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The United States has enacted the Embargo as a preventive practice which prevents the American businesses and commercial activities of America from conducting trade with Cuban interest. It has been considered as the most continuing trade embargo in modern times. The United States first imposed an embargo on the sale of arms in Cuba in 1958 during the continuation of a regime called Fulgencio Batista. Immediately after two years of the Cuban Revolution, the US placed an embargo which prevented the trade with Cuban state and also prevented export except of necessary items like food and medicine. But in 1962, the United States extended the embargo on almost all export activities with Cuba (Mejia, et. al., 2017). But it was also stated by the United States that the embargo shall not prohibit the trade and commerce of necessary and items like food and humanitarian supplies. Hence, the presented essay describes the impact of embargo on Cuba and also the impact of embargo on the United States. Further the essay makes a comparative analysis of embargo in Cuba and the United States.
Cuba is one of the last communist nations in the world which is on the principles of communism since beginning. The government is located at the capital city Havana. Though the legal system of the country is base on American and Spanish law, but there is presence of communist legal theory. In Cuba, there is an executive branch as well as legislative branch which is named the National Assembly of People's Power. There is also a judicial branch which is called People's Supreme Court. It is also analysed that economically; Cuba is a command economy which means that the Cuban economy is controlled by the government. Hence, there is a most common tool seen in international politics which is termed as economic sanctions. Sanctions are termed as an important aspect of the foreign policy because of the frequency under which these sanctions are applied. A sanction is defined as a restriction imposed on one country which is called the target by another country which is called the sender (White, 2019). These economic sanctions are also called by other names called embargos. Hence, the objective of imposing embargo is to influence another country for the purpose of achieving political goals.
The major effect of embargos seen on the economy of Cuba is the pressure on the Cuban economy. This effect has increased and brought strain by affecting trade patterns on Cuba by imposing one of the sanctions that is embargo. One effect on the economy of Cuba is the reduction in the income of the Cuban economy due to the decrease in exports. The import and export sector of the country is affected and hence, the target country Cuba is under pressure to buy necessary goods from other countries at a higher price. This, in turn increases the cost of import for the Cuban economy. But if embargo is imposed multilaterally, Cuba shall not be able to take advantage from the alternate suppliers which may lead towards the state of autarky (Francis and Duncan, 2016). This shall further make the cost of import higher or even completely cut off Cuba from getting supply of particular goods.
There is yet another effect of embargo on the economy of Cuba as it affects the foreign direct investment on the Cuban interest. The decrease in foreign direct investment affects the companies which rely on these investments and hence, such companies need to cut off its back production. Hence, as a further result, there shall be reduction of jobs in such sector in which these companies are operating. The drop in the employment subsequently leads to the decrease in the spending of the consumer and changes in consumer patterns and trigger downwards in the economy. But there is no complete reduction in the employment rate as workers in Cuba get involved in the jobs of other sector. Though it can be said that the employment rate of Cuba may come to normal, but there shall still be lower value in the employment of workers in the new sector as compared to the earlier sector (Schlyter, 2017).
Yet another effect of embargo on the Cuban economy is the lost market share of the businesses as this will make the company to sell fewer goods. This decreasing demand may also lead to the cut of jobs in the Cuban economy. But the only solution which could now be seen regarding the effect of embargo on Cuba is to lift the economic sanction and embargo by the sender country the United States. Though it can serve as a solution but it can also be said that the negative impact of this embargo may still be seen on the Cuban economy for a considerable period of time. It is justified to say because Cuba may remain hostile from the United States even after the lift of the economic sanction and embargo.
Apart from impact of embargo on the target country Cuba, the impact of embargo shall also be seen on the imposing country that is the United States. There shall be general negative effects on the economy of the United States which shall include low exports, reduction in foreign direct investment, reduction in employment rate and loss of market share. But in the United States, embargo has been chosen as a weapon to enforce numerous goals relating to US foreign policy which includes fighting terrorism, drug trafficking, etc.
Further, analysing the effect of embargo against Cuba, it has been observed that the US Chamber of Commerce estimates that the embargo has cost the United States $1.2 billion per year in reduction of sales and exports. The Cuban Policy Foundation has also stated that the embargo has cost the economy of the United States $3.6 billion per year in terms of economic output. It has already mentioned that the US embargo with respect to Cuba was imposed in the year 1960 under the Export Control Act. Since then the US legislation which gives authority to these embargos are consolidated and extended the ambit of embargos in Cuba and as a result most of the US companies and individuals are restricted to extent their trade with Cuba (Roig, 2018).
The US has imposed embargos on Cuba under following major statutes and regulations:
But it has been analysed that the effect on the economy of the United States is negligible in terms of output, employment and wages as compared to the economy of Cuba as the US economy is very much high as compared to Cuban economy. The increase in the demand of US aggregately regarding the removal of embargo, is considered to be equal to the estimated reduction of trade post removal of embargo. Hence, it has been considered to be 0.01% of the gross domestic product of the United States. It can also be stated that in extreme cases, that is without importing anything from Cuba, the effect of such a situation and scenario on the aggregate demand shall amount to less than 0.05% of the total US economy. Hence, it can be said that the effect of such embargo on the economy of the United States especially on the macroeconomic variables such as output, wages or employment shall be negligible (Bilbao, et. al., 2017).
At the same time, the analysis of the net flow of the foreign exchange from the United States to Cuba which is a result of the net trade surplus and added foreign exchange outflow, is no more than 0.6% which is a comparatively less amount. Also, it has been observed that in case the embargo is removed and lifted, the benefit of it shall be seen on the economy of Cuba and negligible increase in the economy of the United States. This is because Cuba was largely dependent for trade on the US economy but the overall trade estimation of the United States with Cuba was insignificant.
It has also been stated in respect of the effect of embargo on the United States economy that the distribution of the Cuban products in the markets of the US has lessen the opportunity for the United States. But this does not mean that the United States was confined to opportunities for the import and export from Cuba. But it is also important to note that the total US assets seized by Cuba is around $7 billion. Further, the impact on the tourist front is also to be seen which has been affected by the imposing of embargo on Cuba. Americans were making their way to Cuba Mexico, Canada, Europe and other countries but there was concession from 2015 during the tenure of President Barrack Obama. But until now as well there are exceptions on complete ban for example, travel to Cuba from US is allowed for research purpose, journalism, business tours and professional meetings, humanitarian visits, family trips and sports competitions (Deere, 2017). Thus, it can be said that there have been no restrictions on the tourism and travel and thus, there has been no significant effect on the United States and tourism for its people.
To analysis the comparison between the effect of embargo on Cuba and the United States, it is important to estimate the US Cuban bilateral trade and foreign exchange flow which might have been in the absence of such embargo. The best comparative analysis of the embargo on the US economy and the Cuban economy can be done on analysing the US Cuban trade and US Cuban foreign exchange flow.
US Cuban trade
In terms of the US Cuban trade, the comparative analysis can be done on the estimation which shall be seen in the absence of the embargo. The estimated yearly exports of the United States to Cuba would have been about $658 million in the absence of the embargo restriction. But the analysis of the effectiveness of the embargo proves that there is limited utility for the change of behaviour of the targeted country that is Cuba. The comparative analysis regarding the United States and Cuban embargo restriction especially in the field of economics is done on the basis of gravity model. Further, the neoclassical trade model provides for the general equilibrium and its related framework which affects the impact of embargo on both the countries as a whole. But for a better understanding and comparative analysis of effect of embargo, it is important to understand the relation between the United States and Cuba.
Cuba was administered by the United States for four years from 1898 to 1902. Since then till the 1950s, there were substantial trade relations between the United States and Cuba. Hence, there was great benefit to Cuba from such trade relations and led the Cuba's social and economic ranked amongst the highest in the world. By analysing the trade patterns between the two countries before the enforcement of embargo and also applying the trade model, it can be better observed that embargo has somewhat led to trade losses for both the nations. Using the neoclassical model, it can be assumed that the United States is the capital country whereas Cuba is the labour country (Borenstein, et. al., 2018). Hence on analysing the trade pattern, if X variable is the capital intensive good and Y variable is the labour intensive good, it can be assumed that the relative price of the US for X and Y good is the lowest as the US is the highest economy in the world. The relative price of Cuba for these good shall then fall in the middle or be the highest. Hence, if the relative price of these goods is in the middle for Cuba, then the embargo shall become inoperative and shall place the rest of the countries in the middle. This also means that if the relative price of Cuba for the goods is in the middle, then Cuba and the United States shall be during more trade with alternate suppliers rather than with each other. Hence, as there was more trade between the two countries before the implementation of the embargo, it can be assumed that the relative price of Cuba was in fact the highest (Soles, 2017).
It has also been analysed on a comparative study of both the countries in respect of embargo that in the above-mentioned situation, both the countries shall be force to buy products from suppliers who shall offer products at higher prices. Moreover, partial equilibrium can be used to analyse the losses caused due to the embargo in various sectors where the impact is seen to be the highest as compared to other sectors. For an example, the supply of sugar from Cuba to the United States can be considered as Cuba was the major supplier of this product in the US. Hence, under free trade the world price for this good sugar shall be above the autarky price. And after the embargo there is a fall in the price level by Cuba to a level which is similar to what would have been if an export allocation was imposed.
Hence, it can be said that the comparative analysis of various aspects especially the import and export which was taking place between both the countries Cuba and the United States, reveals that prior to the enforcement of embargo, both the countries were enjoying healthy trade relations with each other and there was good growth in the economy of Cuba as there was considerably good import and export with the United States (Flores, 2016). But after the enforcement of the major acts relating to embargo, although there has been less impact of the United States and more impact on Cuba, the United States has faced impact on employment, wages and cash flow along with foreign direct investments.
Thus, it can be concluded that, by moving from the general meaning of embargo to the specific explanation of its impact on both the economies of the US and Cuba, a better understanding of the negative impact of embargo on the Cuban economy can be observed. Embargo and economic sanctions have been a part of the policies implemented at the international level for several years. These policies and sanctions are also on debate present time as policy framers and makers are more concerned about framing liberal policies rather than realistic policies. As per the observation on the facts above, it can thus be concluded that the main purpose of economic sanction and embargo in this case is to harm the economy of the target country Cuba. The effects of these sanctions and embargo can be analysed using different models of economics like the neoclassical model, equilibrium model, etc. The embargo imposed on Cuba by the United States nearly forty years ago during cold war falls under the trade embargo which has affected the economy of Cuba and hence, the policy framers are recommended to view the current situation and make the required changes for better trade future.
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