World Economy

Turkey Doubles Tariffs on Some US Goods

Turkish Foreign Ministry Twitter account says Donald Trump’s decision, which also violates WTO rules, does not comply with “state seriousness”
In a retaliatory move, President Recep Tayyip Erdogan’s government on Wednesday announced higher tariffs on some US imports, namely on passenger cars (120%) and leaf tobacco (60%).In a retaliatory move, President Recep Tayyip Erdogan’s government on Wednesday announced higher tariffs on some US imports, namely on passenger cars (120%) and leaf tobacco (60%).

Turkey has raised tariffs on some US imports, including passenger cars and tobacco, the country's Official Gazette said on Wednesday.

The decree, signed by President Recep Tayyip Erdogan, raised the tariffs on passenger cars to 120%, on leaf tobacco to 60%, while some tariffs were even doubled. Tariffs were also increased on goods including cosmetics, rice, plastics, coal and agricultural produce, Anadolu Agency reported.

Under the decree, Turkey will also raise tariffs to around 100% on imports of some other products. The new decree amends a presidential decree on July 11.

"Tax rates on imports of some products have been increased on a reciprocal basis against the US administration's deliberate attacks on our economy," Vice President Fuat Oktay said on Twitter.

On Friday, Turkey’s foreign ministry said Turkey would retaliate against the raising of steel and aluminum tariffs by the US administration.

Foreign ministry spokesman, Hami Aksoy,  said on the foreign ministry Twitter account that President Donald Trump's decision, which also violates World Trade Organization rules, does not comply with "state seriousness".

Trump ramped up his attack on Turkey by raising steel and aluminum tariffs to 50% and 20% respectively.

The US decision is another salvo in the growing dispute between Turkey and the US.

Last week, a Turkish delegation returned from Washington with no movement on the detention of American pastor Andrew Brunson, who is under house arrest in Turkey over terrorism charges.

Brunson's charges include spying for the PKK, listed as a terrorist group by both the US and Turkey and the Fetullah Terrorist Organization.

Other issues dividing the NATO allies are the US failure to extradite FETO leader Fetullah Gulen, and US support for the YPG, the Syrian arm of the PKK terrorist organization.

Erdogan Urges iPhone Boycott

Erdogan said Tuesday his country will boycott US electronic goods following President Donald Trump's move to increase duties on steel and aluminum from Turkey.

"If the United States has the iPhone, there's Samsung on the other side," Erdogan said in a televised speech, referring to the Apple smartphone and its main South Korean rival brand. "We (also) have our Venus and Vestel," he said, referring to Turkish smartphones. It was unclear how Erdogan intended to enforce the boycott.

Turkey's state-run Anadolu Agency said the country's finance minister would address foreign investors on Thursday. In his speech, Erdogan also renewed a call for Turks to convert their dollars into the Turkish lira, to help strengthen the currency.

Erdogan has rejected Washington’s pleas, saying that Turkish judiciary won’t take orders from abroad.

Erdogan has remained defiant in the face of the crisis, railing against "economic terrorists and bullies of the global system" while threatening to form new alliances with Russia and China.

Financial Challenge

Turkish companies owe almost $300 billion in foreign denominated debt. That includes a surge in borrowing by Turkish banks, who have tapped foreign wholesale markets to help fund its credit boom.

The slide in the lira in recent weeks has pushed up the cost of refinancing those loans (finding a new lender when an existing debt matures). Lira rebounded to 5.9 against the US dollar on Wednesday.

Jurgen Odenius, Economic Counsellor at PGIM Fixed Income, explains:

"The root cause of the crisis lies in a leverage-financed domestic demand boom that increased the external financing requirement of Turkey’s corporations, banks and government to an estimated $229 billion this year. Most of these liabilities fall on the private sector, mainly banks and corporations; the sovereign owes only $11 billion. What makes the problem worse is that the external financing requirement is trending up over the medium term, indicative of a long-standing over-reliance on foreign-funded leverage."

Pressure on Asian CBs

Central banks in Asia are under pressure to conduct another round of interest rate increases, as the market turmoil in Turkey further undermines emerging market currencies. Rushed hikes, however, could stall economic growth, Nikkei reported.

Indonesia on Wednesday became the latest nation to tighten policy, increasing its benchmark rate to 5.50% from 5.25%.

Until last weekend, few expected the central bank to take further action. But Turkey's crisis spilled over in the form of emerging market sell-offs, prompting the hike.

The Indonesian currency has fallen as much as 7% against the US dollar this year. Investors have deemed the country's fundamentals to be weak—especially its prolonged current-account deficit—and offloaded the rupiah. Bank Indonesia has raised its key rate by a combined 125 basis points since the middle of May.

Many Asian currencies have fallen against the dollar since the beginning of 2018, prompting the region's central banks to tighten their policies. An ongoing series of rate hikes by the US Federal Reserve has contributed to the pressure.

India, too, is already feeling the pain. The rupee—the worst-performing Asian currency in July—has hit all-time lows against the dollar this week. A drop on Monday reportedly spurred an intervention by the Reserve Bank of India.


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