Published: Sun, August 12, 2018
Global News | By Blake Casey

U.S. tariff hike on Turkey fails to make economic sense

U.S. tariff hike on Turkey fails to make economic sense

In addition to the steep drop in the Turkish Lira, which effectively reduces the impact of the tariffs, the US has so far been unsuccessful in persuading Turkish President Recep Tayyip Erdoğan to release USA pastor Andrew Brunson.

Reminding the world of the time when Turkey rushed to America's help whenever necessary, during the past six decades, Erdogan recounted Turkish contribution in defusing the Korean and Cuba missile crises, and sending troops to Afghanistan in the wake of the September 11 terror attacks.

On Friday the currency dropped as much as 18% at one point, the biggest one-day fall since a 2001 financial crisis in Turkey.

Banks have exposure to Turkey saw their stocks slide, as worries over economic chaos continued.

Canada's main stock index also fell on Friday. The lira, which has been losing ground in recent days in part due to the US tensions, plunged as much as 20 percent on Friday to record low levels against the dollar.

Announcing that aluminium tariffs will rise to 20 per cent and steel tariffs to 50 per cent, Trump said on Twitter that USA relations with Turkey "are not good at this time", and seemed to gloat at the country's misfortunes.

In his Twitter message, the US president noted specifically how the Turkish lira was sliding "rapidly downward against our very strong Dollar".

The latest escalation came as Turkey's Economy Minister Berat Albayrak, who is Erdogan's son-in-law and a trusted lieutenant, unveiled what was touted as a new economic plan, pledging Central Bank independence, tighter budget discipline and sustainable and healthy growth.

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"Emerging market economies move more aggressively; the knee-jerk reaction is stronger".

The new duties on Turkey are double the level that Trump imposed in March on steel and aluminium imports from a range of countries.

"The last time I can remember a currency exploding into a similar acceleration of weakness to what we have seen in the past 24 hours is the Russian ruble crisis that transpired late in 2014", Jameel Ahmad, the head of currency strategy at FXTM, said.

"Those who challenge a country like Turkey for the sake of petty calculations will pay a price both in our region and in their own politics", the Turkish leader said. Since some of Turkey's debt is in dollars, it's also making the country's financial situation worse. You are exchanging your strategic partner in North Atlantic Treaty Organisation for a priest.

The lira sell-off deepened concern over whether over-indebted Turkish companies will be able to pay back loans taken out in euros and dollars after years of overseas borrowing to fund a construction boom under Erdogan.

Turkey has arrested an American pastor and put him on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago. Gulen has denied the allegation. Brunson has been detained for the past 20 months on accusations that he supported groups the Turkish government deems terrorists.

In the wake of Trump's decision to impose higher tariffs, the three major US indexes ended Friday with losses of around 0.7 percent, with the Dow Jones Industrial Average falling almost 200 points.

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