Summary

During a speech outlining U.S. policy in Latin America in November, U.S. national security adviser John Bolton branded Cuba, Venezuela and Nicaragua a “troika of tyranny.” Bolton criticized the prevalence of poverty, violence and oppression in these countries, stressed that the U.S. would increase pressure on their autocratic governments, and vowed that Washington would stand with those fighting for freedom. It was no coincidence that he delivered the address in Miami, the home of many expats from these nations.

For Cuba, the United States’ new hard-line approach has meant intensifying economic pressure, and, in many ways, the timing couldn’t be worse. The Cuban economy has been struggling for the past few years with sluggish growth and disappointing investment levels. Its closest allies are also struggling with their own domestic challenges and disputes with the U.S. and are in no position to come to Cuba’s aid. This Deep Dive will look at the history of U.S.-Cuba relations and the new efforts of U.S. President Donald Trump’s administration to squeeze the Cuban government.

Cuba’s Strategic Value

Cuba is an island that stretches 780 miles (1,250 kilometers) long and lies about 100 miles south of the U.S. state of Florida and 125 miles east of Mexico’s Yucatan Peninsula. Because of its location, between the Atlantic Ocean and the Gulf of Mexico, it plays a major role in U.S. maritime interests. Cuba, or whoever controls it, could block access to the Gulf of Mexico and leave exports departing vital ports like New Orleans with no way to access international markets. The prospect was dire enough that in 1823 U.S. Secretary of State John Quincy Adams told U.S. diplomats Washington intended to annex Cuba within half a century for fear that another foreign power would claim it.

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Cuba’s location cemented its status as a subject of competition among regional and global powers. As a Spanish colony, it served as a major port for ships arriving from Spain whose cargo needed replenishing and whose crews needed rest before moving on with their journey. It also served as a military hub in Spain’s quest to fend off other powers, such as Britain and France, that wanted to establish colonies in the Americas. When anger against Spain started growing in Cuba, the U.S. and Mexico began to court pro-independence groups on the island. Mexico was already much weaker than the U.S. by this time, and Washington managed to align with independence movements to more or less control the island in the early years of its statehood. After Cuba’s revolution, however, Cuban leader Fidel Castro allied the country with the Soviet Union to dry to deter U.S. aggression and influence.

With the end of the Cold War, Cuba’s place in great power competition diminished. Russia was a shadow of the former Soviet Union, and the U.S. solidified its dominance in the Americas, turning its attention and resources to other parts of the world. But nearly three decades later, countries outside the Western Hemisphere, particularly those the U.S. sees as rivals, are once again looking to project power and influence in the Americas. Though they don’t represent much of a challenge to U.S. ascendancy in the region, they are nonetheless a source of frustration that Washington can’t afford to ignore. The scenario may well lead to a revival of the Monroe Doctrine, the 19th-century U.S. policy of opposing foreign (at the time, European) interference in the Americas.

U.S.-Cuba Relations Over Time

Economics have always played a key role in U.S.-Cuba relations. Trade ties between the two, in fact, were a decisive factor in ending Spanish rule over the island. As a colony, Cuba officially traded with only Spain (though it carried out illicit trade with other countries), but as Spanish control over the island declined, it opened up trade with the United States. Their economic ties boomed in the 19th century, so much so that some Cubans pushed for U.S. annexation of the island.

Once Fidel Castro’s Communist Party took power in Havana, relations between the U.S. and Cuba deteriorated. Washington imposed a range of sanctions against the Cuban government starting in 1960, when President Dwight Eisenhower cut Cuba’s sugar quota to the U.S. in response to the nationalization of U.S.-owned refineries on the island. Eisenhower then banned all exports to Cuba except for food and medicine. President John F. Kennedy expanded the embargo, banning all imports from and business transactions with Cuba unless explicitly approved by the executive branch. Trade with the United States fell from 68 percent of total Cuban trade in 1958 to zero percent in 1962, while trade with the Soviet Union jumped from less than 1 percent to 49 percent over the same period. President Lyndon Johnson then led a broader effort to isolate Cuba from Western Europe and Latin America.

In the 1970s, the U.S. began to ease these efforts after realizing they weren’t having the desired effect, since the Soviet Union continued to prop up the Cuban economy. President Gerald Ford started backdoor talks with Cuba to try to normalize relations, exempting foreign-based subsidiaries of U.S. companies from the embargo and helping to relax restrictions imposed on Cuba by the Organization of American States. U.S. President Jimmy Carter also tried to normalize relations – even though Cuba sent troops to Angola to back a leftist movement there – and eased measures such as a ban on U.S. travel to the island. But in the 1980s, as several leftist revolutions in Central America turned the tide of U.S. foreign policy, these efforts stalled. President Ronald Reagan reinstated the travel ban, restricted the flow of hard currency and remittances, and banned the import of products containing nickel (one of Cuba’s top exports) from Cuba or the Soviet Union.

Following the Soviet Union’s collapse, Cuba’s economy became more vulnerable to U.S. economic pressure. From 1989 to 1993, Cuba’s gross domestic product fell by 35 percent, its real income decreased by 75 percent and its capacity to import fell by 74 percent. The U.S. decided the time was right to intensify the pressure in an attempt to bring down the government. President George H.W. Bush once again barred overseas subsidiaries of U.S. companies from trading with Cuba and restricted access to U.S. ports for ships that had docked in Cuba. During his administration, Congress passed the 1992 Cuban Democracy Act, which promoted “a peaceful transition to democracy in Cuba through the application of sanctions.” The administrations of both Bill Clinton and George W. Bush redoubled measures to limit business ties, remittances and tourism to Cuba before Barack Obama’s administration reversed many of them. Obama opened up travel between the two countries, allowed for business and remittance flows, called for an end to the embargo, and removed Cuba from the U.S. list of state sponsors of terrorism.

Trump Changes Course

Over the past two years, the Trump administration has, in turn, reversed the Obama-era moves to warm relations with Cuba. Trump outlined his position on the country in October 2017, stating that the purpose of his Cuba policy was to further the United States’ national security and foreign policy interests and to empower the Cuban people. He introduced two major changes targeting Cuba’s tourism sector, one of the country’s most lucrative industries. First, he restricted travel to Cuba for U.S. citizens. Second, and more important, he restricted U.S. companies from doing business with certain firms linked to the Cuban military – which is heavily involved in tourism. (The initiative built on legislation – introduced in 2015 but never ratified – that would have prohibited dealings with companies tied to Cuba’s military and government.) The U.S. State Department released a list of firms banned from doing business with the U.S. in November 2017 and updated it last year. All of them are tied to tourism.

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Just last week, the U.S. also signaled that it may implement the 1996 Helms-Burton Act. The controversial legislation enables U.S. citizens to sue companies profiting from property the Cuban government seized from them after the 1959 revolution and also allows those who were Cuban citizens when their property was confiscated to sue. When the bill – whose implementation could affect all businesses operating in Cuba, including cruise companies that dock there – first passed, major U.S. trade partners that still do business with Cuba, such as the European Union, Canada and Mexico, condemned it. Every administration since its passage has suspended the key clause, Title III, to avoid angering allies. Then on Jan. 16, U.S. Secretary of State Mike Pompeo warned that the Trump administration would suspend the clause for only 45 days, instead of the usual six months. Pompeo added that the government would use the waiver period to carry out a review of all articles of the law “in light of the national interests of the United States and efforts to expedite a transition to democracy in Cuba.”

Cuba’s Transition

These moves come at a time when Cuba is undergoing a political and economic transition. Its president, Miguel Diaz-Canel, became the first person outside the Castro family to lead Cuba in nearly six decades, after taking over for Fidel Castro’s brother, Raul, in April 2018. The Diaz-Canel administration has proposed a series of constitutional reforms, including measures to introduce a prime minister to oversee the government’s day-to-day management, along with provincial governors, who would replace the presidents of provincial assemblies. Under the proposed changes, which will be put to a referendum Feb. 24, the president could serve a maximum of two five-year terms and would have to be under 60 years old on taking office. (Raul Castro was 76 when he stepped in for his brother in February 2008.)

One of the goals of the changes is to move the country away from a governing style dominated by one leader while still maintaining a single-party system – similar to the systems in place in China and Vietnam today. (The new constitution, if passed, may increase the military’s role in government, too, which explains why the Trump administration has targeted firms with ties to the armed forces.) In addition, many of the changes aim to improve efficiency in the economy. The draft constitution acknowledges recent economic reforms aimed at improving the business environment, streamlining government and reducing debt. It also allows for more transparent foreign investment, gives state-owned companies more autonomy and introduces a tax system. It even recognizes private property and the role of markets, though it maintains the primacy of the state in land ownership, production and economic planning. According to the government, these changes will help Cuba attract sorely needed foreign capital.

Many of these changes build on reforms that Raul Castro introduced in 2011, to little avail. Diaz-Canel hopes his government can succeed where its predecessor did not and is shooting to achieve 1.5 percent economic growth in 2019 by boosting foreign direct investment, increasing exports and reducing imports. (Annual imports are already on the decline, down to $11.3 billion in 2017 from $15.6 billion in 2013.) He also wants to pay down Cuba’s external debt – which hit $15.8 billion in 2015, the last time official figures were released – by implementing austerity measures and using inventory and emergency reserves. And to reduce fuel imports, the government plans to cut fuel consumption, a risky move considering that energy helps drive the economy.

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The U.S. plans to target the tourism sector, one of Cuba’s top sources of foreign currency, could damage the Cuban economy. The Cuban government made an estimated $3 billion through tourism last year, while private businesses related to the sector, such as taxi services and restaurants, pulled in an estimated $1 billion. Canada and the U.S. were the top two tourist markets for Cuba, followed by various Western European countries. It seems the Trump administration’s moves to tighten travel restrictions haven’t deterred U.S. tourists yet: U.S. visitors to the island increased last year by about 20,000 – admittedly a more modest bump than in previous years – to reach 630,000. Still, restrictions on business with certain companies in the tourism industry and the uncertainty surrounding the Helms-Burton Act may make U.S. tourists and businesses think twice about spending their dollars in Cuba.

 

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External Factors

Complicating matters for Havana is the lack of an external benefactor it can rely on for financial support. After the Soviet Union’s collapse, Russia was too weak to be a reliable economic partner, and courting the U.S. wasn’t an option. Cuba thus looked to strengthen ties with an array of countries, rather than to depend on a single power, as it had for much of its history. It maintained good relations and economic ties with Russia, as well as with like-minded nations such as China and Venezuela. It also increasingly opened up to Western Europe. The problem now is that many of Cuba’s allies are dealing with political and economic problems at home that prevent them from being the country’s patron.

Venezuela, for example, is in the midst of a crisis. Its oil exports to Cuba have fallen by at least 40 percent since 2014, and that’s a generous estimate. Meanwhile, a political scandal in Brazil, and the election of right-wing President Jair Bolsonaro, mean that Cuba can no longer rely on the country for support. Brazil has scrapped plans for new investments in Cuba and has sent the thousands of Cuban doctors it hosted, whose salaries went to the Cuban government, back home. Making matters worse, Cuba recently defaulted on a loan from Brazil’s development bank.

Though Russia has stepped up to help Cuba with oil shipments and small loans, these measures have had a limited effect. Russia is facing economic problems of its own and can’t offer to sell Cuba large amounts of oil at a favorable price. Of course, it wants to support Cuba as much as it can so that it has an ally in the United States’ backyard. Moscow, in fact, sent a delegation of advisers to the island just a couple of months ago. But it has too many bigger concerns, in places like Syria and Ukraine, to spend much of its time or resources propping up the Cuban economy. Similarly, China is too busy managing the fallout from its economic slowdown and the U.S. trade war to come to Cuba’s aid.

As for the European Union, it has taken a renewed interest in Cuba over the past couple of years. Western Europe is Cuba’s leading source of FDI, and many Spanish companies, in particular, are involved in Cuban tourism and infrastructure. Europe, however, may be one of the regions most affected by the Helms-Burton Act, if the Trump administration decides not to suspend it past March. Furthermore, the European Union is already engaged in disputes with the U.S. over trade, the Iran nuclear deal and energy projects involving Russia. It likely wouldn’t want to put a possible deal on these issues at risk by backing the Cuban government against Washington’s wishes. Cuba, then, will have to hope its political and economic reforms will help it weather the storm of the U.S. crackdown on the “troika of tyranny.”

Allison Fedirka
Allison Fedirka is a senior analyst for Geopolitical Futures. In addition to writing analyses, she helps train new analysts, oversees the intellectual quality of analyst work and helps guide the forecasting process. Prior to joining Geopolitical Futures, Ms. Fedirka worked for Stratfor as a Latin America specialist and subsequently as the Latin America regional director. She lived in South America – primarily Argentina and Brazil – for more than seven years and, in addition to English, fluently speaks Spanish and Portuguese. Ms. Fedirka has a bachelor’s degree in Spanish and international studies from Washington University in St. Louis and a master’s degree in international relations and affairs from the University of Belgrano, Argentina. Her thesis was on Brazil and Angola and south-south cooperation.