The Turkish lira fell 22% on Friday before recovering to 17% on the backdrop of the Trump administration’s announcement to double the tariffs on imports of Turkish steel and aluminum.
The tariffs affect Turkish exports worth more than $1 billion in trade with the United States.
The US was the top destination for Turkish steel exports in 2017. Turkey came in sixth place among the countries the US imported steel from last year, while the share of Turkish steel was 7% of total US steel imports.
More to the point, President Trump brazenly hinted that this was a political decision and he tauntingly noted that he also kept an eye on the Turkish lira’s exchange rate.
Trump tweeted: “I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!”
Trump’s tweet has been the proximate cause of the market mayhem hitting the Turkish lira. This comes on top of foreign investors pulling back money in recent months from the Turkish market even as the US Federal Reserve raised interest rates and cut back on asset holdings from quantitative easing. Unsurprisingly, the dollar has sharply increased in value and the lira has lost value and Turkish bond yields have risen.
Turkey traditionally resorted to external borrowing in foreign currency to bridge current account deficits. External funds were lured to the Turkish economy due to the higher yields, fueling growth in the Turkish economy, especially in the construction sector.
With the pullback of money from the Turkish market in recent months, Turkish companies and banks, which took out loans in dollars or euros, are staring at a potential crisis in repaying their debts. In sum, the currency exchange rate volatility is turning into a debt and liquidity crisis.
The financial crisis means that many Turkish companies may have to file for bankruptcy, which will hit the banks. Meanwhile, a cycle is forming as investor confidence dips despite Turkish President Recep Tayyip Erdogan’s economic policy of low interest rates.
At such moments, psychological factors inevitably play a big part. Indeed, the Trump administration increasingly prefers to wage economic wars than deploying military force to exert “maximum pressure” in pursuit of foreign policy objectives. Russia, China, Venezuela, Iran, etc are glaring examples. Turkey now joins the rogues’ gallery.
Erdogan too has become a marked man due to his independent foreign policies that are undermining American regional strategies. Trump’s tweet virtually brags about his pressure tactic. Trump’s agenda is unmistakably to bring Erdogan down on his knees.
Turkey’s ruling Justice and Development Party traditionally drew support from the “bazaar” and the so-called “Anatolian Tigers,” who form Erdogan’s core constituency and are the worst affected in this crisis.
The intervention by credit agencies Merrill Lynch and Standard & Poor’s at critical junctures to rubbish Turkey’s credit rating was an early warning of an impending economic conflict.
Erdogan’s dilemma is two-fold. He could approach the International Monitory Fund for a bail-out, which is what Wall Street and Trump expect him to do. But if he does that, Turkish policies will be subject to tight US scrutiny. And Erdogan will not capitulate.
The alternative is that Erdogan takes help from elsewhere. In an op-ed in the New York Times last week, Erdogan sternly warned Trump: “Before it is too late, Washington must give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives. Failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies.”
However, Trump has now snubbed him by promptly doubling the tariffs on Turkish steel and aluminum. Erdogan is furious. He said on Sunday: “I declare that we have seen your plot and we are challenging it. There is no economic reason for the present [currency plunge] situation. This a plot to force Turkey to surrender in every field from finance to politics, to make Turkey and its people kneel down.”
The sense of indignation among Turks should not be underestimated, which makes this an exceptional rupture in what has been all along a problematic relationship through the past seven decades. Erdogan on Tuesday said he would enforce an embargo on all American electronic products – including the iPhone famously used to FaceTime CNN Turk the fateful night of the failed coup attempt two years ago.
Alienating Turkey to this extent will be a risky foreign-policy venture on Trump’s part. The US cannot have an effective Middle East policy while antagonizing both Turkey and Iran.
The wider regional geopolitical ramifications are yet to sink in. Turkey is a “swing” state and its policies cast shadows on several regions – from the Balkans, Caucasus and Central Asia to the Middle East and North Africa and the Mediterranean.
Iran has vastly gained in strategic depth. Tehran has expressed strong solidarity with Erdogan. A special envoy from Tehran visited Ankara and met with Erdogan on the weekend. Erdogan expressed a desire for an early meeting with Iranian President Hassan Rouhani.
Statements from Berlin and Rome already convey a growing sense of exasperation over Trump’s unwarranted sanctions against Turkey. In tackling the migrant or refugee crisis, Erdogan is a crucial partner for the EU. Turkey also has a Customs Union agreement with the EU.
The astonishing part is that all this is unfolding at a time when the US and NATO are raring to redraw the strategic map of the Black Sea to challenge Russia and when the US military presence in Iraq and Syria is facing growing local opposition.
Erdogan said on Sunday that Turkey is considering other markets and political alternatives to its “strategic partnership” with Washington. No doubt, China will be the big winner. China prioritizes Turkey as a key partner in its Belt and Road Initiative.
Trump is seriously underestimating the potency of Turkish nationalism, which is rising to a crescendo. In his Art of the Deal, nationalism has no place – business goes to the highest bidder. The Turkish opinion is hardening that the US was behind the 2016 July failed coup attempt in a concerted strategy to take control of Turkish policies, and the “economic war” is its latest manifestation.
Turkey should leave NATO. Turkey, Venezuela, Iran, Russia, and China is all in an economic war with the US. US will stop at NOTHING to force regime change in Turkey, Venezuela, Iran, and Imran Kahn in Pakistan is not too pupular in the US State Department . Covert operations and false flag operations usually follow the US economic war.
CIA has tried TWICE to get Turkish mafia to kill Pastor Brunson. Five arrested in the assassination plot. CIA want to create a false flag by killing their CIA agent. US need an excuse to impose hard sanctions on Turkey and to get the EU to join in the economic war against Turkey! Pathetic! https://youtu.be/6a5U7wgvbZc
In the 1950s Americans recruited Turkey, Iran, Pakistan into their camp while India went to bed with USSR.
By 1990, the Alliance made India’s guiding star history.
Today, Turkey, Iran, Pakistan are squeezed lemons. With China becoming US competitor, Americans are dumping their old allies now useless, and are in the process of squeezing juice out of India. Will it work?
For Turkey’s debt – they alone are to blame. A 1,400 old prayer from one of my Shia ancestors: "O Lord, save me from sleeplessness of debt". Good advice then, good advice now. Pity Erdogan follows the Sunni Kaliphate that the Turks themselves buried 6 feet under. Lament for a people.
Excellent article. Trump’s recklessness threatens decades of American strategy in the Middle East.
Or, Trump wants to destroy the American Empire … so we can go back to focusing on America. America has no need for an empire. The only other country that can make that claim is Russia.
What the author does not understand is that Trump’s foreign policy is just that; going after Iran and Turkey. They are the two other contenders for a united Caliphate along with Saudia Arabia. They are in our pocket, they will embrace Israel in a global relgion that embraces Islam, Christianity and Judism. It’s the melding of relgion, politics and economics. East vs West. Trump wants to rebuild the Temple and bring world peace based on this union and China, Russia Iran and Turkey are either going to capitulate or risk a financial collapse, that Trump is betting we will win. This is a global high stakes pocker game where everything is on the line and all the chips are on the table.
This has been the easiest car crash scenario to see all along – massive Fx liabilities ($215b) .. an authoritative leader who blames US for sheltering Gulen and is furious about a military coup 2 years ago .. appoints his son in law as finance minister.. calls his lenders in US and Europe " terrotists" , believes interest rates should be 1pct ( they are 30 pct) , not releasing the Pastor is all part of the plan – i.e.Erdogan can’t pay and has no intention of paying foreign creditors back – capital controls and default are hiding in plain sight and frankly have been for months .
If I was in Erdogan’s shoes now, I would go all or nothing in this poker game and close down all US bases and throw out their forces and stop their logistics. I bet that would cause so military generals in US to do a coup on Trump. No US President wants to be the one who lost Turkey. They are the key country in NATO. This would be the gift of the century to China and Russia and checkmate of USA.
Turkey would be mad not to leave NATO. From commercial point of view, Trump has already nuked Turkey, so it’s about time to show some courage and say f…….. You.
Strange comment, Shias don’t have debt problems?.
Great article as usual by MKB.
Angel Fair you guessed it right. Iran has no financial connection with the capitalist West. It does not owe them billions like Pak, Turkey and Jordan and almost all the non Persian Gulf Muslim countries do.The same goes for Russia and China. They owe nothing to the IMF or WB. Iran is largely an insular economy. Not subject to pressure from the IMF, EU or the WB.
It is going to be interesting to see what Erdogan does.
What can he do now? Except suck up to Russia/ China/ Iran. That’s about all he will do.
Galen Linder
Ergodan believes (maybe he knows it) that the US was behind the coup to overthrow him, what do you think he will do next?
Wonder if Trump ever asked how many young Americans want a manufacturing job?
Correct vision as you mentioned about the current scenario that presnet turkish leadership is exploiting. They have no worry of lossing membershio in EU and now selling out US support in favour of Iranian revolt agaisnt the whole world to earn policeman ship of gulf. What will happen to Turkey? A dangerous end as she got so many foes in the region. Returning to Attaturk way would be more advisable that lettng them loss the country? Burning $ and running around the Islmic world for no return save media coverage is no gain to none.
Good point. And in fact the slowing of the Chinese economy began before the trade war.
thank you "’dispensationalsit zionist evagelical christian agent"" dont worry vp pence will be potus soon!!
NON OF THESE SOCALLED COMMENTERS HAVE ANY CLUE OF WHAT IS TRANSPIRING. THE U.S IS THE MILITARY ARM OF THE ROTHCHILD AGENDA AND INSTEAD ARE NOW USING ROTHCHILDS ORIGINAL POWER AS THEY DID IN CONQUERING EUROPE IN THE 19TH CENTURY. BUT THERE IS THE EAST AND RUSSIA/CHINA ARE WAITING WITH OPEN ARMS TO DISLODGE TURKEY FROM THE ZIONIST WESTS TENTACLES.
Angel Fair
By and large true.
1,400 year old prayer of the 4th Shia Imam: "O Lord, save me from sleeplessness of debt". Good advice then, good advice now.
Had the Sunnis listened to it they would not have lost their Kaliphate to money lending Jews. Same fate awaits the Corporate Capitalist West being hollowed by world jewry today.
You are an evil man, the saying you attribute to some Shia idiot is actually a Hadith of our blessed prophet Mohammad (Peace be upon him), now I know why you always have an insulting tone at our blessed prophet (PBUH) the one whom Quran Kareem refers to as the "The best of all mankind of all times gone and times to come. “ its your Shia filth seeping through, once earlier I had reprimanded you for not showing proper etiquette (Adab) towards prophet Mohammad (Peace be upon him)
Trump has proven that he is smart as enemy of muslim world than a diplomat that too in American interest.nothing becomes important than sensing and assuming one as free to enjoy freedom.turkey shall emerge most powerful and politically independent country .America with punitive and racist president shall soon find excluded now from Pakistan too and China and Russia will hold ground in whole region.
There are Us bases in Turkey that can be detained but there are military bases in Afghanistan and Iraq that will not only be detained but Turkey can arrange for some sort of Mafia attack on them and have US soilders staioned there killed immediately.
First Pakistan,then Turkey and Iran goodluck with anything in Middle-East cuz India won’t pick up a fight with Middle-East based on Trump idea at-least.
Turkey should exit from Europe. Its culture is incompatible with western culture.