U.S. entrepreneurs are already buzzing about the money-making possibilities of closer links with Cuba. But the upside may go beyond that.
Thawing diplomatic and trade relations with Cuba will allow the U.S. to offset growing Chinese influence on the Caribbean nation, experts say, and may be the first step to kindle further economic and political reforms in Cuba.
The more than 50-year American hiatus from Cuba has "given the Chinese more playing room," said Richard Feinberg, senior fellow at the Brookings Institution and a former national security advisor for Latin America during the Clinton administration.
President Barack Obama's outreach to Cuba comes at a time when the island's economy is increasingly China-dominated. The communist Asian nation has become Cuba's largest creditor and its biggest export partner.
Driven by demand for natural resources, China has dug footholds across Latin America—its annual trade with the region grew about 2,300 percent from $10 billion in 2000 to $240 billion in 2013. Meanwhile, the U.S. has been pulling back from Latin America, with a 19 percent drop in imports and a 16 percent fall in exports from 2013 to 2014, according to Census Bureau data.
"Our Cuba policy was a real obstacle in a broader informal battle for influence in Latin America against China."
China's trade efforts may not be driven by desire for political clout in Cuba, said Mark Jones, a fellow at the Baker Institute for Public Policy at Rice University, because China's investments are "driven more by pragmatism than ideological congruence." But to ensure Cuba doesn't become a handhold for Chinese influence, it's in the U.S. best interest to strengthen its presence in Cuba, he said.
Jones added that Obama's executive action will not only increase U.S. influence in Cuba, it will also improve the U.S. image and influence in greater Latin America. "Our Cuba policy was a real obstacle in a broader informal battle for influence in Latin America against China," he said. "Even our Latin American allies see [the embargo] as antiquated policy."
The U.S. can regain its influence in Cuba because it has a sort of home-field advantage, according to David Singer, political science professor at MIT. "It's still the case that countries closer to one another trade more. Cuba is right at our doorstep. China isn't," he said.
But if the U.S. decides to try greater economic ties with Cuba, it's unlikely to regain the level of trade dominance that it held before the Cuban revolution, Feinberg said.
"In the 1950s, the U.S. was really world-dominant ... about 85 percent of Cuban trade and investment was the U.S.," Feinberg said. "The re-emergence of the U.S. as a major partner will really shake things up with alternative partners like China, but in a more diversified world, Cuba should be expected to have more diverse trade relations."
U.S. influence as a catalyst
It's likely that as the U.S. increases its influence in Cuba through trade, Cuba's economy will face more pressure to liberalize, Singer said, which refers to a country opening up its state-controlled economy to the rest of the world by lessening regulations and allowing more private sector activity and international trade. And more international economic activity will foster new channels for democratic influence.
"Political scientists speak of democracy spreading contagiously from country to country," Singer said. "It's this idea that democratization is partly triggered by forces outside the country's borders. Cuba has resisted, but the liberalization of their economy and international trade will open new channels for transition of democratic ideas into the country."
The groundwork for those channels began with Obama's executive action. Looser travel restrictions to and from Cuba, as well as the export of U.S. goods for Cuba's telecommunications and infrastructure, will create paths for democratic and market-oriented ideals to enter and spread throughout the island, Singer said.
Obama also is allowing U.S. firms to export certain goods that support Cuba's very small private sector—a move that Feinberg describes as "innovative diplomacy" because the private sector and commerce are essential to pressure Cuba's economy to open up.
If private sector workers gain income in the Cuban economy, "we can expect them to agitate for government policies for further economic integration," Singer said. It's easier for private sector workers to speak up because their income is not so dependent on the government.
"If your livelihood depends on the government, you'd be careful not to alienate the government. That changes as more people move to the private sector," Feinberg said.
Cuba has very slowly started liberalizing its economy, creating a narrow list in 2010 of blue-collar and low-pay jobs that are allowed to function independent from the government. But occupations that require degrees, such as doctors and lawyers, are still tied to the government.
"It's a very entrenched regime in Cuba, but the U.S. government is betting that in the long run, as the country opens up economically and the private sector grows, all of this will create lots of pressures for more open, pluralistic politics," Feinberg said.
Economic globalization comes first
That said, not every capitalistic economy is an open, liberal democracy, Singer said. He pointed to Singapore—and, for that matter, China. Controlled and slow-paced, China's 30 years of economic liberalization have helped it become the fastest-growing major economic power. Yet its biggest companies and most of its banking system are still state-controlled, and free speech remains restricted.
Cuba's economic globalization will take just as long, said Joseph Joyce, economics professor at Wellesley College and an expert on international macroeconomics. Cuba shares the same core concern as China—figuring out how to liberalize their economy without losing one-party state control. "Cuba will slow things down based on how much political control is at risk," Joyce said.
"Ideally, we'd like to see Cuba go through full transition into a democratic country, but we'd be pretty satisfied to see Cuba transition into the Chinese model," said Jones of the Baker Institute. "The hope there is that economic liberalization is a step closer to political liberalization."