Despite Early Optimism, Trade With Cuba Dipping

Since the Obama administration's December announcement that it was charging ahead with plans to re-establish ties with communist Cuba, trade with the island nation has taken a peculiar turn: It’s decreased — by a lot.

That is significant for Texas, which has for years ranked among the top 10 U.S. states trading with Cuba under provisions of the Trade Sanctions Reform and Export Enhancement Act of 2000, which allows companies to sell certain goods for profit despite a general trade and travel embargo.

Through June, the United States collectively shipped about $83 million in goods to Cuba, and is on pace for exporting about $166 million for the calendar year. That’s well short of the $291 million in goods shipped in 2014, and well below the $348.7 million shipped in 2013.

That trend holds true for Texas; the Houston port has seen only 33 metric tons of goods leave its docks bound for Cuba through March of this year, according to the New York-based U.S.-Cuba Trade and Economic Council. That’s compared with 60 tons in 2014, 295 tons in 2013 and a whopping 93,000 tons in 2012.

Some goods shipped from Texas aren’t grown or processed here. But their passage through Texas is still lucrative. According to figures from Texas A&M University’s Center for North American Studies, about 91 cents in additional business activity was created for every dollar worth of goods exported in 2008.

Discerning reasons for the dip, and forecasting what happens next as the countries continue mending their relationship after more than 50 years of tension, isn’t easy, experts argue. If Cuba continues to trade and garner support from foreign governments, specifically Venezuela, engaging the U.S. might be less of a priority.

“As long as Cuba can depend on Venezuela for much of its oil imports and foreign exchange, it’s going to move cautiously,” said John S. Kavulich, president of the U.S.-Cuba Trade and Economic Council. “Even though it has decreased its support to Cuba, it hasn’t stopped. How its relationship with Venezuela goes will determine in great measure how quickly it re-engages with the United States.”

Kavulich added that Cuba won’t transform into a hotbed of capitalism where U.S. goods are as common. At least not immediately.

“There is a tremendous amount — it’s breathtaking — the amount of aspirational rhetoric chasing very little reality,” he said. “You’re not going to be able to go to Hertz and rent an RV and drive down to Santiago de Cuba. It’s a process, it’s not an action.”

How things progress has more to do with Cuba's response to overtures from the White House than the other way around.

“If the U.S. changes, then Cuba is going to do more, but the U.S. has been changing and Cuba hasn’t done any more, so I think there is a disconnect,” Kavulich said.

Others are more optimistic. Cynthia Thomas, president of TriDimension Strategies, a Dallas-based consulting firm that focuses on the Texas-Cuba trade relationship, believes trade is down because of simple economics, not politics. 

“Over the last few years, Cuba has been paying down its debts” to Japan, Russia and Mexico, she said. “That has consumed a lot of their capital.”

Cuba has also stopped importing American poultry after an avian flu outbreak, Thomas said. According to Business Insider, Cuba previously imported $148 million in chicken products annually. And the severe drought affected cotton prices and Cuba’s ability to import cotton from Texas.

“There is nothing unique about international trade with Cuba versus other countries,” she said.

Thomas said that the Obama administration has already made changes that could bolster Texas’ trade with Cuba once the country is in better economic shape. The administration has rolled out a payment process that should make it easier for Cuba to buy U.S. goods, Thomas said.

Instead of securing a letter of credit — a guarantee from a bank that it will pay for the costs of goods if a buyer cannot — purchasers can now use the “cash against document” system. That means a buyer can wire money directly, which makes it easier on the purchaser, Thomas said.

Thomas believes the real test will come when more Americans are able to travel to Cuba on commercial flights. Charter flights are already available, but airline giants like American Airlines and United Airlines stated this month they are ready to begin commercial flights to Cuba once they receive permission.

Travelers will visit and try local food and goods, she said, but they will also long for familiar treats.

“They’ll go to a snack counter and want their Lay's potato chips,” she said. She also said more travelers to Cuba would ultimately mean more pressure on Washington to move quickly to re-establish ties.

“They expect a government state where machine guns are on every corner,” she said. “That’s not reality. [People] have a good time. And that is one more advocate for knocking down the embargo.”

Disclosure: Texas A&M University is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.