Here’s a sentence no one expected to read: The government of Cuba is embracing the importance of markets and the business sector. Earlier this month, the state-run newspaper Granma announced 176 economic reforms that would legalize private banking, private business ownership, private real estate ownership, and the privatization of state-owned companies. It is an admission that Fidel Castro’s communist experiments of the 1960s have failed.
“Cuba must not repeat the mistakes of the past, and must not depend, in economic matters, on any single product or any single country. Our country must seek an economic development path where we must inevitably diversify our economy, diversify the way we do business, and the way we project investments,” Castro’s great-nephew Raul Guillermo Rodriguez Castro told The National, a newspaper close to the government of the United Arab Emirates.
And the Trump administration has almost immediately moved to sabotage the reforms, imposing new sanctions on Cuba that will “throw more cold water on the foreign investors that are already there,” a University of Miami professor told the Associated Press. The U.S. State Department condemned Cuba’s reforms as “superficial smoke signals from the Cuban regime.” That statement is a self-fulfilling prophecy: Scaring away foreign investors is a great way to make sure that reforms can’t take root.
Whether communist or capitalist, Cuba has always needed foreign trading partners to survive as a small island without many resources. When Castro’s revolution came into conflict with the United States shortly after taking power in 1959, the Soviet Union stepped in to replace American trade. Castro quickly nationalized businesses, imposed Soviet-style one-party rule, and reorganized the economy around heavily subsidized trade with the rest of the Soviet bloc.
When the Soviet Union fell, Cuba went through a “special period” of extreme economic crisis. While other communist states, such as China and Vietnam, adopted market-based economies, Cubans were reduced to riding horses when the buses ran out of fuel. But the U.S. government also intentionally got in the way of any kind of Cuban economic opening. Expecting the Castro government to fall soon, Congress passed a series of ever-tightening economic sanctions in hopes of accelerating that collapse, including sanctions aimed directly at deterring private foreign investment in Cuba.
Instead, the Cuban state muddled along, and Cubans wallowed in misery for decades. Beginning in the early 2000s, the new socialist government of oil-rich Venezuela partially replaced Soviet subsidies, until Venezuela’s own economy collapsed. Cuba began opening up the tourism sector to private business, and U.S. President Barack Obama began normalizing relations, opening up a flood of American visitors and the businesses that service them. But the first Trump administration quickly reversed this opening with new sanctions. The coronavirus pandemic was another severe economic shock, and Cuba began to see regular anti-government protests for the first time in decades.
The new Cuban reforms are more sweeping than anything that had been proposed during the Obama thaw. And they need access to international markets to succeed. President Donald Trump had a chance to be the U.S. president who reopened Cuba. But by acting too ham-handedly in pursuit of control or vengeance, the U.S. government risks turning an orderly transition into chaos.
The first Trump administration made such a mistake during Sudan’s 2019 pro-democracy revolution. The new transitional government needed U.S. economic sanctions lifted in order to access the international financial system. But the U.S. government demanded a heavy price: $335 million in compensation for the old Sudanese government’s relationship with Al Qaeda. A year after paying this price, Sudan was paralyzed by a military coup d’etat and is now suffering Africa’s most brutal civil war. Although U.S. sanctions were not the decisive factor, they imposed a high cost on an already fragile society.
Like the terrorism case in Sudan, the U.S. has its own claims for compensation against Cuba. In retaliation for the Brothers to the Rescue shootdown, Congress passed the Helms-Burton Act of 1996, which gives American citizens the right to sue over property that was taken from them during the Cuban revolution. While U.S. courts obviously couldn’t enforce their judgments against the Cuban military, they could punish foreign companies that used American property, making Helms-Burton a de facto sanction against private investment.
The Clinton administration suspended enforcement of Helms-Burton largely due to pushback from European businesses that wanted to invest in Cuba, but the first Trump administration unfroze the law, opening the door to a $400 million lawsuit against cruise ship companies that had taken Americans to Cuba during the Obama thaw. A law designed to end communism could, ironically, doom any privatization effort to endless litigation.
While the second Trump administration has shown a lot of flexibility for forgiving past sins, it also seems to have abandoned faith in free markets in favor of direct U.S. dominance of other countries’ economies. After overthrowing Nicolás Maduro in Venezuela, the administration kept the socialist regime in place but took control of the Venezuelan oil industry, placing the revenue in a mysterious Qatari escrow account. The U.S. government gave two companies with a history of corruption contracts to sell the oil. It would be ironic if, after condemning the Cuban military’s control over the economy, the Trump administration ended up choosing it as a favored crony to represent U.S. interests.
And then there is the risk that Trump will simply invade Cuba. The appeal is obvious: A military attack would allow the U.S. to both exact vengeance and ensure control. Trump told Axios last week that he had something similar to the attack on Venezuela in mind. Of course, that’s also what he had in mind for Iran before the operation turned into an embarrassing slog.
Perhaps the best option is for the U.S. government to get out of the way. There is no need to condition a relationship on Cuba’s humiliation or submission, to try partnering with a particular Communist Party faction, or to escalate into a violent conflict—and a lot of downside risk from doing so. Instead, the Trump administration can issue the sanctions waivers necessary for private investors to take full advantage of the market reforms as they are implemented.
If the reforms are real, as the Cuban government claims, then private involvement in the economy will be hard to roll back without undermining the benefits. If the reforms are fake, as the Trump administration claims, then private investment won’t get off the ground to begin with. The market will ultimately know better than government bureaucrats on either side.
