Northwest Arkansas Democrat-Gazette
Turkish currency sags after tweet on tariffs
Rise in metals levies feared to ignite crisis
Turkey’s currency plunged Friday — accelerated by a hostile tweet from President Donald Trump — causing financial markets to tremble and showing that the country is as much a risk to the world economy as it is a geopolitical flash point.
Internal political turmoil, soaring inflation and a burgeoning conflict with Trump over a jailed American pastor combined to destroy confidence in the Turkish lira, which lost 20 percent of its value against the dollar at one point Friday, dropping it to a record low.
Turkey’s economy is only the 17th-largest in the world, but its problems are worsening as Trump’s trade war is rattling global commerce, damaging longtime alliances and threatening economic growth worldwide.
There is also widespread fear among foreign investors that the populist, authoritarian government of President Recep Tayyip Erdogan is pursuing irresponsible economic policies while undercutting the independence of the central bank. That, analysts fear, is preventing the country from taking the necessary steps to put the economy on a more stable footing.
Trump aggravated an already dire situation in Turkey
in a tweet Friday saying that he had authorized the doubling of steel and aluminum tariffs “with respect to Turkey.”
Trump said the tariffs on aluminum imports would be increased to 20 percent and those on steel to 50 percent as the Turkish lira “slides rapidly downward against our very strong Dollar!”
“Our relations with Turkey are not good at this time!” he wrote.
Trump’s hostility toward a NATO ally that borders Iran and Syria increased the risk that Turkey’s problems could destabilize economies well beyond the region.
As the lira tumbled, concern over the exposure to Turkish assets increased — with the euro getting caught in the crossfire. The shared currency sank as much as 1.2 percent to the weakest in more than a year after a Financial Times report that the European Central Bank raised concern about the region’s banks’ exposure to Turkey.
“We are going to see earnings drop in the back of this for those banks that are exposed to the Turkish story and we are also seeing the contagion and spillover effects of these huge moves in Turkey which are getting worse,” according to Jordan Rochester, a currency strategist at Nomura International.
As with the financial crisis set off by Greece in 2010, Friday’s events were the latest example of how troubles in a nation with a midsize economy but world-class problems could threaten financial stability further afield.
The sharp decline of the lira, and worries over the wider consequences of Turkey’s economic turmoil, helped drive the main stock indexes in Tokyo, Frankfurt and Paris more than 1 percent lower. The selling extended to the United States, where stock benchmarks were down about half a percent.
Erdogan did not reassure investors Friday when he continued to blame foreigners for the country’s problems. His combative comments on national television were seen as a signal that he is not likely to change the policies that have undercut the lira’s value, pushed inflation close to 16 percent and made bank loans prohibitively expensive.
Erdogan urged Turks to combat the lira’s slide by selling any dollars they have stashed away — advice few Turks are likely to take since hard currency is their best insurance against soaring prices.
The currency’s sharp decline has reflected concerns about the fundamentals of Erdogan’s economic model, which has depended on a voracious construction industry that his opponents say has enriched his inner circle while heaping debt on the country.
Since Erdogan acquired sweeping executive powers with his re-election in June, the lira has fallen further, over concerns that the strongwilled president is taking no one’s economic advice but his own. In an example of his increased role, he has resisted calls for a rise in interest rates to curb inflation and to ease pressure on the lira. Erdogan claims higher rates lead to higher inflation — the opposite of what standard economic theory says.
Investors fear that banks in Asia and Europe could suffer because they have invested in Turkish assets like stocks, bonds or the currency itself. Problems at banks could then spread to other sectors of the economy.
Erdogan has, however, dismissed such concerns. In a speech Thursday, he insisted that Turkey would weather the current storm.
“Don’t forget, if they have the dollar, we have our people, our Allah,” Erdogan told a crowd of supporters in Guneysu, a town in the northern province of Rize, where his parents are from. “We have worked hard, and we are working hard.”
“Where were we 16 years ago,” he said, referring to his first election triumph, “and now where are we?”
His speech was quickly lampooned on social media, however. “When the landlord asks for the rent, is it possible to pay just by saying, ‘You have your apartment, but we have our Allah?’” Iskender Baydar wrote on Twitter.
ROW OVER PASTOR
Trump’s move Friday seemed to be in retaliation for Turkey’s refusal to release Andrew Brunson, the American pastor who was swept up in a crackdown after a failed coup attempt in 2016.
Trump had thought he and Erdogan had an agreement that Turkey would release Brunson in exchange for Israel releasing a Turkish woman accused of funding Hamas. The Turkish woman was released, but Brunson remains in Turkish custody.
If the doubling of the tariffs was in fact direct retaliation for the treatment of the pastor, Trump would be undermining the stated rationale of the steel and aluminum tariffs — to protect U.S. metals producers considered vital for national security. That could invite further legal challenges from other countries, who have already filed complaints about the steel and aluminum tariffs with the World Trade Organization.
A White House spokesman, Lindsay Walters, said Friday that the president had authorized the increase in tariffs based on a threat to national security.
But a key Republican ally of Trump, Sen. Lindsey Graham, R-S.C., appeared to attribute the tariff escalation directly to the dispute over the pastor, saying in a tweet:
“I have always believed the case against #PastorBrunson was a sham. It’s very unfortunate that the Trump Administration had to retaliate against Turkey for their continued refusal to release Pastor Brunson and other Americans being held in Turkish custody.”
Another Republican senator, Rob Portman of Ohio, reiterated a previous warning to Trump against “misuse” of the section of the law that allows the president to impose tariffs on national security grounds.
The tariff move effectively priced Turkish steel out of the U.S. market, which accounts for 13 percent of Turkey’s steel exports.
Turkey exported about 500,000 tons to the U.S. in the five months to May, compared with more than 1 million tons in the same period last year, according to data from the U.S. Census bureau. The U.S. has fallen from Turkey’s main steel buyer to No. 3.
Turkey ranks as the world’s sixth-biggest steel producer. In aluminum, it’s 31st, a tiny player. The U.S. imported about 4,500 tons of aluminum bars, rods and profiles from the country in 2017, according to World Bank statistics.
The Pentagon said Friday that operations were continuing as normal at Incirlik air base, a key U.S. staging ground for Middle East operations, though the country suspended American access during a dispute over arms trading in the 1970s.
The minister of trade, Ruhsar Pekcan, reacted to the news of the new sanctions in measured tones, pleading for a return to negotiations.
“We implore President Trump to return to the negotiating table — this can and should be resolved through dialogue and cooperation,” he said in a statement.