Cuba Pact is Smoke That Hides a Bigger Story
Stop the presses: The U.S. has just signed a trade pact with Cuba. That is, if the U.S. still had many presses to stop—though apparently Cuba is still big on that 20th-century technology. Cuba’s roads also seem stuck in a 1950s time warp, filled with American cars from that era.
One of my favorite lines from The Simpsons is in a scene with Homer and the ancient Mr. Burns, who’s culturally stuck in the Roaring Twenties, as they find themselves in Cuba. Burns sees a car and says, “Ah, the new Packard we’ve been hearing so much about.” Cuba is a poor country with a byzantine, centrally planned economy that in The Simpsons’ episode was saved from financial collapse only by Fidel Castro stealing Burns’s trillion-dollar bill.
But in the real world, right after President Obama announced the thaw in U.S.-Cuba relations, the financial media pontificated over what the opening of a new market, with 11 million people, would mean to U.S. producers.
Ultimately trade with Cuba will add up to small potatoes, and will distract from important trade deals brewing for the U.S. this year, which have been largely ignored by the media.
NPR did a spot about how Cuba’s vintage cars could find homes with American collectors. Problem: The cars aren’t exactly cherry, given that each has about a billion miles on it and everything under the hood is retooled or jerry-rigged. And as far as new cars being sold to Cubans, NPR quoted Larry Dominique of Truecar.com as saying that the odds of a new-car market opening there in the next few years is near zero “because there is no infrastructure for a new car.”
Oh, yeah, and there’s little money to buy one. In fact, much of Cubans’ spending money is sent to them by relatives in the U.S. So, if a Cuban does buy an American car, it’s kind of like your dad giving you money to buy a car from your dad. Not a virtuous trading cycle.
TheStreet.com did a story titled “Super Smart Ways to Intelligently Invest in Communist Cuba.” It reported that a closed-end mutual fund designed to capitalize on Cuban prosperity, the Herzfeld Caribbean Basin Fund, “shot up dramatically when news broke of President Obama taking steps to end the embargo, and then quickly found a price closer to reality.” The story never did come up with convincing, “super smart” ways to profit from Cuba.
Frustrated, I thought that I could benefit personally, given that I smoke the occasional cigar and Cuba makes the world’s best. So I called my favorite purveyor, Cigar World, in Tysons Corner, Va., and spoke to owner Ali Hamden.
I asked when he expected his first shipment. He said, “We don’t think it’s going to happen anytime soon,” reminding me that it will literally take an act of Congress to change Cuba’s trade status. Given the Republicans are in charge of that body now and aren’t wild about Cuba libre (the economic kind, not the rum-and-Coke variety), he’s not holding his breath.
He did predict that if trade restrictions relax, a Cuban cigar boom will ignite. However, he wonders whether Cuban supply will be able to meet U.S. demand, given that choice Cuban tobacco is grown in only a 40-square-mile area.
To be fair, American farmers could find a bigger market for food exports to Cuba, though by one estimate it might grow only from $350 million to $450 million annually.
The real trade news is much more dramatic.
First and foremost, there’s the massive overhaul of trading rules between the U.S. and the European Union, known as the Transatlantic Trade and Investment Partnership (TTIP). The economies of the EU and the U.S. together account for half of the global economy (Cuba’s economy is 0.002% of this total) and about one-third of all international trade, according to an article by Miriam Sapiro, a visiting fellow at the Brookings Institution and deputy U.S. trade representative.
The European economy is weak, especially compared with the accelerating recovery in the U.S., and it needs all the help it can get, including the TTIP deal. But as global competition rises to ferocious from merely cutthroat, we need the deal, too.
The U.S. often has been weak in setting up trade deals and defending intellectual property, and in allowing countries to protect their markets with high tariffs while giving them free access to our markets. That’s changing. And it has to change more quickly now that the dollar is so strong, making our exports more expensive.
Negotiating TTIP is a quagmire. For example, Europeans worry that U.S. genetically modified “Frankenfoods” will infect their grocery stores and that local “buy American” laws create de facto barriers. But, as Sapiro wrote, TTIP “has the potential to be about much more than reducing tariffs or tackling regulatory barriers.” It could increase “stability and prosperity” between the EU and the U.S.
More important to increasing U.S. trade, and therefore our prosperity, is expediting free trade pacts. Congress gives presidents the authority to expedite these under Trade Promotion Authority (TPA) laws, and it seems the Republicans and President Obama may actually work together to cement the Trans-Pacific Partnership using a TPA. According to the Washington Post, soon-to-be-former Senate Majority Leader Harry Reid, a trade skeptic, “has slow-walked TPA.”
The Pacific Rim is the world’s most vibrant economic region in terms of growth and trade, and not taking maximum advantage of it is like leaving money on the table. This partnership would give the U.S. better access to markets in 11 countries, from Chile and Japan to New Zealand and Singapore.
Each of these countries’ economies dwarfs Cuba’s, and although they won’t improve the quality of our cigar stock, increased trade with them will make our economy and stock market stronger in perpetuity—or until Cuba becomes our 51st state, whichever comes first.