November 29, 2016

Six Key Points

In November, the election of Donald Trump in the U.S. and the death of Fidel Castro have created significant uncertainty about the future of the U.S.-Cuba relationship and the implications for U.S. business. Businesses would be wise to stay close to developments in the coming months, particularly as Cuba may undergo additional reforms and the Trump administration will clarify its policy position.

Below, ASG provides the six key points for our clients to keep in mind in the coming months.

1. The passing of Fidel Castro on November 25 marked the beginning of a new era in Cuba. This was an anticipated but nonetheless a symbolic development that will have longer-term implications for the country’s political trajectory. For over 50 years, the Cuban political landscape has been dominated by Fidel Castro, the iconic figure who led the 1959 revolution and was revered by many for his defiance of the U.S. Castro’s death marks a key moment in the ongoing process of transitioning power to the next generation of leaders who face the challenge of earning their own political legitimacy. Indeed, most of the new members of the Politburo are significantly younger than the generation of leaders who participated in the revolution. Who gains stature or influence, particularly after President Raúl Castro steps down as head of state in 2018 (he will likely stay on as the First Secretary of the Politburo), will help to shed light on Cuba’s next steps. Most observers believe that First Vice President Miguel Díaz-Canel is likely to take over the presidency, though this succession is not guaranteed and how he will govern remains unclear.
2. With his brother’s passing, President Raúl Castro’s leadership will be tested. Castro’s death comes during a period in which Raúl Castro has implemented modest reforms to liberalize the economy and improved relations with the U.S. While he has thus far pushed these changes through the Cuban system effectively, throughout the process, he has faced opposition to some of his reforms from more hardline members of the leadership – including his late brother Fidel. It is likely that Fidel’s death will clear the way for Raúl to accelerate some reforms in the coming years. However, this process could also reveal some the internal fissures within the party that had been masked fairly effectively in the past.  Managing these tensions will be an important test for his leadership and his ability to implement much-needed reforms in the post-Fidel Cuba.
3. Fidel Castro’s death also comes at a time when there is increasing uncertainty about the future of the U.S.-Cuba relationship under a Donald Trump administration. After Castro’s death, Trump and his aides reaffirmed the position taken during the campaign, stating that if Cuba does not meet “U.S. demands” on matters including religious and political freedom, Trump would reverse President Barack Obama’s policies. From a technical perspective, removing Obama’s executive orders would be relatively easy to do, but could generate backlash from the business community and others who have embraced rapprochement. For example, travel to the country has increased dramatically under the new guidelines, with a majority of Americans favoring the changes.  Companies, too, have begun to take advantage of the changes, with many devoting significant time and resources to the effort.
4. If Trump’s current rhetoric continues, a retrenchment by the Castro leadership looks like the most likely outcome. Trump’s push for significant concessions would likely force Cuba’s leaders to decide between appearing that they are submitting to U.S. pressures, thereby incurring a politically humiliating blow to national pride; or returning to a relationship marked by tension and defiance, even if it means sacrificing some economic and diplomatic benefits made in the last two years. For Cuba’s senior leadership, resistance to the U.S., even in the face of the economically crippling trade embargo, has always been a source of political legitimacy. This group warily embraced rapprochement only so far as it did not undermine their grip on power, and they are more likely to abandon this experiment rather than pay the political costs of conceding to Trump’s demands.
5. As the mourning period in Cuba wanes, companies should monitor Cuba’s actions around the reform process and its responses to the changing U.S. administration. In the coming months, Cuba’s Communist Party is expected to approve the 2030 vision documents that whose drafts were published earlier this year. The passage of these documents would be a sign of continued commitments to modest, incremental reforms. Commercial agreements in the final stages of negotiations between the U.S. and Cuba may still get finalized in the coming weeks, further cementing the relationship with the U.S. However, deals farther along in the negotiation process may experience additional lags, as decision-making in the coming months will stall as Cuba’s leaders come to grips with potential changes ahead and U.S. policymakers weigh how to approach their approvals in light of the upcoming administration change.
6. Trump’s position on Cuba likely to evolve in coming months. Leadership and staff appointments to key positions at the Departments of State and Treasury should help reveal the extent to which Cuba will become a policy priority for the incoming administration. Although Trump’s rhetoric and some of his personnel appointments to date (including Mauricio Claver-Carone, a member of the transition team who is a staunch critic of Obama’s policies) have indicated a potential reversal of Obama’s policies; as with other key Obama policies, the possibility that the Trump administration would eventually keep some or even the majority of Obama’s executive actions in place cannot be discounted.  Many companies and advocacy organizations have begun engaging with Trump’s transition team to explain the setbacks and costs of a full reversal. Sustained engagement with key stakeholders in the U.S. and in Cuba could ease some of the potential tensions in the bilateral relationship.