Trump vows to double steel and aluminum tariffs on Turkey

Dwayne Harmon
August 11, 2018

He said he had authorised higher tariffs on imports from the United States' Nato ally, imposing duties of 20 per cent on aluminium and 50 per cent on steel.

Trump raised the stakes on Friday when he said that his administration would double its tariffs on Turkish steel and aluminum.

Erdogan also warned that Turkey could start looking for new allies if Washington damaged its relations with Ankara. Then there is the fact that Turkey has detained a USA pastor on terrorism charges which has further angered the USA administration and led to sanctions on two Turkish government officials. The lira fell further after Trump's tweet.

The currency's drop - 40% so far this year - has become a gauge of fear over a country facing the fallout of years of debt-fuelled growth, worldwide concern over President Recep Tayyip Erdogan's push to amass power, and a souring in relations with allies like the US.

President Recep Tayyip Erdogan's current dash for growth coupled with unorthodox pronouncements on monetary policy - including that lower rates can bring down inflation - have put him on a collision course with markets. This is a national struggle.

Whether or not further declines in the Rand occur now depend largely on the fate of the Lira.

Ivo Daalder, a former U.S. ambassador to North Atlantic Treaty Organisation and now president of the Chicago Council on Global Affairs think-tank, said Turkey could grind decision-making at Nato's headquarters in Brussels to a halt if the dispute with Trump got out of hand.

Turkish newspaper Hurriyet and other media reports quote Erdogan as making the comment to a group of worshippers following traditional Muslim Friday prayers during a visit to the northern city of Bayburt.

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In a tweet on Friday, Foreign Ministry Spokesman Hami Aksoy said President Donald Trump's decision, which also violates the rules of World Trade Organization, "cannot be associated with seriousness expected from a state".

Erdogan said that Washington had always "failed to understand and respect the Turkish people's concerns". High level meetings in Washington between US and Turkish officials ended this week without an apparent resolution.

The collision results from inflexibility over two policies, the first being Erdogan's firm belief (against conventional economic theory) that high interest rates cause, rather than curb, inflation.

The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten at its last meeting. (The last substantial hike was in January 2018; before then, it was in late 2013, when Turkey was dealing with the end of the U.S. Federal Reserve's quantitative easing program.) The country could also place controls on capital, but those can hamper private sector activity and won't be easy considering the government's relative inability to totally control private capital.

Turning to the economic effects of the diplomatic row, Mr Erdogan said: "If they have the dollar, we have Allah".

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.

"When it comes to cornering Turkey to extract certain concessions that undermine our sovereign rights, it is a whole another story".

The defiant tone and war rhetoric only hurt the lira more, before Erdogan's finance chief and son-in-law, Berat Albayrak, tried to ease investor concerns during a conference, saying the government would safeguard the independence of the central bank. "Threats, sanctions and bullying against Turkey will not work", he said.

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