United States tariffs hike adds to Turkey's economic problems

Frederick Owens
August 12, 2018

Turkey and the United States are now experiencing rocky relations after the USA imposed sanctions last Wednesday on two Turkish ministers over the continued detention of US pastor Andrew Brunson, who faces terrorism charges and up to 35 years in prison if found guilty.

The ECB is concerned that the contagion will result in Turkish borrowers defaulting on foreign currency loans, which make up about 40 percent of the Turkish banking sector's assets, according to the Financial Times.

On Friday, Turkey's currency, the Lira, fell as much as 14%, causing the global financial markets to shudder.

Turkey's currency crisis has lurched on to the global stage, denting European and U.S. stocks as fears of contagion rise.

Trump made his unexpected announcement on Twitter from his golf club in Bedminster, New Jersey, as the Turkish currency, the lira, fell to all-time lows against the US dollar.

Reports about the fall of the Lira by 18% appeared after the President of the United States Donald trump ordered to double tariffs on imports from Turkey of steel and aluminum.

On Friday, as the Lira plunged and the US imposed its higher sanctions on Turkey, Turkish President Erdogan and Russian President Vladimir Putin spoke on the phone.

We look the issue straining relations between the United States and Turkey. While many of Turkey's challenges are specific to that country, there are certain characteristics - a heavy debt load following a prolonged, low United States interest-rate driven borrowing binge in dollars - broadly shared throughout emerging markets. Financial upheaval there risks further destabilising an already volatile region.

Erdogan said Turkey act in accordance with the law, saying: "We have not made concessions on justice so far, and we will never make any".

"Aluminium will now be 20 percent and Steel 50 percent".

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They are threatening us and they are trying to put us on our knees.

But analysts say that while there may be losses at some banks, Turkey's economic problems do not pose a big threat to Europe or other big economies like the United States. Erdogan said Turkey would be looking to form alternative economic alliances with "Iran, to Russian Federation, to China and some European countries".

"The US and Turkey are breaking up".

Mr Erdogan has linked Gulen's fate to that of American Christian pastor Andrew Brunson, who is on trial in Turkey on terrorism charges for allegedly supporting a group that Ankara blames for the failed coup. He urged Turkish citizens to immediately exchange their gold and dollars for lira.

The Canadian dollar weakened to a more-than two-week low against its US counterpart as geopolitical risk rattled global financial markets, offsetting stronger-than-expected domestic jobs data.

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

Trump's action on Friday indicates he is willing to use his presidential powers as an economic and diplomatic weapon, even against allies, the Wall Street Journal reported.

"This could be the most expensive pastor in world history", Sekulow said, referring to the harm being done to Turkey's economy.

Erdogan said Turkey is not afraid of outside "threats".

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