Why Trump's Turkey Tariffs Are Worrying Investors

Euro vs US Dollar Chart- 5min

President Donald Trump administration announced that it would higher the tariffs on Turkish steel and aluminum over the detainment of American evangelical pastor Andrew Brunson, who was arrested in 2016.

The US president revealed the action on Friday as he noted how the Turkish lira "slides rapidly downward" against the "very strong" US dollar.

While Turkey and the United States are at odds over a host of issues, the most pressing disagreement has been about the fate of American Christian pastor Andrew Brunson, who is on trial on terrorism charges for allegedly supporting a group that Ankara blames for the failed coup. It did not disclose details, but the move suggests Turkey might gravitate further from its North Atlantic Treaty Organisation allies toward cooperation with Russian Federation, whose relations with the West are at their lowest point since the Cold War.

On Friday Turkey made it clear Erdogan had spoken on the phone with Russian President Vladimir Putin after the latest USA tariffs, with the two men "expressing pleasure" that relations were progressing "positively".

The lira tumbled about 10 per cent on Friday to another record low as investors worry about Erdogan's unorthodox economic policies and United States sanctions. If it fell much further, it might push a lot of Turkish banks and businesses that had borrowed in dollars into bankruptcy - assuming they did not get bailed out first. In his speech in the northeastern city of Bayburt, Erdogan added that he would decisively defend the country against economic attacks. "This will be my nation's response to those who have declared an economic war", Erdogan said during the rally.

USA lawmakers in both parties have expressed outrage in recent years as Erdogan expands his power over the Turkish government while purging political rivals and journalists.

Although Turkey and the United States have been North Atlantic Treaty Organisation allies for more than 60 years, the U.S. "has repeatedly and consistently failed to understand and respect the Turkish people's concerns", Erdogan said in his opinion piece.

But the haemorrhaging reached an unprecedented intensity in the last weeks as Turkey's ties with the United States strained further and markets questioned their trust in Turkish policymakers, pushing the currency to five against the dollar.

Turkish President Recep Tayyip Erdoğan struck a defiant note in a series of Twitter messages shortly before Trump's announcement.

"Erdogan's aim is to improve the economic position of households", she said, adding the government wanted to "keep the music playing" even as external and internal imbalances grow.

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But Erdogan said Turks should not be alarmed by exchange rate movements.

For those looking to make GBP to ZAR payments, this is the best opportunity to do so since July 05; we are seeing retail rates as high as 17.87 with independent providers, while high-street banks are offering in the 17.30-17.40 region.

Turkey, home to the Incirlik air base which is used by US forces in the Middle East, has been a North Atlantic Treaty Organisation member since the 1950s.

Reuters Turkey's president, Recep Tayyip Erdogan, listens during a news conference with British Prime Minister Theresa May in London, U.K., May 15, 2018.

He also advised them to show solidarity by converting any stashed-away gold or foreign currency to lira in a bid to wage a "war of independence" against America.

The currency has lost almost a third of its value this week.

Amid the dispute, foreign investors could be spooked and try to pull their money out, reinforcing the currency drop and potentially leading to financial instability.

Treasury and Finance Minister Berat Albayrak has vowed to execute Turkey's new economic model together with "all national and global stakeholders", while stressing that a "decisive" approach and the Central Bank's independence would be maintained.

The US is the biggest destination for Turkish steel exports, at 11% of the Turkish export volume.

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