Saturday, December 20, 2014

Think Twice About Any Real Trade With Cuba

Shortly after President Obama announced a normalization of trade relations with Cuba, U.S. businesses began salivating over the fact that they now have a new market for their products. However, this assumes that we will be able to trade with Cuba as if it were a normal partner.  Nothing could be further from the truth.

First and most importantly, Cubans are poor as a result of Communism.

Because Cuba is a communist country, the government sets the wages; and because of this, the per capita income is less than $7,000 a year.  After buying necessities, there's probably not a lot of room left to spend on expensive imported goods from the U.S.  I really can't see the average Cuban buying even the cheapest GM car, the Spark, which sells for almost twice what the average Cuban gets paid in two years.  Also, understand that China is a major trading partner with Cuba and, as such, the prices of U.S. products will have to be lower than theirs in order to compete. 

Additionally, the Cuban government decides what will be sold to its citizens, and access to any approved goods is rationed. If the government says you can only buy 2 pencils a year, that's all you get. The government also sets the prices of any goods sold there.

For these reasons, Cubans will probably see very few imports from the U.S.  At best, the airlines, with flights to and from the island, stand to benefit the most.

On the other side of the coin, Cuba will most likely benefit the most from this deal.  They could experience increased exporting of products such as rum and cigars.  Although, I'm guessing they already export as much product as they now produce to their existing trading partners like China, Russia, Venezuela and other central and south American countries.  For sure, Americans visiting the island should help the tourism business; assuming that the current ban on tourism is lifted and accepted by Raul Castro.  Whether or not those visitors will be able to buy anything but a handful of Cuban products while visiting there is questionable since, again, all products are rationed.

Lastly, I don't think American companies will be able to set up businesses in Cuba.  Again, because of communism, most business are government owned; with some cooperatives and some self-employment allowed.  Not hardly a business model that would be compatible with any form of U.S. business.


U.S. Companies Consider the Possibilities of Cuban Trade:

UN Data: Cuba:

Economy of Cuba:

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