Trump’s tariffs add to Turkey financial fears
THE LIRA TUMBLES 14% IN ONE DAY, TO 6.51 AGAINST THE DOLLAR
Afinancial shock wave ripped through Turkey on Friday, when its currency nosedived on concerns about its economic policies and a dispute with the US, which President Donald Trump stoked further with a promise to double tariffs on the Nato ally.
The lira tumbled 14 per cent in one day, to 6.51 per dollar, a massive move for a currency that will make the Turkish poorer and further erode international investors’ confidence in the country.
The currency’s drop — 41 per cent so far this year — is a gauge of fear over a country coming to terms with years of high debt, international concern over President Recep Tayyip Erdogan’s push to amass power, and a souring in relations with allies like the US.
The diplomatic dispute with the United States was one of the triggers that turned market jitters into a full-blown route this week.
Pastor’s arrest
Turkey has arrested an American pastor and put him on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago. The US responded by slapping sanctions on Turkey and threatening more.
The sides held talks in Washington this week but failed to resolve the spat, and Trump took advantage of Turkey’s turmoil on Friday to turn the screws on the country.
Trump tweeted that he had authorised the doubling of steel and aluminium tariffs “with respect to Turkey.”
Trump said the tariffs on aluminium imports would be increased to 20 per cent and those on steel to 50 per cent 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 made the 50 per cent steel tariff official with a presidential proclamation on Friday evening.
The United States is the biggest destination for Turkish steel exports with 11 per cent of the Turkish export volume. The lira fell further after Trump’s tweet.
In what appears to be a diplomatic riposte, Turkey later said Erdogan had held a phone call with Russian President Vladimir Putin to discuss economic ties. It did not disclose details, but suggests Turkey might gravitate further away from its Nato allies toward cooperation with Russia, whose relations with the West are at their lowest since the Cold War.
Investor worries
Turkey’s woes have been aggravated by investor worries about the economic policies of Erdogan, who won a new term in office in June with sweeping new powers.
Erdogan has been putting pressure on the central bank to not raise interest rates in order to keep fuelling economic growth.
He claims higher rates lead to higher inflation the opposite of what standard economic theory says.
Independent analysts argue the central bank should instead raise rates to tame inflation and support the currency.
In modern economies, central banks are meant to be independent of governments to make sure they set policies that
are best for the economy, not politicians. But since adopting increased powers, Erdogan appears to have greater control over the bank as well.
Erdogan on Friday appealed for calm and called on people to change foreign money into local lira.
“Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks. This is a domestic and national struggle.”
People’s response
He appeared to blame foreigners for trying to hurt Turkey, saying: “This will be my people’s response against those waging an economic war against us.”
On Thursday, Erdogan said “If they have their dollar, we have the people, we have Allah.”
The defiant tone and war rhetoric only hurt the lira more, before Erdogan’s finance chief and son-in-law, Berat Albayrak, tried to ease investor concerns during a conference, saying the government would safeguard the independence of the central bank.
“One of our principles will be ensuring the full independence of monetary policy,” Abayrak said as he outlined his ministry’s “new economic model.”