Trump moves to raise tariffs on Turkey, upping pressure

Marco Green
August 11, 2018

"A US-induced crisis in Turkey will create a new martyr in the region, with far-reaching consequences which American congressmen and President Trump do not foresee", Bulent Gultekin, a professor at the Wharton School of the University of Pennsylvania and the former Turkish Central Bank governor, told MEE.

Trump intensified the alarm on financial markets with his new tweet doubling the tariffs, noting for good measure the lira was sliding "rapidly downward against our very strong Dollar!".

As the currency weakens, it can make foreign investors pull their money out of Turkish stocks and bonds as their lira investments lose value.

President Trump said Friday the USA will double tariffs on steel and aluminum for Turkey, noting the relationship between the two states "are not good at this time!" Trump wrote. "Aluminum will now be 20% and Steel 50%".

Erdogan spoke briefly Thursday night and alluded to problems with the currency, saying "various campaigns" were underway, adding: "If they have dollars, we have our people, our righteousness and our God".

The lira plunged as much as 14 per cent on Friday, as worries about Erdogan's influence over monetary policy and worsening US relations snowballed into a market panic. To do that, they have to sell lira - worsening the rout. The Turkish currency shed about 17% of its value in a single day.

He railed against "those waging economic war" against Turkey.

"At the same time, the new USA sanctions against Russian Federation have unleashed concern in the German economy", he added.

On Friday, the Turkish currency plunged to another record low amid concerns over Erdogan's unorthodox economic policies and a diplomatic row with the United States that has led to sanctions.

Maizel recommends that investors stick with dollar-denominated issues, due to the volatility of emerging market currencies, such as the Turkish lira. Which is why Trump's tweet made it fall even further than Erdogan's reality-starved speech had already made it.

Germany's exporter-heavy DAX .GDAXI index fell 2 percent, underperforming the broader market, while Milan was the hardest-hit major European index and lost 2.5 percent, its lowest level since July a year ago.

Early in his administration, President Donald Trump was criticized for placing a congratulatory call to Turkish President Recep Tayyip Erdoğan - an authoritarian leader.

Erdogan, a self-described "enemy of interest rates", wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

Turkey's trade ministry said the US tariff moves were against World Trade Organization rules. The Lira has lost almost a third of its value this year, as relations with the United States have become increasingly strained.

Treasury and Finance Minister Berat Albayrak has vowed to execute Turkey's new economic model together with "all national and worldwide stakeholders", while stressing that a "decisive" approach and the Central Bank's independence would be maintained. But experts argue that the central bank should instead raise interest rates to ease inflation and to support the currency.

Turkish officials held talks in Washington this week, but there was no breakthrough.

Other reports by Click Lancashire

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