Tuesday, 23 October, 2018

Trump doubles tariffs on Turkish steel and aluminum, says relations 'not good'

Turkey's President Recep Tayyip Erdogan Turkey's President Recep Tayyip Erdogan
Russell Knight | 10 August, 2018, 20:13

His comments did nothing to shore up the lira currency.

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. "Even if eurozone goods exports to Turkey were to fall by, say, 20 percent, this would subtract no more than 0.1 percentage point from growth in the big eurozone", according to the report.

President Donald Trump said on Friday that he has authorised the doubling of steel and aluminium tariffs "with respect to Turkey".

In a tweet, Trump cited the decline in Turkish currency as justification for increasing tariffs to 50 percent on Turkish steel and 20 percent on Turkish aluminum.

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.

The White house said he had authorised the move under Section 232 of USA trade law, which allows for tariffs on national security grounds. High level meetings in Washington between US and Turkish officials ended this week without an apparent resolution.

Waves from the crisis spread overseas, with investors selling off shares in European banks with large exposure to the Turkish economy. The lira is now down 36% this year and bond yields have sky-rocketed.

His characteristic defiance in the face of the crisis has further unnerved investors.

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On Friday, before Trump's tweet, Erdogan had tried to stem the sell-off by appealing to Turkish citizens to exchange any dollars, euros or gold for lira to help the currency. In his speech in the northeastern city of Bayburt, Erdogan added that he would decisively defend the country against economic attacks. "Hopefully we will overcome this disaster and we will also successfully overcome this economic war", Erdogan said.

"The dollar can not block our path. Don't worry", Erdogan assured the crowd. The price of the lira dropped significantly immediately after he spoke. "Look at what we were 16 years ago and look at us now".

"In most cases though, we suspect that this resilience will prove temporary", they said, highlighting expectations of rising USA interest rates and worries over growing USA protectionism. But now, the relationship appears to have gone sideways.

"Confidence needs to be regained".

Large sums of borrowing in foreign currencies make Turkey especially vulnerable to a falling domestic currency because it becomes more expensive to pay off those debts. "Due to the foreign debts of companies and banks and the current account deficit, there is a great need for foreign capital".

Treasury and Finance Minister Berat Albayrak - who is Erdogan's son-in-law - tried to ease investor concerns during a conference, saying the government would safeguard the independence of the central bank.

This did nothing to revive the currency. "The situation of Turkey can not go on for much longer - I think they will have to intervene", Cristian Maggio, head of emerging markets strategy at TD Securities, adding that the intervention needed to be "drastic".

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