Alphabet Soup, Part III: The TTIP And the Future of American Labor

by B. Lana Guggenheim What is the TTIP? Have you heard of it? If you have, you’re likely mad as hell, and if you haven’t, you’ll soon understand why many are. One of many free trade deals, the TTIP has come under fire as the race for the White House heats up, with populist anger at obscure government deals that seem to harm the average American and benefit only a select few.

In the previous two articles, we examined two other free trade agreements, NAFTA and the TPP. The first article in the series covered the results of NAFTA, a free-trade agreement between the USA, Canada, and Mexico, established in 1994. The results of this trade deal were decidedly mixed, as new markets were opened and trade established, but American manufacturing moved to Mexico, costing thousands of jobs. Free trade agreements have now become a political lightning rod and litmus test, as anger over the sluggish economy continues. Even with this growing animosity however, another trade agreement, the TPP, or Trans-Pacific Partnership, was signed earlier this year.

The TPP was subject to numerous blistering criticisms and well publicized opposition, which were examined in detail in the second article in this series. But these arguments, while they did not prevent the signing of the TPP, are once again front and center among opposition for a trade deal still under negotiation: the TTIP, or the Trans-Atlantic Trade and Investment Partnership. Whereas the TPP focused on Pacific area trade, the TTIP focuses on cross-Atlantic trade, particularly between Europe and the United States.

If passed, the TTIP would create the largest free-trade zone in the entire world, comprising of about half of all global production. President Obama once had hopes to finalize the deal before he left office, but he faces an uphill battle, and the issues are unlikely to be finalized before 2020. Just like with the TPP and NAFTA before it, this deal is marketed as creating opportunities for medium and small businesses; however, it is likely that the biggest winners will once again be the electronics, pharmaceutical, and chemical industries, industry giants that already enjoy the benefits of strong US-EU ties. Like with the TPP, Big Pharma benefits could result in extending patent protections for their drugs and pushing up the prices of medicines worldwide.

As with the TPP, ISDS (or, investor-state dispute settlement) is a major point of contention with the TTIP, and seen as a threat to the democracy of the EU, as many suspect it would give companies leverage to dictate policy to European governments. This is of particular concern to those worried about environmentally conscious legislation. The TTIP would eliminate all restrictions on natural gas exports, which means that the USA would have a larger market for oil derived from fracking, or hydraulic fracturing, itself a highly controversial procedure due to its potential environmental impacts. The TTIP also encourages self-regulation over mandatory energy efficiency legislation, and because it requires energy networks not to discriminate between energy sources, it would prevent legislators from prioritizing renewable energy sources. Some countries, like France, are already under fire from their public from trying to loosen up labor laws, and see the TTIP as a threat to their security on the job.

The United States might seem over-regulated (or at least over-supervisory) in comparison to some Pacific Rim countries, but the EU favors government oversight even more than the USA. EU states also often have stricter environmental laws in place than the United States. Still, some European governments are weak on climate action, such as Ireland, and those states are susceptible to corporate pressure under the TTIP, rather than EU pressure to crack down on harmful emissions and get in line with the Paris Climate Agreement.

Under the TTIP, European farmers would face stronger competition and lower prices, with American factory farms and and corporate food giants standing to gain. That might seem great to Americans, but Europeans aren’t too keen. The food fight is something that Europeans are actually really hung up on, much to American frustration. For example, France is upset about scrapping milk quotas, which could damage the country’s dairy sector, a key driver of its economy.  And while genetically modified crops are perfectly safe, citizens of the Euro-zone have a great deal of skepticism and suspicion towards them, and EU states are allowed to ban GMO cultivation as well as mandate labeling of GMO foods. Still, most of the animal feed in the EU is imported from the Americas, and is overwhelmingly comprised of genetically modified crops, but people seem to get antsier when that food goes to people too.

The EU is also much stricter on pesticides than the USA. The US law says that if you can’t prove it’s harmful, go ahead and sell the product, but the EU law is much stricter, demanding a risk assessment when there isn’t enough scientific data to clear up uncertainty. And this means that the EU and the US disagree about the maximum amount of pesticide residue allowed to be in food. The small, family-owned farms that still are present in Europe also contrast with America’s ranch model, especially as America makes use of growth hormones that are banned in the EU. (Meanwhile, America won’t import EU beef either, but that is due to the mad cow disease that ran across the continent in the 1990s.) Also at issue are the methods to prevent infection on meat and poultry (America washes its poultry meat in chlorinated water; the EU in hot water), and the lack of anything resembling the tightly-regulated “farm to fork” strategy in America. In short, folks are concerned that the TTIP would scrub these stricter food standards to bring the EU in line with American standards.

As it stands, there already are very few trade barriers between the US and Europe. Most tariffs are less than 3%. Therefore, many suspect the TTIP to be about increasing deregulation and opening up the European markets to corporations, and allowing them greater ability to roll back American or European rules that impact profits, but also help protect consumers, not just in the agricultural and food industry, but in digital privacy, and government oversight and regulation of financial institutions. The European Commission says the TTIP would boost the EU’s economy by over 120 billion dollars over 14 years, but Dean Baker, of the American think-tank Center for Economic Policy Research, says gains per household would be very modest (he compares it to finding a quarter on the street), and wider effects could result in net job gains or losses, depending on the model referenced. Indeed, he calls the aforementioned number a best case scenario, which is roughly equivalent to a month’s growth anyway.

There are also fears about the privatization of things that in Europe are state-administered social goods. In England, the debate rages about the future of the National Health Service under the TTIP. While some of these protests are a bit hysterical in tone, others raise points about the difficulty of reconciling such different systems, including the TTIP potentially forcing the NHS or other similar systems in other EU states to allow private US pharmaceutical firms to bid for lucrative contracts, thus paving the way for the privatization of the government health-care system “through the back door.” It also means privatization already undergone would potentially be impossible to restore to public hands, due to investor rights granted with ISDS. Fear of potentially being forced to pay compensation could forestall any rollback on privatization, even if the government wanted to. Parliament has promised however that just like CETA (a similar trade deal, but with Canada), there will be a provision that protects public utilities, like health-care, that can be a state monopoly or limited to a handful of private operators, thus avoiding this scenario. But many folks remain unconvinced, especially in UK, where there is a lot of public attachment to the NHS, as opposed to the rest of the EU, which usually has a more balanced mix of public and private options available. (Fears about the future of the NHS were deliberately stoked in the recent Brexit referendum as well, with pro-Leave folks explicitly stating that the NHS would be safe under their care but not in EU hands, and not post-TTIP hands, versus pro-Remain folks rejecting the notion that NHS would be threatened by the TTIP at all.) The European Commission has made available all negotiating texts, including lists of proposed carve-outs, which explicitly mentions protecting health services that receive government support in whole or in part. And back in March 2015, EU Trade Commissioner Cecilia Malmström and US Trade Representative Michael Froman addressed the issue, saying that no agreement between the US and EU would force anyone to privatize anything, or that once privatized, it can never be re-nationalized. Under the TTIP, if the UK or any other EU state breaks its contract with private healthcare suppliers, then yes, they can be sued. But that is pretty unlikely, and it’d be easier (and smarter) to simply let contracts expire and re-nationalize it after its conclusion anyway. (Despite the Brexit vote, the UK remains part of the EU until the exit negotiations conclude; as of the time of this writing, those negotiations hadn’t even been started.)

Privacy concerns are also a specter. The EU Parliament rejected ACTA (Anti-Counterfeiting Trade Agreement) back in 2012 after a huge public backlash, as folks did not wish for internet providers to monitor their activity online, much less be required to do so. (Many countries in Europe did sign it, but have not ratified it or put it into effect, effectively killing it where it stood.) But it is feared that the TTIP would allow a “back-door” to get the core of those regulations on the books anyway, thus circumventing democracy. The combination of easing privacy laws, plus restricting public access to corporations’ data (especially pharmaceutical clinical trials) would be a disaster for the public, and a boon to corporations trying to sell them things.

And just like NAFTA allowed for manufacturing jobs to move with greater ease out of the USA to Mexico, the TTIP is likely to cause a bleeding of jobs from the EU to set up shop in the USA, where labor standards are lower and unions much weaker. That might be good news for Americans and the businesses that move here, but Europeans are understandably not too keen on losing their jobs.

In addition, the European community, like the Americans were with the TPP, isn’t thrilled with the secrecy shrouding the specifics of the TTIP, even if such is standard practice for these treaties. (This too is seen as anti-democratic behavior, and they kind of have a point, as many Americans felt the same about the TPP.) When there was a leak of sections of the TTIP draft back in May of this year, John Hilary, Executive Director of London-based charity War on Want, said that there was “no way” that TTIP could survive the leak. “The only way that the European Commission has managed to keep negotiations going so far is through complete secrecy as to the actual details of the deal under negotiation...This is surely the beginning of the end for this much hated deal.” That until recently, much of the publicly available text was only through leaks hasn’t endeared many campaigners to the deal, either. Still, even if the text isn’t that bad, the leak might embarrass EU member states away from signing on - an issue for France and Germany, as they are having national elections in 2017. Just after the leak, French premier Francois Hollande said no the TTIP, in part because he is deeply unpopular, and siding against the deal will earn him some points with the public.

President Obama and German Chancellor Angela Merkel in a joint conference about trade, immigration, and other issues in February 2016

And just like with the TPP, government officials who saw the document saw only sections, were under surveillance, and were not allowed to disclose what they read. And for German lawmakers (or any other non-native English speakers), penetrating the dense legal jargon is especially difficult. This has become a toxic issue in Germany, where Greenpeace activists unleashed their trove of draft documents, in a glass case near Berlin’s Brandenburg Gate - a wry commentary on government transparency, or lack thereof.

Globalization has in general come under fire and anti-establishment feeling is high, as it has failed to deliver on its promises of economic stability and growth, especially in the face of a still-present economic downturn. Such feelings are what prompted the Brexit vote, after all. And with the UK leaving the EU, there is one less vocal supporter for TTIP at the European table. Via the European Citizens’ Initiative, which enables EU citizens to call directly on the European Commission to propose legal actions, over 3 millions signatures against TTIP and CETA (which is basically a Canadian TTIP) were gathered within a year.

But the TTIP goes both ways; the USA has stricter financial and banking rules than most European states. Those restrictions were put in place after the financial crisis of 2008 in order to curb bankers’ powers and avoid a similar crisis in the future. Such restrictions were not put in place in the EU, and the UK might be seeking a lifting of these restrictions via the TTIP.

Could lawmakers or a future President actually gut existing trade deals? Trump said he would, but could he actually? Reversing trade policy won’t actually bring any jobs back, and companies tend to go where costs are cheapest anyway. This happened with America’s textile industry. Once a booming, core section of our economy, it moved overseas decades ago, decimating towns across the South - towns that have yet to recover. And that happened without NAFTA or any other trade deal. Trump says he wants to put huge tariffs on Mexican and Chinese imports (35% and 45% respectively), but that won’t make production move back. Those companies would just go somewhere else, likely Vietnam, or Indonesia, or Korea, as the standard of living is lower in these countries, and workers are therefore willing to do the same work for a lower wage. It’s just math.

Besides, slapping on such huge tariffs isn’t exactly easy; it requires an act of Congress, and would violate all the trade agreements the US has with other countries involved in the WTO, over 160 in all. And besides, if the US raises tariffs on imported goods, other countries would retaliate by raising theirs on our goods, which would hurt our economy to the tune of over a trillion dollars worth of exports. Preventing this from happening (or at least, making it very costly) is kind of the point of the WTO in the first place.

If trade is good for the country, why are the benefits not reaching Rust Belt towns, even decades on?  White collar jobs are doing better, and more goods are available for cheaper nation-wide, but blue-collar factory jobs are doing worse and worse - and trade deals exacerbate this. But advancements in technology, such as automation, and increases in productivity also slashed factory jobs - to the tune of about 80% of the total loss - and leaving no other opportunities for low-skilled workers. Another 20% lost was due to trade - and when you’re already hurting, this addition adds insult to injury. The US Chamber of Commerce argues that this automation is the primary engine of job loss, not trade deals, and that the elimination of tariffs and other obstacles boost market access for small and medium sized businesses that would otherwise be shut out of the global market.

“Onshoring,” a term for companies bringing manufacturing jobs back inside the USA, seems like it might help reverse this trend, but in truth, it offers little relief. Such moves, such as when GM opened a plant in Tennessee, or when Whirlpool was moving production from Mexico to the USA, only offer a trickle of new jobs. Most of these plants are in right-to-work states, which means laborers will have a very tough time unionizing, meaning they have much less job security than previous generations who worked in this field. Adjusted for inflation, they earn less too. Manufacturing and other blue-collar jobs are no longer a road to the middle class. There are no “good jobs” to be found here.   

In the end, you can’t stop trade, and attempts to do so would be disastrous. So what can be done? Focusing on the lack of labor protections would be a way to make sure those who do have work aren’t stuck in dead-end jobs that can’t even let them make ends meet.  Or tackling the lack of regulations that promote companies to boost their bottom line, regardless of the human cost. Or focusing on government policies that don’t provide enough avenues to re-employment for displaced workers. Expanding the Trade Adjustment Assistance (TAA) program would be a good start. This program helps workers pay for education and training to find new, better jobs, something that is critical for these blue-collar workers who are out of a job and out of options. However, funds for this program were sharply cut in the 1980s, and its current funding is entirely insufficient to address Americans’ current needs. President Obama and some economists also recommend expanded wage insurance, a sort of unemployment-wage that would offer laid-off workers a portion of their previous salary for a period of several years, which would ease a lot of the economic hardship suffered by older workers who are forced to take a deep pay cut, assuming they are lucky enough to find new employment at all.

Jeffrey E. Garten, Dean Emeritus of the Yale School of Management, states that the goal should not be to reverse trade policy, but that these policies should no longer stand alone. Rather, they must be accompanied by domestic policies that help workers thrive in the new environment, rather than leaving them to languish, as has been the case for the past decades. This can also include a progressive tax policy, better unemployment programs that increase the robustness of the social safety net for the chronically unemployed and underemployed, as well as better job training.

The current economic predicament has been decades in the making, and trade deals are only one complicated part of how we got here. Counterintuitively, these deals are good for America’s overall productivity and income, and boost many industries, while decimating already foundering manufacturing and factory jobs. The benefits of such trade deals are not shared equally. Combating this painful reality and helping America’s blue-collar workers is a lot more complicated than simply opting out of trade deals. Instead, we need a comprehensive economic reform, a series of policies that can start correcting the many factors that led us to abandon so many of our fellows in the first place. To not do so will only hurt us all.

Alphabet Soup, Part I: NAFTA and the American Economy

by B. Lana Guggenheim The United States has trade agreements with 20 countries, and many more are in the works; the names of these agreements are often a sea of alphabet soup (NAFTA, TPP, TAFTA, TTIP, etc). That alone is enough to make most Americans tune out, but the current election cycle has brought to light a lot of ire not just at the state of the economy, but about these trade deals, which are perceived by many to be some of the vehicles of economic insecurity. Both Republican nominee Donald Trump and ex-Presidential hopeful Vermont Senator Bernie Sanders have lambasted specifically NAFTA and the TPP, saying that these deals (along with globalization in general) outsource American jobs and hurt the poorest, most vulnerable Americans. These deals mean that trade is diverted, rather than created. But Democratic nominee Hillary Clinton and other trade experts disagree, saying that increased international trade increases commerce (so more trade is created than diverted), which means American companies do better both at home and abroad - in addition to other geo-strategic gains that such agreements might provide.

So who’s right? Well, both of them. Sort of.

These trade deals are often examined cursorily and in isolation, especially when farmed for punchy sound-bites, like how many jobs lost (NAFTA is estimated to have cost about 850,000 jobs, due to manufacturing moving abroad, for example). And that’s true as far as it goes; the removal of trade barriers between countries allows for companies to set up in locales that might be more favorable to their bottom line - and close up shop where it is not. But instituting a closed economy would not save us. Trade deals are a natural part of a global economy, and that’s not something that you can put the brakes on or reverse; attempts to do so and close the economy or relying on other forms of protectionism would be extremely harmful to the American economy, even as it would protect factories from closing down right away. But close they still would, not because the jobs “moved away,” but because the country would no longer have the wealth to produce anything, or buy products. Hitting the brakes on development and trade in America does not mean the rest of the world will follow suit - and playing catch-up on the global stage is difficult indeed. In the end, the transition is only delayed, not prevented, and the American worker is worse off for trying.

The result is that you have a devil’s choice between an economy that hurts some citizens, but is considered good for the country overall, or scuttling the economy for everyone. In general terms, it is clear that trade is beneficial, but when it comes to implementing trade agreements, there are short-term costs. (Note that short-term can mean a month, a year, or even a generation.) But a trade deal that is good for America does not mean it is good for all Americans. There is a real, desperate lack of sufficient compensatory policies and safety nets for displaced workers. No wonder people are mad: with choices like these, the most vulnerable Americans are left out to dry either way.

Much differs from deal to deal, and not all trade deals are created equal. Some really have hurt Americans, but some have been quite beneficial. Some have been both. While it is beyond the scope of any one article to examine every trade deal, we are going to examine three: NAFTA, TPP, and TTIP. These three include one that has been in effect for many years, one that was just signed, and one in negotiations, with the ultimate goal to examine what is beneficial, what is not, and what is controversial. All three have been discussed in recent news cycles and serve as a form of political signaling in the current election.

Functioning as something of a political lightning rod, NAFTA (the North American Free Trade Agreement), is a trilateral free trade agreement between Canada, Mexico, and the USA. Signed into law by President Bill Clinton in 1994, NAFTA created the world’s largest free trade zone. The details of this trade deal are many, but the goal is to privilege goods made exclusively in, or transformed by these three countries, and to that end, eliminate or reduce duties and tariffs across the borders, and in theory, address environmental and labor concerns. The three NAFTA countries did agree to toughen health, safety, and industrial standards to the highest existing standards among the three, which are nearly always American or Canadian standards. Supplemental agreements were meant to address Mexico’s lower wage scale that would cause American companies to relocate to Mexico to cut costs, as well as prevent pollution from rapid industrialization, with commissions established to handle labor and environmental issues. But environmental and labor groups from the USA and Canada have repeatedly charged that these supplemental agreements have not been enforced, and neither has Mexico’s wage scale caught up.

NAFTA had the effect of opening up Mexican markets in an unprecedented manner, significantly benefiting US exports, but without the promised resolution of wage-scale differences. Some of the worst nightmares of American factory workers and oppositionists, such as former Presidential candidate Ross Perot, did come to pass. American manufacturers have indeed moved to Mexico, resulting in massive anger, as seen in the well-publicized outrage when Carrier shut down their Indianapolis plant in favor of their Mexican facility. It has also contributed to American wage stagnation and depression, especially for those who are not college-educated, and who are now in direct competition with lower-paid Mexican workers. The jobless recovery post-recession has not made things better, as no new opportunities have materialized for these workers, even when economists had assured they would. And yet, NAFTA has also resulted in more jobs in other sectors, more opportunities for small and medium sized businesses, more products available at a lower price, and modest growth for American GDP. This is great for some Americans, but cold comfort to those who lost their jobs and see no other opportunities on the horizon.

The increased trade has resulted in the sharp rise of trade deficits with both Canada and Mexico, which means that the US imports more from than it exports to these countries, even though they are the two largest destinations for US exports, accounting for over a third of the US total. Running a trade deficit isn’t necessarily a bad thing, even though the term “deficit” sounds scary, especially in times of economic uncertainty. Sometimes it is even a sign of growth and economic health. However, both the trade deficit and the decline of manufacturing were occurring before NAFTA was signed into law. It is a matter of some debate exactly how much NAFTA has exacerbated this trade deficit.

While most economists agree that NAFTA has modestly benefited the USA, many Americans (and many Mexicans) do not have such a rosy outlook. That is because the negative impacts are highly concentrated in specific industries, such as the auto industry, which saw much of its manufacturing relocated to Mexico (Mexican auto plants make up about 25% of North American car manufacturing market, and the American auto sector lost approximately 350,000 jobs since 1994), because costs of labor are lower and there is a real dearth of union protection for Mexican workers; whereas the benefits, including new jobs generated, are more widely distributed across society, and therefore harder to pinpoint.

But because those who have lost their jobs haven’t had other job opportunities, and because wages have not kept pace with labor productivity while income inequality has risen, ire at NAFTA and other trade deals has also risen.

It is worth noting that while Canada hasn’t experienced much change due to NAFTA, Mexico hasn’t exactly had a free lunch, even as their economy expanded the most out of all three participatory nations. Mexican lawmakers saw NAFTA as a way to lock in hard-won economic reforms that opened up the formerly protectionist economy, but there’s been mixed results for the country. Rapid economic growth did occur, but poverty has not been alleviated, wages have not risen to match America and Canada, and paradoxically, Mexican unemployment rose, in part because Mexican farmers, particularly corn producers, were exposed to heavily subsidized US imports. This put many small-scale Mexican farmers out of work - and some speculate, might have led to a bump in illegal immigration. (Mexican immigration, both legal and illegal, more than doubled after 1994, but the flow reversed after the 2008 recession and stricter border enforcement.) This means that NAFTA, among a host of domestic factors such as the devaluation of the peso, dysfunctional regulation, and land reforms drove rapid growth in the industrialized north, but economic hardship for the rural south.

The Zapatista Army of National Liberation has been waging war against the Mexican government in the Chiapas, the southernmost state of Mexico, since January 1, 1994, the very day NAFTA was implemented. That is because a pre-condition for Mexico entering NAFTA was a modification of their Constitution, which means it would be possible to privatize communal ejido-land, a type of shared agricultural land holding where no one owns the land, but they and their children are permitted to use it indefinitely so long as it does not lie unused for more than two years. This system is influenced by a previous Aztec system called calpulli, and is heavily relied upon by poor, indigenous Mexicans. This land reform threatened the basic security of indigenous communities, turning generations of workers into illegal land-squatters and their communities into illegal, informal settlements.

The Zapatistas correctly predicted that because of this, NAFTA would increase the gap between the rich and poor in Chiapas, and declared revolution stating that the Mexican government was so out of touch with the will of the people that the only reasonable reaction was to overthrow it and create a new, direct democracy in its place. Since then, they have waged a defensive war in Chiapas, and have formed several autonomous municipalities, none of which are recognized by the federal or state authorities, but have persisted in their autonomy for ten years. (Violence has mostly subsided between the Zapatistas and the Mexican government, with the most recent eruption in 2014, when a Zapatista-affiliated teacher was shot and killed, and 15 others wounded by anti-Zapatista para-militants.)

Photo from almomento.mx

Compared to a stalemated revolution and legalized dispossession of poor farmers, America’s issues of wage stagnation and job creation look almost tame by comparison. That hasn’t stopped either former Presidential hopeful Senator Bernie Sanders or Republican nominee Donald Trump for lambasting this deal and others like them. Democratic nominee Hillary Clinton’s position is rather more nuanced. Formerly a cheerleader for NAFTA, she has since walked that back, saying that it has not lived up to its promise and has hurt American workers. And as President Obama’s Secretary of State, she had been positive on the TPP, calling it the “gold standard,” a statement which she also later walked back when faced with American populist anti-trade sentiment.

However, it remains that both America’s trade deficit and the decline of manufacturing were occurring before NAFTA (or other trade agreements, like the TPP) was signed into law. Still, it is clear that NAFTA and other trade agreements have become a lightning rod for differing political opinions on globalization and free trade. Growing opposition has made it difficult to get other trade agreements passed, such as when CAFTA (the Central American Free Trade Agreement) was stalled in Congress in 2005 from lack of support.

NAFTA is only one trade deal of many. Despite the decidedly mixed results, the United States has signed another trade deal, the Trans-Pacific Partnership, or TPP. In the next segment, we will examine this newly minted deal and its many opponents, and the potential results once this trade deal is ratified. 

Click the links to check out Part 2 and Part 3 of our series on trade deals.

End of the Embargo: the Future of Cuban-American Economic Cooperation

President Obama’s state visit to Cuba has garnered a lot of press, as he is the first sitting president to do so since 1928. But while momentous, this isn’t surprising; it’s merely the latest in a series of steps the President has taken over the years to normalize relations with the island nation. Since 2009, Obama has lifted travel restrictions, released prisoners, and last year, removed Cuba from the list of terror-sponsoring states. In July, the two countries officially restored diplomatic relations and re-opened their embassies in their respective capitals. During his visit, Obama has declared his intention to lift the economic embargo on Cuba entirely. “I have come here to bury the remnants of the Cold War,” he declared.

The embargo itself is a tricky piece of American policy. Rather than a physical, military blockade, which hasn’t been present around the island since after the Cuban Missile Crisis in 1962, it is entirely a commercial, economic, and financial enterprise. It was first imposed back in 1960, only two years after the Cuban Revolution deposed the US-backed Batista regime, as a reaction to Cuba’s nationalization of American-owned Cuban oil refineries without compensation.

This action was in turn a response to then-President Eisenhower’s decision to cancel 700,000 tons of sugar imports from Cuba and refusal to export oil to the island nation, leaving it reliant on Soviet Russian crude - and with American oil companies further refusing to refine the Soviet crude oil, Cuba seized the American-owned refineries. The embargo was soon expanded to include almost all imports and exports. In total, the US holds approximately $6billion in claims against the Cuban government, and the Cuban Democracy Act of 1992 states that sanctions are to be maintained so long as the Cuban government refuses to democratize and respect human rights. These policies were further tightened under President Clinton with the Helms-Burton Act after Cuba shot down two planes flown by anti-regime protest group Brothers to the Rescue that had repeatedly violated Cuban airspace to drop anti-Castro leaflets over the island, killing four, three of whom were American citizens. Former Cuban President Fidel Castro did encourage insurgence against the USA back in 1982, but in 1992 he promised to cease all such activity, and the State Department reports that Cuba has indeed ceased their support for terrorism. More recently, relations between the two countries took a turn for the worse in 2011 when Cuban authorities arrested Alan Gross, a US Agency for International Development (USAID) subcontractor for the crime of bringing in internet and communications equipment for Havana’s Jewish community. His release was part of a prisoner swap as part of Obama’s “Cuban Thaw” policy.

Refusal to normalize diplomatic relations does not, in fact, have anything to do with communism, as the USA was certainly able to normalize relations with the Soviet Union during the Cold War, as well as with China and Vietnam. Nor is Cuba much of a security threat, as it is militarily impotent, no longer serves as a base for Soviet intelligence operations, nor does it seek to export Communism, or fund or encourage terrorism abroad. It isn’t an entirely toothless country, as it has maintained close relationships with both North Korea and Iran, and has gone back on previous agreements in the past, failing to act in good faith, and remains a sovereign nation run by dictat, not democracy, but it is far from the threat it posed it posed in the height of the Cold War. But while the embargo might have started as a reaction and resistance to Castro, it soon became a political club for first generation Cuban-Americans, often manifesting in election years for politicians running for election, especially in Florida. And indeed, it seems to be generational; the most recent generation of Cuban-Americans differs from the politics of their parents, and many seek to renew ties with island and their families left behind. A Pew Research poll from 2014 shows that the majority of Americans support engagement with Cuba, and a poll from Florida International University shows similar sentiments among Cuban-Americans specifically. A 2015 poll shows that this feeling is reciprocated, with 97% of Cubans favoring restoring ties to the United States. And Obama’s overtures to Cuba have been celebrated around Latin America as well.

Does the embargo even work? It seems not. The Castro regime is well entrenched, and despite the hardships of the Cuban people, doesn’t seem to be going anywhere. There is doubt that the embargo has had any positive effect at all. The United States doesn’t block Cuba’s trade with third parties or other countries, and despite the embargo, the US is the fifth largest exporter to Cuba, consisting mostly of agricultural goods and accounting for over 6% of its imports, though the island nation must pay for it in cash. Moreover, since 1992, the UN has passed a non-binding resolution every year condemning the embargo and declaring it to be in violation of the UN Charter and international law. Only the United States and Israel voted against this resolution in 2014, with a few Pacific island nations abstaining. A great many states engage in active trade and tourism with Cuba. In fact, the embargo might be helping entrench the regime, as it is a convenient scapegoat for the Cuban government on which to pin all its ills and policy pitfalls.

The American embassy in Cuba

The US Chamber of Commerce estimates the embargo hurts us as well as Cuba, costing the economy $1.2billion per year in lost sales and exports. The Cuba Policy Foundation, a non-profit organization dedicated to America-Cuba relations and policy, estimates that the annual cost to the US is a much higher $3.6billion. The Cuban government estimates the embargo costs them approximately $685million annually. Moreover, the embargo uses US resources in endeavors like tracing property ownership of Spanish hotels in Cuba to ensure they weren’t stolen from Americans decades ago. At least 10 different agencies are responsible for enforcing the embargo, and according to the Government Accountability Office, a huge amount of resources are spent on enforcement, to the tune of hundreds of millions of dollars and tens of thousands of man hours every year. Over 70% of US Treasury Department inspections each year are focused on smuggled Cuban goods, even though the agency administers more than 20 other trade bans. Resources spent on this and on programs like Radio Mardi, an anti-regime radio broadcast that is actively jammed by the Cuban government, could be re-directed towards other American endeavors abroad, like Radio Free Afghanistan, where the broadcasts aren’t jammed, or monitoring terrorist financial networks.

Some Americans have been agitating against the embargo for some time, citing the untapped markets of Cuba as avenues for potential profit and growth. Free market supporters and lawmakers representing agribusiness are some of the strongest in vocalizing this. Recently, the American government has approved American investment in Cuba. Two men from Alabama were permitted to construct a factory to build tractors to sell to Cuban farmers, and they are expecting to deliver products beginning as soon as 2017. This plant would be the first significant US business investment on Cuban soil since 1959, and is well in line with Obama’s anti-embargo intentions. And Cuba’s few exports do not rival any US industries, making future free trade with the island low cost both politically and economically, with high potential yields. But that can’t happen until Cuba liberalizes their economy and makes private enterprise a more accessible option for their populace, though the reforms put in place by President Raul Castro since 2008 have begun the process that Obama hopes to accelerate.

In other words, the embargo has utterly failed to accomplish any of its goals, only resulting in harming the US economy and failing to liberate a single Cuban or move the regime towards democracy. And isolation isn’t often an effective tool towards fostering change either. In 1970, 17 out of 26 Latin American and Caribbean nations were authoritarian; today, Cuba is the sole holdout. But only Cuba has been subjected to such a comprehensive embargo, whereas economic engagement has been the rule for everyone else. That Cuba’s government is oppressive isn’t under dispute, but the embargo certainly hasn’t made things better. And indeed, President Obama’s rationale for visiting Havana was grounded in the notion that interaction will empower Cubans and bring about change faster than decades of isolation ever did. Obama urged Castro more about liberalizing the economy and embracing the free market than he did about decreasing authoritarian control and respecting human rights, indicating his belief in the power of capitalism to aid transformation of the country from within, using economic policy to circumvent political stalemate. Moreover, ending the embargo would send a powerful message to regimes that do pose threats to American security: foreign governments that attack the United States will be sanctioned severely and possibly worse, but those that cease to engage in such activity will benefit from trade with us. Carrot and stick.

Still, Obama has to overcome strong opposition in Congress in order to lift the embargo once and for all, and it won’t happen immediately.

The sanctions in place were poorly designed and demonstrably easily circumvented, making them difficult both to enforce as well as to remove in the face of political opposition. Until the embargo does eventually end, Obama and successive presidents can use the existing barriers and the clout we do have and that Obama has built as incentives for Castro to change, as well as encouraging grassroots democratization movements in the island nation. This may involve taking the hard-line at relaxation of barriers, making them conditional on Castro ending some of his regime’s most egregious human rights abuses and harmful economic and political policies.

In the short-term however, Obama can use executive authority to create ties around trade, investment, and travel, with the agricultural and telecommunications industries standing to gain the most both from immediate increased ties and the eventual collapse of the embargo over the long term. Farmers in the southeastern part of the USA especially stand to gain, as their proximity to Cuba makes them ideal exporters of poultry, fish, rice, and corn, but all American wheat and rice farmers are likely to benefit from increased trade with Cuba. “We believe our market share could grow from its current level of zero to around 80% to 90%” said Alan Tracy, president of the US Wheat Associates.

Trade with Cuba could result in the creation of 6000 new jobs in the agricultural sector, many of them in Florida. And for Cuba, an end to chilly relations with the USA means tourism, travel, and remittances from relatives already in the USA. Currently, the $5.1billion annual remittance money that Cuba receives overwhelmingly comes from the USA, and is critical for the Cuban economy, and the Cuban government estimates the impact on remittances as part of the overall impact of the embargo on its economy. It also means that other Latin American businesses will start investing in Cuba, as previously they have not done so in fear of risking their lucrative ties to US markets.

As mentioned above, Obama hopes that economic liberalization will pave the way to political liberalization as it has in so many other countries, though it might be some time before we see results on that front. But the more globally integrated Cuba becomes, the more it will be able to contribute not just to US and regional markets, but global affairs. Cuba has already sent large teams of doctors to Africa to combat Ebola, and has helped successfully mediate the decades long and bloody war between Colombia’s government and the FARC rebels. Despite its current ties to states like Iran and North Korea, it is to be hoped that stronger and more beneficial ties to nations aligned with the United States might be incentive enough to turn them away from this axis. Then this type of engagement would increase, and the world will very possibly be better for it.

Images courtesy of Shutterstock.

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