RiskMarket RiskTrump’s hardline Cuba policy ‘could cost US economy US$6.6bn’

Trump’s hardline Cuba policy ‘could cost US economy US$6.6bn’

The expected rollback will hit ordinary Cubans hardest, but also affect 12,000 jobs in the US suggests Verisk Maplecroft.

US president Donald Trump’s expected announcement on the country’s ties with Cuba, which is expected to reverse Barack Obama’s more liberal policy and impose trade and travel restrictions, will have an adverse economic impact according to Verisk Maplecroft.

The business management and risk consultancy has issued the following briefing from Joel Ross, its Latin America analyst.

• How will the rollback affect the Cuban economy?

The expected rollback will affect ordinary Cubans more than the Cuban state.

While tourism and other forms of investment have helped Cuba since the end of 2013, rollback would not be catastrophic for the island’s economy. Instead, Cubans working in the tourism industry will take a hit in their pockets.

The surge in tourism from the US has helped the island’s fledgling private sector significantly – with online home rental online, restaurants and taxis all benefitting. Since tax collection is poor in Cuba, much of this extra money has remained in private hands in the informal economy.

Remittances from the US, which grew from roughly US$2bn in 2014 to US$3.4bn in 2016, may also disappear, depriving ordinary Cubans of another stream of revenue.

The Cuban government has benefited from increased revenues from hotel stays as well as through some tax collection, and a few commercial deals in telecoms, hospitality and transport. The loss of these won’t drastically affect them or the economy, given that such activities constitute a relatively small part of the overall economy.

With regards to the rollback’s impact on Cuba’s long-term prospects, a side-effect of the normalisation has been increased engagement with the rest of the world. This was because non-US tourists wanted to experience Cuba before a potential surge in American visits.

Other states have also taken Obama’s lead and thawed relations with the island. In December 2016, for example, Cuba signed a cooperation agreement with the European Union (EU). This trend is unlikely to be reversed by Trump’s new policy.

Most countries no longer see Cuba in the same light as they did during the Cold War and are happy to do business with the government.

• How it will affect politics within Cuba? Will it place more pressure on Raul Castro to reform human rights?

Trump’s reversal of Obama’s policy will be counterproductive in relation to human rights. It gives hard-liners within the Cuban government an opportunity to maintain the narrative of the US as an enemy behind Cuba’s problems.

It will suppress the voice of reformers who argue for better ties with the US, potentially affecting support for the presumed successor to Raul, Miguel Diaz-Canel.

• How will it affect the US both economically and politically?

Economically, the roll back could cost the US economy US$6.6bn and affect over 12,000 jobs. If the rollback is only partial, it is unlikely to cost that much, but it still constitutes a blow for some Americans.

Within the US, the move will be unpopular outside the Cuban-American community. Most US citizens favour improved ties with Cuba. However, given the low-priority status Cuba has for most Americans, it will not affect Trump’s popularity greatly.

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