Published: Sat, August 11, 2018
Money | By Ethel Goodwin

U.S. tariffs hike adds to Turkey's economic problems

U.S. tariffs hike adds to Turkey's economic problems

U.S. President Donald Trump said he's authorized doubling some metals tariffs on Turkey, citing poor relations with the North Atlantic Treaty Organisation ally amid an escalating conflict over its detention of an American pastor.

The Turkish lira plunged on Friday, raising questions about the country's financial stability, as investors anxious about the president's unorthodox economic policies and a dispute with the United States that has led to sanctions.

Turkey fears the fine on Halkbank - a small player by global standards - could follow the precedent of the hefty U.S. treasury fines levied on German and Swiss banks for sanctions-busting.

"Repeated efforts to communicate to the US administration that none of the stated criteria driving America's tariffs are applicable to Turkey have thus far proven fruitless", Trade Minister Ruhsar Pekcan said in a statement.

The lira's value fell about 13 percent against the dollar on Friday.

Friday morning, President Trump tweeted about the situation with Turkey, announcing further tariffs and noting that relations between the USA and Turkey are "not good".

The country's economy was already in trouble, but the lira's selloff was heavily compounded by Donald Trump's announcement that he was doubling tariffs on Turkish steel and aluminum.

"At a time when evil continues to lurk around the world, unilateral actions against Turkey by the United States, our ally of decades, will only serve to undermine American interests and security", Erdogan said in the article. Some 4 million displaced people, most them from Syria, are now living in Turkey.

Brunson is now on trial in Turkey for espionage and terror-related charges linked to a failed coup attempt in the country two years ago.

Turkey's currency crisis spilled loudly on to the global stage Friday as other markets, including U.S. stocks, took at hit from concern about financial contagion to other countries and banks. The White House said he had authorized them under asection of US trade law that allows for tariffs on nationalsecurity grounds.

It is unclear how that would justify higher tariffs on Turkey but not other countries. Trump and Vice President Mike Pence threatened on July 26 to impose sanctions on Turkey if the pastor is not set free and allowed to return to the United States.

The fall has come as Turkish President Recep Tayyip Erdogan has moved to take greater control of monetary policy.

Erdogan said Washington had taken steps to escalate tensions with Ankara on the pretext of the arrest of American pastor Andrew Brunson, who is under house arrest for charges of aiding a terrorist organization. "This will be my nation's response to those who have declared an economic war", Erdogan said during the rally.

The lira fell as much as 18 per cent against the US dollar in its worst day since Turkey's financial crisis of 2001.

United States investment bank Goldman Sachs alarmed investors with an assessment that a further drop in the lira to 7.1 to the dollar "could largely erode" the excess capital of Turkish banks.

'This is a national, domestic battle. Gulen denies the allegation. At the beginning of August, the U.S. Treasury Department sanctioned Turkey's ministers of Justice and Interior because of Brunson's detainment. It is obvious how it will be done: "since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders". That makes a loan in dollars that much more expensive to repay.

Some economists were unimpressed by the government's handling of the crisis.

Investors quickly made up their minds, with the Lira sliding 5pc during his 15-minute speech, and then slumping even further in the afternoon, again signalling the deep concern about the stewardship of the economy under Mr Erdogan and Mr Albayrak, his son-in-law and newly appointed Finance Minister.

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