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Trump doubles tariffs on Turkey, stoking jitters

11 August, 2018, 23:13 | Author: Lawrence Cooper
  • The lira went into free-fall sinking more than 10 percent

Relations between the two countries deteriorated in the wake of US President Donald Trump's decision to increase tariffs on Turkish aluminum and steel to 20% and 50% respectively.

Trump is also declaring that, "Our relations with Turkey are not good at this time!".

On August 1 Washington announced sanctions against Turkey's justice and interior ministers, prohibiting USA entities and citizens from doing business with them, after threatening to impose "large sanctions" if Ankara failed to free Brunson.

In an opinion article published in the New York Times on Saturday, Erdogan wrote that Turkey and the US had been strategic partners and North Atlantic Treaty Organisation allies for the past six decades and that his country had repeatedly come to America's aid.

Still, the sell-off may not be over after the government struck a defiant tone on Friday even after Trump's move.

Albayrak is the Turkish President Recep Tayyip Erdogan's son-in-law. "We think that Erdogan needs to act now if he does not want Turkey to develop into a mini-Venezuela (worst case scenario)".

USA investment bank Goldman Sachs alarmed investors with an assessment that a further drop in the lira to 7.1 to the dollar "could largely erode" the excess capital of Turkish banks.

"This is a domestic and national struggle", Erdoğan said, according to The Associated Press.

Erdogan, whose typical defiance in the face of the crisis has further unnerved investors, appealed to Turks' patriotism and urged support for their free-falling currency.

The Turkish lira plunged on Friday, raising questions about the country's financial stability, as investors anxious about the president's unorthodox economic policies and a dispute with the United States that has led to sanctions.

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The reaction from global currency markets caused the euro to slump to a 13-month low and pushed the dollar to a one-year high. Turkey's national tender has already fallen more than 40% in the past year, and this is the first time ever that it took more than 6 lira to buy a dollar. High level meetings in Washington between US and Turkish officials ended this week without an apparent resolution. "Failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies", Erdogan said.

What's happening to Turkey's currency right now?

Investors piled into "safe" government debt, with German yields hitting three-week lows and the yield on the benchmark US 10-year Treasury note falling to 2.88822 percent.

On Friday, the euro sagged to a 13-month low against the dollar, down 0.7 per cent to $1.1450, after the Financial Times reported that the European Central Bank was anxious about possible losses at eurozone banks operating in Turkey.

Some US officials say Turkey is holding Brunson as a bargaining chip after an executive at Turkey's state-owned Halkbank was convicted and imprisoned in the United States in May for helping Iran evade US sanctions.

Canada's main stock index also fell on Friday.

In Rize, Erdogan said the USA would pay a price by challenging Turkey for the sake of "petty calculations", denouncing Washington for declaring "economic war on the entire world" and holding countries "for ransom through sanction threats".

Mr Trump tweeted that he had authorised the doubling of steel and aluminium tariffs "with respect to Turkey".

Brunson is now on trial in Turkey for espionage and terror-related charges linked to a failed coup attempt in the country two years ago. Trump said in an early morning post on Twitter. But experts argue that the central bank should instead raise interest rates to ease inflation and to support the currency.

But Carsten Hesse, analyst at Berenberg bank in London, says that an economic downturn in Turkey would have limited impact on Europe or other major economies. Hard currency debt issued by Turkish banks suffered similar falls.

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