Trump doubles steel and aluminum tariffs on Turkey

Roman Schwartz
August 11, 2018

President Trump has doubled United States tariffs on Turkish steel and aluminium, as the precipitous fall of the Turkish lira accelerates. "The tweet is mightier than the Turkish sword", Cristian Maggio, head of emerging markets strategy at TD Securities, said in a note to clients.

'Aluminum will now be 20 percent and Steel 50 percent. Import taxes for aluminum will be 20 percent.

This is double the level the president imposed on a range of countries earlier this year, including European Union member states.

On Friday, the Turkish currency plunged to another record low amid concerns over Erdogan's unorthodox economic policies and a diplomatic row with the United States that has led to sanctions. With the Russian ruble also falling sharply on the threat of more USA sanctions, the two biggest banking markets in eastern Europe are in turmoil.

But the souring in U.S. -Turkey relations could give new strength to Russia-Turkey ties, already a source of concern among Turkey's Western allies.

The US president revealed the action on Friday as he noted how the Turkish lira "slides rapidly downward" against the "very strong" US dollar. Indeed, through Thursday, the Turkish lira had lost 32 percent of its value against the dollar just since the beginning of the year. As the lira falls in value, the debt becomes harder to pay.

Turkish President Recep Tayyip Erdogan won another term in office in June with expanded powers.

Early in his administration, President Donald Trump was criticized for placing a congratulatory call to Turkish President Recep Tayyip Erdoğan - an authoritarian leader. Further downside for the lira and weakness in domestic bank bonds could accelerate the withdrawal of wholesale funding in an economy which needs to attract overseas capital.

Erdogan's characteristic defiance in the face of the crisis has further unnerved investors.

Independent analysts argue the central bank should instead raise rates to tame inflation and support the currency.

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It was reported that Erdogan's son-in-law and Turkey's new finance minister, Berat Albayrak, were set to unveil a "new economic model" on Friday, but the announcement did little to reassure investors.

Despite mounting pressure to reassure investors, president Erdogan yesterday remained defiant, stating that Turkey would prevail in an "economic war" while calling on Turks not to panic or "bow in front of economic threats".

A favourable exchange rate though can't have harmed the situation: on Friday, the U.S. dollar would buy nearly six Turkish lira; at the end of January, it would have got you less than four.

Now, if none of that makes sense to you, don't worry: It shouldn't.

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

Turkey, home to the Incirlik air base which is used by USA forces in the Middle East, has been a North Atlantic Treaty Organisation member since the 1950s. Turkey wants Brunson to stand trial. Then there is the fact that Turkey has detained a United States pastor on terrorism charges which has further angered the United States administration and led to sanctions on two Turkish government officials.

Meanwhile, inflation in Turkey has hit 15%.

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".

He added: "Relations with countries who behave like this have reached a point beyond salvaging".

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