Dollar HDI 0.776 (High) (51st) 0.910 (High) (4th)
Introduction • Before 1959, US-Cuba had extremely good relations: Politically and economically. • Plans for purchase of Cuba from the Spanish Empire were put forward at various times by the United States.• After 1959, Following the Cuban Revolution :The relations between both were marked bytension and confrontation.• The United States does not haveformal diplomatic relations with Cuba and hasmaintained an EMBARGO which makes it illegalfor U.S. corporations to do business with Cuba.
Embargo• No Cuban products or raw materials may enter the US.• US companies and foreign subsidiaries banned from trade withCuba.• Cuba must pay cash up front when importing US food.• Ships which dock in Cuba may not dock in the US for sixmonths.• US citizens banned from spending money or receiving gifts inCuba without special permission, in effect a travel ban.• Americans with family on the island limited to one visit everythree years.
Cuban Economic History• Before 1959, U.S. was Cuba’s main trading partner.• Florida was Cuba’s largest U.S. State trade partner.• 40 percent of all cargo being routed through Miami’s customs district was transported to Cuba.• 85 percent of Cuba’s exports were transported to the United tates.
Cuban Economic History• In the late 50s, U.S. had a strong influence on Cuba.• In 1960, all U.S. businesses in Cuba were nationalised without compensation.• The U.S. retaliated by putting an embargo against Cuba. Cuba then turned to Soviet Union & its Eastern Europe Allies
Soviet Union Collapse• Cuban output fell 1/3rd .• Cuba lost 80% of its trading partners.• It looked towards other countries and slowly started trading with a number ofthem like Canada, Spain, Brazil, Argentina, New Zealand, France & China.
Trade Valuation According to U.S. - Cuba Trade and Economic Council • $17 bn in 1997US – China Trade • $460 bn in 2011 27 times • $3bn - $7 bn in 1997US – Cuba Trade* 4 times* • $12bn - $28bn in 2011 70% of this would have been exports out of U.S. Ranging between US$8 bn – US$20 bn
Benefits• According to US department of commerce, US$1 bn exports outof US generate 20,000 new jobs in the country.• Thus, US – Cuba trade could have generated perhaps morethan 250,000 jobs in US.• Cuba has an untapped Human Resource (with lowest pay in theWest) & can act as a cost effective investment destination for theAmerican firms.• On the other hand, Cuba will receive investments and workerswill get better wages.• Cuba will get a market for its agricultural products likeSugar, which on the other hand will get cheaper in US along withother commodities.
Relationship & TradeIn 2001, US exported food to Cuba for the first time in more than 40years after a request from the Cuban government to help it cope withthe aftermath of Hurricane Michelle.This event started trade between the two countries, only in limitednumber of products and the trade stood at US$ 328 bn in 2011(all USexports)In April 2009, President Obama lifts restrictions on family travel andremittances to Cuba.Thus Trade will bring people closer and dependence on each otherwill make sure that there is no room for further animosity, in turnbenefitting both the nations.
Observations1) Geopolitical variables play an important role in conditioning the international business environment.2) Any specific change in a Countries Government at a particular point of time may influence the operations of international business within, as well as, with other Countries. It is important, therefore, for other Countries to monitor these changes and to respond to them accordingly and in a timely manner. [Cuban revolution changed its relation with US].3) Economic benefits due to trade in the long run bring improves the relationship between the Countries by bringing them closer.4) A non resolved conflict/confrontation between two countries mostly benefits other countries, which take the trade advantage.