Higher US tariffs increase pressure on Turkish economy

Daily EUR  USD

Trump imposed tariffs of 25 percent and 10 percent on imported steel and aluminum respectively earlier this year.

New York Magazine criticized Trump's move in an article titled "Why Trump's Turkey Tariffs Are Worrying Investors", which said Trump announced he would double his country's metal tariffs on Turkey "despite the fact that he has no good reason for doing so". Erdogan appealed to a crowd in the city of Bayburt to exchange dollars and gold for Turkish lira to prop up the plunging currency.

The Turkish lira TRYTOM=D3 has always been falling on worries about Erdogan's influence over monetary policy and worsening relations with the United States.

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

The two governments are at odds over the detention in Turkey of US evangelical pastor Andrew Brunson on terror charges, raising investors' concerns.

Harsher US tariffs were likely to punish Turkey's already faltering steel exports to the United States.

President Recep Tayyip Erdogan urged Turks on Friday to exchange foreign currency for the country's lira, as it continues to fall to the USA dollar.

The lira tumbled about 10 per cent on Friday to another record low as investors worry about Erdogan's unorthodox economic policies and U.S. sanctions. Since then, Trump and US Vice President Mike Pence have repeatedly called for his release, while Ankara has said the decision is up to the courts.

Erdogan on Saturday repeated a call to Turks to help support the lira to win what he described was a "war of independence".

"Don't forget, if they have their dollars, we have our people, our God", he said.

Nationalist Movement Party (MHP) leader Devlet Bahçeli said: "Economic terror is being created on the pretext of a pastor".

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He also said Turkey had alternatives "from Iran, to Russian Federation, to China and some European countries".

The lira hit a record low of 6.24 per dollar on Friday, before recovering to 5.92 - still down a whopping 7 per cent on the day.

Now at a new record low, Turkey's currency has lost more than 40% this year.

Brunson's charges include spying for the PKK - listed as a terrorist group by both the US and Turkey - and the Fetullah Terrorist Organization (FETO), the group behind the defeated coup attempt in Turkey of July 2016.

USA channel CNN also said the White House "did not offer any explanation as to how US national security is threatened" in the statement made regarding the topic.

Turkish President Tayyip Erdogan has remained defiant despite the lira being in free fall.

Asli Aydintasbas, senior fellow with the European Council on Foreign Relations, stated that Erdogan's speech "was clearly defiant", but Turkey's economic situation continues to appear ever more dire. He claims higher rates lead to higher inflation - the opposite of what standard economic theory says.

Investors are concerned with Erdogan's firm grip on Turkish monetary policy.

"President Erdogan's strengthened powers under the new presidential system have made it increasingly uncertain whether policymakers will be able to act to stabilise the economy", said William Jackson, chief emerging markets economist at Capital Economics in London.

People pass in front of into a jewellery shop where gold bangles are on display in Istanbul on August 8, 2018.

"I'm not aware of any prior administration using tariffs in this way, and there's a very simple reason: because they're an incredibly blunt instrument that often can have blowback on American workers and consumers as we've seen in the China context", said Ned Price, a former Central Intelligence Agency officer who also served as a National Security Council spokesman during the Obama administration.

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