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Finance & Innovation

More Than Cigars and Rum: Easing of Embargo Is a Good Thing for Cuba's Economy

Until this year, bringing more than $100 worth of Cuban rum and tobacco into the US was punishable by up to $250,000 in fines, or 10 years in prison. But thanks to a directive announced today by US President Barack Obama,  you can travel back from Cuba with as much as you want.

Combined with other changes to the embargo announced today, it’s a development that has big implications for the future of Cuba’s economy.

President Obama has talked about easing trade with Cuba since December of 2014. And in 2015, he and Cuban President Raul Castro formally resumed diplomatic ties and cemented a plan to “normalize” relations, including making travel and trade easier between the two countries.

Today’s news is a big step for diplomatic relations and economic growth. For much of the 20th century Cuba relations were overshadowed by the Cold War. His directive today signals the United States’ willingness to move on.

“The progress of the last two years, bolstered by today's action, should remind the world of what's possible when we look to the future together,” said Obama in a statement.

The trade deal will also open up some important sectors of the Cuban economy. Not only will their rum and cigar industries grow as tourists stock up, but the travel industry is set to grow as more US airlines offer flights there.

Additionally, it will now be easier for the US to import pharmaceuticals from Cuba, which, in the past decade, has been reaping the rewards of state-investment in the biotech industry.

In 2007, Cuba’s pharmaceutical exports, including vaccines, drug-treatments, and technologies, outpaced their exports of sugar, rum, and tobacco.

Cuba’s biotech capacity currently meets 80% to 90% of domestic demand, and what was originally criticized as a “billion-dollar gamble” by the Cuban government is now regarded as a success story.

It’s a market that the US is hoping to finally unlock, according to Jacob Lew, the United States Treasury Secretary.

“Today's steps build on the actions of the last 15 months as we continue to break down economic barriers, empower the Cuban people and advance their financial freedoms, and chart a new course in U.S.-Cuba relations," Lew said in a statement in March, when the plans to ease the embargo were first announced.

He also pointed to shared medical research and streamlined commerce as “constructive changes” to “unlock greater economic opportunity for Cubans and Americans.”

The United States’ economy, meanwhile, looks set to benefit from exporting to the island country. Economists have estimated that within five years it could be a $1.8 billion economy, much of which would come from exports of manufactured goods, digital technology, and agriculture. Cuba now imports 80% of its food needs, namely wheat, rice, and processed foods.

Obama’s measures, however, won’t open up everything, and many broad-stroke moves will have to wait, despite best efforts by the Obama administration. That’s because lifting the embargo will require the cooperation of Congress, according to a measure signed by Bill Clinton in 1996. And, since U.S.-Cuba relations have become a heavily partisan issue, they’ll most likely have to wait until after the 2016 Congressional elections.