Turkey’s unfolding economic crisis has deepened further after Donald Trump announced a doubling of US import tariffs on Turkish steel and aluminium, deepening the country’s currency freefall and rattling financial markets.
The Turkish lira plunged by more than 17% against the dollar after the president announced the move, amid a widening dispute between Washington and Ankara over the imprisonment of the US pastor Andrew Brunson.
Pressure has been applied on the country in recent days to stage an emergency interest rate rise to avert further economic damage.
Revealing an increase for US taxes on Turkish steel imports of 50% and aluminium of 20%, the president tweeted: “Our relations with Turkey are not good at this time!”
Even before Trump’s tweet the lira had already plunged as much as 14% on Friday. It has come under sustained pressure on foreign exchanges, having dropped by a third against the dollar in the past 12 months and hitting a record low earlier this week.
Inflation reached an annual rate of 15.9% in July, more than five times the average rate for wealthy nations, while government borrowing in foreign currencies has risen dangerously high.
President Recep Tayyip Erdoğan, having secured sweeping new powers after elections this summer, tried to restore confidence in the currency on Friday by telling Turks to use “gold under the pillow” to buy the lira.
Speaking before Trump’s latest Twitter intervention, Erdoğan dismissed the collapse for the currency as artificial financial volatility, while adding the country would “respond to those who start economic war”.
Emergency support from the International Monetary Fund has been mooted as an option for the country to save itself from the deepening crisis, although there are questions over whether Erdoğan would accept the strings that would come attached with any bailout deal.
But given the sizeable personal control Erdoğan commands over the running of the Turkish economy – after granting himself the right to appoint the central bank’s governors and naming his son-in-law as finance minister – economists reckon the government will attempt to muddle through the country’s current problems.
The Turkish central bank has limited foreign exchange reserves for deploying to support the lira, although there is talk among economists of the nation using capital controls to stymie the flow of money leaving its shores.
Large sums of borrowing in foreign currencies make Turkey especially vulnerable to a falling domestic currency because it becomes more expensive to pay off those debts.