As US and Turkey break up, experts warn of risky ramifications

US President Donald Trump dramatically increased the pressure on Turkey on Friday, threatening to double tariffs on the country's aluminium and steel exports, leading to a fresh slump in the already tumbling lira.

Since then, its relationship with Turkey, the sixth largest steel importer to the United States, has deteriorated, prompting Ankara to send a delegation this week to Washington to meet with both the State and Treasury Departments.

Investors fear Turkey is teetering on the edge of financial crisis following a dramatic plunge in its currency that has gathered pace this week.

Turkey's crisis is quickly reverberating through global banks, cutting stock prices for lenders with even little to no direct exposure, as investors worry about the unknown paths that contagion could take through the financial system. The US responded by imposing sanctions on Turkey and threatening more.

Now at a new record low, Turkey's currency has lost more than 40% this year. The lira, he noted on Twitter, "slides rapidly downward against our very strong Dollar!"

The New York Times suggested that Trump could also be trying to offset the effects of Turkey's weakened currency on the existing tariffs. Put these all together, and you get a pretty classic emerging markets crisis: Money has been leaving Turkey because it can now get good enough returns elsewhere, which is then pushing down the value of their currency so much that their dollar debts are getting harder to pay back.

Erdogan reportedly was defiant, telling worshipers after Friday prayers that Turkey "will not lose the economic war".

Turkey is now under a 25 percent tariff on imported steel and 10 percent on aluminum, which went into effect in March. The White House said he had authorized them under Section 232 of USA trade law, which allows for tariffs on national security grounds. It is unclear how that would justify higher tariffs on Turkey but not other countries.

The Turkish president took aim at the U.S. in his address, claiming "some countries have engaged in behaviour that protects coup plotters and knows no laws or justice".

Medvedev: New US sanctions would be 'economic war'
Also in March, Washington ordered the expulsion of 60 Russian diplomats, and the closure of Russia's consulate general in Seattle. It was one of a strain of nerve agents known as Novichok that they say is kept under tight control by the Russian authorities.

Jefferies analysts said Turkey contributed 14 percent to BBVA's first-half group profit and 9 percent to UniCredit's consolidated profit, although their capital exposure is limited.

The United States is the biggest destination for Turkish steel exports with 11% of the Turkish export volume.

President Donald Trump announced tariff increases on Turkish metals as tensions between Turkey and the United States escalated.

Q: What about the dispute with the U.S.?

Ties between the countries have been strained as Washington has urged Ankara to release Andrew Brunson, an American pastor being held under house arrest on terrorism charges.

Andrew Craig Brunson, an evangelical pastor from Black Mountain, North Carolina, arrives at his house in Izmir, Turkey, Wednesday, July 25, 2018. "Relations with countries who behave like this have reached a point beyond salvaging".

Jay Sekulow, an attorney for Trump who is also representing Brunson's family, told talk-show host and political commentator Sean Hannity's radio programme on Friday: "We're close to getting a resolution in that case". "Don't heed them. Don't forget, if they have their dollars, we have our people, our God", Erdogan said.

Erdogan today called on Turks to support their struggling currency.

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