Last Friday, President Donald Trump imposed new tariffs on Turkish aluminum and steel, doubling the tariffs that were set earlier in the year. Turkey responds with tariffs of their own, doubling down on what could be a long period of worsening relations between the two countries.
The decision was partially a response to Turkey’s controversial detention of an American Pastor, and was also a pre-emptive move to stop inexpensive Turkish metals from entering the American market. With Turkey’s currency at a record low, they would be in a favorable position to sell to the United States.
Turkey Responds Introducing Heavy Tariffs of Their Own
President Trump said in a tweet last week that relations with Turkey were at a low point. The latest news of retaliatory tariffs helps to reinforce this point of view.
Turkey has now set tariffs on American cars at 120%, which will essentially price U.S. produced vehicles out of the Turkish market. Tariffs on American alcohol are now set at 140%, the highest that they’ve ever been. Slightly lower tariffs were applied to American coal, fruit, rice, and paper products.
Turkey’s tariffs have been the most extreme in recent history. Even as the U.S. is engaged in an ongoing trade dispute with China, the tariffs introduced have never been as drastic as these new ones from Turkey. President Erdogan even threatened a complete boycott of American products, including electronics from companies like Apple and Microsoft. Erdogan pointed out that Turkey could trade with Asian electronics giants and receive competitive alternatives to American technology.
Turkey’s Currency Continues to Suffer
While President Erdogan called Trump out for engaging in ‘economic warfare’, many will now see Turkey as engaging in ‘economic suicide’. Turkey’s economy cannot afford a trade war with the United States, and the Lira currency fell even further after the retaliatory tariffs were announced. Inflation is above 16% in Turkey, and currency devaluation could lead to defaults on foreign debt.
Emerging markets are concerned, as are U.S. producers who do business with Turkish companies. In the worst-case scenario, a complete crash of the Turkish economy could be reminiscent of the recent Greek government-debt crisis.
While Turkey’s situation won’t directly impact every investor, the situation could cause a high level of market unease, especially with international trade relations as fragile as they are today. Investors should monitor this situation closely, particularly if they are invested in companies that derive a significant percentage of revenue from international trade.
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