Turkey's Erdogan Threatens Boycott of US Goods

Roman Schwartz
August 17, 2018

U.S. Charge d'Affaires Jeffrey Hovenier talks to members of the media after visiting USA pastor Andrew Brunson, who is being held under house arrest in Izmir, Turkey, Tuesday, Aug. 14, 2018.

Michael Hewson, chief market analyst at CMC Markets UK, warned the Turkish tariff hikes risked provoking a new reaction from Trump and ultimately adding to downward pressure on the lira.

The United States has imposed sanctions on two Turkish government ministers over the trial on terrorism charges of US evangelical pastor Andrew Brunson in Turkey, and last week Washington raised tariffs on Turkish metal exports.

Equities around the world took a dive led by emerging market stocks on Wednesday and commodities tumbled as investors looked for safety due to worries about China and Turkey. Investors are also anxious about the effects of the dispute between two North Atlantic Treaty Organisation allies.

The lira - which lost just under a quarter of its value on Friday and Monday - however continued to claw back some ground on financial markets, rallying around five per cent against the dollar. With the lira plunging to record lows with over 7 lira to the dollar, Turkish banks were looking for liquidity, and shoppers were looking to cash in.

Erdogan signed a decree to increase duties on goods from the United States.

In Washington, White House spokeswoman Sarah Huckabee Sanders called Turkey's actions "certainly regrettable and a step in the wrong direction".

In addition to the tariffs, the Trump administration has placed sanctions on Turkey's Minister of Justice, Abdulhamit Gul, and Minister of Interior, Suleyman Soylu. Brunson is accused of backing a 2016 coup attempt against Erdogan, which Brunson denies.

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Mark Warner, the top Democrat on the Senate intelligence committee, said the move "smacks of Nixonian-type tactics". Rostow also criticized Brennan for breaking precedent and speaking out against the current administration.

Trade Minister Ruhsar Pekcan said Turkey had doubled tariffs on 22 products imported from the United States, saying the tariffs were together worth an additional $533 million. "The drop by the Turkish lira may have stopped, but the country is yet to tackle the fundamental problems facing it, and this has kept market sentiment subdued", said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

Also helping the Turkish currency were moves by Turkey to gain favour with European countries. Cavusoglu said ties with the bloc, long strained, were on a firmer basis and had started normalising. "These are appeals that require fast decision making because they are related to an individual's freedoms", he said.

Firuz Baglikaya, head of the Association of Turkish Travel Agencies, said there was a 30% increase in tourism in Turkey compared with 2017. It was up about 5 percent on Tuesday, at about 6.52 per dollar, having fallen 42 percent so far this year, with most of those losses coming in recent weeks.

Investors were also comforted by news that finance minister Berat Albayrak would hold a conference call with investors from the United States, Europe and the Middle East tomorrow, his first since assuming the post nearly two months ago.

The global financial markets are demanding that the Turkish central bank raise interest rates - a step that Erdogan has resisted - and that sweeping austerity measures be imposed.

As a court in the western Turkish city of Izmir rejected a new appeal to free Brunson on Wednesday, spokesman Kalin said the U.S. needs to be respectful of the judicial procedures in Turkey.

It usually takes a court between 3 to 7 days to process an appeal but a ruling could come sooner in this case, Brunson's lawyer Ismail Cem Halavurt told Reuters.

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