Why Trump's Turkey Tariffs Are Worrying Investors

Andrew Cummings
August 11, 2018

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

The Turkish lira dropped as much as 18 per cent at one point after Mr Trump's announcement - the biggest one-day fall since a 2001 financial crisis in the country.

European and American bank stocks declined on concerns about their exposure to Turkey. "Turkey's awkward diplomatic relations with the west, and the United States in particular, also need to be addressed and remain a deep concern for foreign investors". Indeed, through Thursday, the Turkish lira had lost 32 percent of its value against the dollar just since the beginning of the year.

Trump ramped up his attack on Turkey by doubling US tariffs on Turkish aluminum and steel imports to 20 percent and 50 percent, respectively.

Trump tweeted that the latest tariff decision came as Turkey's currency, the lira, "slides rapidly downward against our very strong Dollar".

On Friday, President Trump announced that he will double America's metal tariffs on Turkey - despite the fact that he has no good reason for doing so. This is just another threat that traders need to factor in, when you consider that the markets are already overwhelmed with prolonged tension around the global trade war narrative, and the unpredictable nature of the Trump Administration that has seen a threat of sanctions on Turkey, new sanctions imposed on Russian Federation and re-imposed sanctions on Iran in just over one week.

Financial upheaval there risks further destabilising an already volatile region.

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".

Turkey's Foreign Ministry responded, saying "President Trump's decision on imposing additional tariffs targeting our country's steel and aluminum exports, in complete disregard of World Trade Organization rules, can not be associated with seriousness expected from a state". "Section 232 tariffs are imposed on imports from particular countries whose exports threaten to impair national security as defined in Section 232, independent of negotiations on trade or any other matter".

Turkey's trade ministry said the US tariff moves were against World Trade Organization rules.

"Some countries have engaged in behavior that protects coup plotters and knows no laws or justice", he said.

Holiday company Thomas Cook has seen a 63% rise in bookings to Turkey, while TUI said it was their third most popular destination meaning it was "well and truly back on the map as a top summer holiday location".

Relations between Washington and Turkish President Recep Tayyip Erdogan also have worsened because of the detention of three locally employed USA consular workers, trade matters and differences over Syria.

Mr Trump intensified his spat with Turkey by imposing the higher tariffs, putting unprecedented economic pressure on a North Atlantic Treaty Organisation ally and deepening turmoil in Turkish financial markets.

The meetings came as Turkey seeks to stanch an economic meltdown amid fallout from USA sanctions imposed last week over the continued detention of the pastor, Andrew Brunson, who was jailed on espionage and terrorism suspicions more than two years ago and recently released to house arrest.

As one of our loyal readers, we ask you to be our partner. Gulen denies the allegation.

Washington is in a standoff with Ankara over the imprisonment and house arrest of American pastor Andrew Brunson.

On July 26, Trump announced that he would hit Turkey with "large sanctions" if it continued to hold Brunson, adding "This innocent man of faith should be released immediately!" The White House thought that Turkey had agreed to release the pastor in exchange for Israel's release of a Turkish woman that had allegedly given funding to Hamas.

Erdogan enjoys the support of many Turks even though rents and food and fuel prices have all surged.

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