Wednesday, 15 August 2018
Latest news
Main » As US and Turkey break up, experts warn of unsafe ramifications

As US and Turkey break up, experts warn of unsafe ramifications

11 August 2018

On Friday, Trump announced that the USA will impose a 20 percent duty on aluminum and 50 percent one on steels as tensions mount between the two North Atlantic Treaty Organisation allies over Ankara's imprisonment of United States pastor Andrew Brunson.

President Trump's announcement Friday morning that he has authorized the doubling of tariffs on steel and aluminum imports coming from Turkey came in a tweet that noted, "Our relations with Turkey are not good at this time!"

Mr Trump has castigated Turkey for detaining American pastor Andrew Brunson, who is on trial for terrorism charges for allegedly associating with plotters of the failed 2016 coup against Mr Erdogan.

"It's pretty remarkable how far the Trump administration is willing to go - putting at jeopardy the relationship with a North Atlantic Treaty Organisation ally over a preacher".

"Aluminum will now be 20 percent and Steel 50 percent".

Turkey's currency, the Lira, plunged on Friday sparking concerns about the country's financial stability as investors anxious about Turkey's president's economic policies and a dispute with the U.S.

Turkey's lira sank as low as 20 percent against the USA dollar Friday before settling at a 15 percent drop.

The Turkish lira fell against the USA dollar due to mounting tensions between Turkey and the U.S. in the wake of Ankara's refusal to release American pastor Andrew Brunson who is suspected of being involved with a terrorist group.

'This is a national, domestic battle.

On June 21, Turkey's retaliatory tariffs went into effect on 4 to 70 percent of more than $1 billion worth of US goods.

The lira dropped by over 11 percent in value in one day on Friday morning to almost six lira per dollar.

Erdogan spoke briefly Thursday night and alluded to problems with the currency, saying "various campaigns" were underway, adding: "If they have dollars, we have our people, our righteousness and our God".

While Turkey and the United States disagree over a host of issues, the most pressing disagreement has been over Brunson and the detention of other USA citizens in Turkey.

Wall Street couldn't avoid the bloodbath on Friday triggered by a collapse of the Turkish lira amid escalating diplomatic tensions between the USA and Turkey. He claims higher rates lead to higher inflation - the opposite of what standard economic theory says.

Economic experts believe the sharp fall of the lira is mainly because of concerns about the government's economic policies.

The currency drop will also increase the cost of living for people in Turkey by making imports more expensive.

Independent analysts argue the central bank should instead raise rates to tame inflation and support the currency.

"In most cases though, we suspect that this resilience will prove temporary", they said, highlighting expectations of rising USA interest rates and worries over growing USA protectionism.

UBS chief economist for EMEA emerging markets Gyorgy Kovacs said a giant rate hike of 350-400 basis points would be "consistent with real rate levels that in the past helped to stabilise the currency" but warned a deal to normalise ties with the U.S. may also be needed. Trump's Friday tweet caused a further drop in the Turkish currency.

BBVA, which reported a lowly CET 1 ratio of 10.8 percent at the end of the first half, also said a 10 percent slump in the lira would shave 2 basis points off its core capital.

There are now fears the weakening lira will see Turkish companies that borrowed heavily in the country's construction boom struggle to repay loans in dollars and euros.

As US and Turkey break up, experts warn of unsafe ramifications