Shadow Government

Obama's ill-timed Cuba move

For weeks now, the Obama administration has been leaking to reporters its intention to modify U.S. travel regulations to Cuba. Reportedly, the administration will announce the policy change during the current congressional recess to avoid political blowback (so much for the courage of their convictions.)

As a policy matter, the move simply returns U.S. travel policy to that which existed under the Clinton administration, fostering "people-to-people" contacts by liberalizing categories of citizens' groups that can legally travel to Cuba. While religious, cultural, and artistic groups will now find it easier to visit Cuba, the changes most assuredly do not open Cuba up to unregulated tourist travel, which is the current Holy Grail of the noisy anti-embargo lobby.

In short, the new policy won't move the needle much on U.S.-Cuba relations or in Cuba itself. It won't translate into an economic windfall the Castro regime desperately needs nor are visits to Cuba by the American Ballet Theater likely to embolden ordinary Cubans to pressure for internal change anytime soon.

The biggest problem with the announcement is the timing is all wrong. Not only are any policy changes that could be construed as lessening the isolation of the Castro brothers' barbaric and unrepentant regime counter-productive at this point, they muddy the real issues at hand.

First, there is the unresolved fate of American Alan Gross, who has been jailed in Cuba without charges since last December. His "crime"? Delivering internet equipment to apolitical Jewish groups in Cuba. The administration has made numerous demands for his release, but undercuts its position by broadening U.S. travel to Cuba at a time when an innocent American remains jailed for reaching out to Cubans outside the control of the regime. The totality of our bilateral relationship should be put on ice until Mr. Gross is unconditionally released.

A second factor contributing to the ill-timing of U.S. policy changes is that, over the past several months, the Castro regime has been under increasing international pressure for its ugly human rights record. Last February, political prisoner Orlando Zapata Tamayo died as a result of 82-day hunger strike protesting his unjust incarceration. In addition, a group of Cuban women patriots -- the "Ladies in White," mothers and wives of current political prisoners -- have gained international attention for their weekly marches in Havana in support of their loved ones, despite regular interruption by regime goon squads.  It was to distract from these events and other signs of widening public discontent that the regime recently called in the Cuban Catholic Church to broker the release of 52 political prisoners to be exiled to Spain. 

Engaging in unilateral policy changes now serves only to assist the regime in changing this negative (and well-deserved) narrative and confuses what should be a stark, black-and-white issue: the regime's unabated, systematic repression and abuse of its own people.

Lastly, by expending political capital worrying about our relationship (or lack thereof) with an unreformed, undemocratic Stalinist regime, we pay short shrift to our real friends in the region, those with whom we do have common interests and who are looking for the benefits of a productive relationship with the United States.

For example, today, there are two Free Trade Agreements pending in the region -- with Colombia and Panama, signed in 2006 and 2007, respectively -- on whose behalf the administration has exerted no political effort to securing approval in the U.S. Congress.   These agreements are important to these countries to boost trade and foreign investment.  And, just as important, they are demonstrations of U.S. support and commitment in a hemisphere facing Hugo Chavez's unremitting, anti-American propaganda offensive.

To make matters worse, last month, the administration sandbagged another friendly government, Guatemala, by formally charging it with failing to enforce its labor laws under the Central America-Dominican Republic Free Trade Agreement (signed by the Bush Administration in 2005).  In the first case of its kind brought by the U.S. against a free trade partner, Guatemala -- one of the poorest countries in the hemisphere and under extreme pressure by narco-trafficking syndicates -- must now endure a lengthy process in which it could end up losing benefits under the agreement and be fined up to $15 million. This is not how one treats friends, especially in an increasingly hostile neighborhood.

Clearly, fussing about with Cuba policy at this point sends the wrong message to the regime, the Cuban people, and our true friends in the region. What changes are needed today are in the Castro regime's relationship with the Cuban people. Let's hope the congressional recess passes without any unnecessary U.S. policy moves that serve only to divert the focus to Washington, instead of Havana, where it belongs.     

STR/AFP/Getty Images

Shadow Government

Global imbalance redux

In 2009, the Group of 20 nations committed themselves to rebalancing the world economy. Summiteers in London and Pittsburgh resolved that the large trade surpluses and deficits that had characterized the global economy in the lead-up to the financial crisis should no longer be tolerated.

The G-20 leaders were so effective in their proclamations that much of the requisite rebalancing took place in anticipation, before the leaders could even implement any collaborative policies. China's current account surplus of $426 billion in 2008 fell 33 percent to a surplus of $284 billion in 2009. The Middle East, which as a region ran a surplus of $348 billion in 2008, saw it drop 90 percent to just $35 billion in 2009. The United States current account deficit of $706 billion in 2008 shrank by over 40 percent to $418 billion in 2009.

Such anticipatory compliance on the part of the world economy would have been most welcome, had it only continued. Yet recent economic data shows it has not. The New York Times summarized the latest numbers:

The United States trade deficit ballooned to $49.9 billion in June, the biggest since October 2008. In July, one month later, China recorded a $28.7 billion trade surplus, the biggest since January 2009. In the first five months of the year, Germany's trade surplus... rose 30 percent compared with 2009, to about $75 billion.

So what does this mean? Before the world's leaders could even assemble, the imbalances shrank, but once they issued their proclamations, the imbalances revived. The moral is that trade balances are driven by deep-seated forces within an economy and are difficult to manipulate. The shock of the housing bust and financial crisis dampened consumption and, thus, imports. Some countries were hit harder than others. U.S. monthly imports peaked at $232 billion in July of 2008. They bottomed out at $151 billion in May of 2009. That 35 percent plunge is a pretty good depiction of economic panic. Over the same period, exports fell by "only" about 24 percent, and they were smaller than imports to begin with (hence the deficit).

Of course, relative consumer confidence around the globe was not the only factor driving these numbers. There were also wild exchange rate swings as investors tried to puzzle out which of the world's major markets posed the least risk.

The point is that none of this was due to the fine-tuning of finance ministers or chancellors of the exchequer. They were all trying everything they could to restore confidence among consumers and investors and to revive economic growth. The standard tools that would be used to manipulate external imbalances were instead directed toward crisis response. This is unlikely to change in the near future. China is much more worried about steering between their Scylla and Charybdis of inflation and unemployment than it is about its trade surplus with the United States. Fed Chairman Ben Bernanke is far more preoccupied with concerns about a double-dip recession and deflation than he is about the value of the dollar. Their moves may end up shrinking global imbalances -- significant new quantitative easing by the Fed might depress the dollar --  but this would not be the principal intended effect.

From an economic standpoint, the inability to tackle the imbalances is less worrying than some commentators made it seem. There was a connection between a global savings glut (one aspect of the imbalances) and the U.S. financial crisis, but the latter did not follow inevitably from the former. It took a whole raft of unwise U.S. domestic policies to mishandle the offer of cheap global funds (e.g. offering mortgages with no money down to purchasers of dubious credit was problematic). Similarly, there is no inevitable link between trade deficits and unemployment. Countries with flexible exchange rates and sound policies can adjust to all kinds of external shocks, though the adjustment may be painful.

From a political standpoint, however, the situation may be more dire. Michael Pettis, an astute observer of the Chinese scene, this week concluded that "The world seems to be marching inexorably towards trade war." He argued that the United States will be forced to choose between protection and soaring trade deficits, with the former threatening an ensuing round of global protectionism.

The issue will re-emerge in Washington when Congress returns next month. The Obama administration won a respite from Congressional pressure when China agreed to allow its currency to move in June. Since then, the Chinese yuan has appreciated from a rate of 6.83 to the dollar all the way up to 6.80 to the dollar (less than half a percent). Congressional hearings are already scheduled.

None of this is to argue that it was wrong for the world's major nations to try to address imbalances at their 2009 gatherings, just that the problem is more intractable than they acknowledged. To navigate the economic and political imperatives successfully will require substantially more deft diplomacy.  

STR/AFP/Getty Images