Trump Increases Tariffs on Turkey: Lira Plunges 18%, Global Stock Spillover

The Turkish Lira collapsed as much as 18% as Trump escalated his feud with Turkey over a detained US pastor.

Turkey ranked number six in 2017 as a supplier of steel to the U.S., and number 11 in aluminum, according to the Commerce Department.

Trump Turkey Flashback Timeline

Feud Over Detained US Pastor Escalates

President Trump said Friday he would double steel and aluminum tariffs on Turkey, more than a week after he imposed sanctions against two top Turkish officials over the country’s refusal to free an American pastor held for nearly two years.

The Turkish lira fell nearly 14% against the dollar on Friday, amid concerns about Turkey’s foreign debts. Turkey’s external debt to gross domestic product is above 50%, one of the highest among developing economies.

The Treasury Department last week moved to prevent Americans from doing business with Turkey’s ministers of justice and interior, both of whom the U.S. accused of “serious human rights abuses” for their roles in detaining Pastor Andrew Brunson, a 50-year-old North Carolina native who was arrested three months after a failed July 2016 military coup.

Background

​The US wants Turkey to release protestant minister Andrew Brunson who is charged with "acting on behalf of two groups deemed by Turkey to be terrorists." Brunson has been under house arrest in Turkey since October 7, 2016.

Erdogan demands the US return Turkish cleric Fethullah Gülen who is in exile in the US. Turkey accuses Gülen of terrorism. Charges of terrorism are ridiculous. Edrogan refuses to give the US evidence.

In a nutshell, Erdogan arrested Brunson hoping to force the US to release Gulen in exchange.

For further background discussion, please see Trump Sanctions NATO ALLY Turkey, Lira Dives 2.1% to Record Low.

Turkey Blames US for Crisis

US Equities Hit

U.S stocks slid on Friday, with banks taking the biggest hit, as concerns over Turkey's economy and its deepening rift with the United States roiled stock markets around the world.

"The currency crisis is actually a banking crisis as Turkey owes so much money to so many different banks, that they risk a potential contagion," said David McKnight, adviser at David McKnight & Co in Puerto Rico.

"As long as Trump is going to be willy-nilly with tariffs, there's going to be a lot of uncertainty and markets thrive on certainty."

Turkish Lira Daily Chart

Turkish Lira Monthly Chart

Erdogan Dismisses Lira Fears, Says 'We Have Our God'

“There are various campaigns being carried out. Don’t heed them,” Erdogan said.

“Don’t forget, if they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now,” he said.

Turkey on Venezuela's Path

  1. Erdogan jailed political opponents
  2. Parliament effectively made Erdogan prime minister for life
  3. Erdogan took over the press
  4. Erdogan took over the courts
  5. Erdogan took over finance
  6. Erdogan about to take over the central bank

Hyperinflation Path

Venezuela did not hop straight into hyperinflation and Turkey likely won't either.

However, if Turkey remains on the same path, which seems highly likely, hyperinflation is the inevitable outcome.

Mike "Mish" Shedlock

Comments
No. 1-14
Tavrik
Tavrik

Hi Mish! I think the whole issue with Turkey will blow up on Monday. Turkey will permanently default on all of its western currency denominated debt. For years Turkey has been running an enormous current accounts deficit in order to keep the economy from collapsing. Now, there will be no more bank or foreign treasury money. The IMF probably doesn't have the resources to keep Turkey afloat, and Turkey will never agree to the required IMF restrictions.

What will happen to the Dollar and the Euro when it is confirmed that there are loans that will always be nonperforming?

Six000mileyear
Six000mileyear

The Lira/USD chart has been on an exponential path for 10 years. And even though President Obama was in office for the first 8 years of the trend, I still wouldn't blame him. Erdogan was not in office the first 5-6 years of the trend, so he can't be blamed for starting it. The general conclusion has to be a currency crisis is a vote of no-confidence against the country, which is its citizens and leadership.

Zardoz
Zardoz

Trump is a chucklehead, but tuck Furkey. Edrogan is a massive creep.

Realist
Realist

I wouldn’t say that America is “toast”, but with Trump at the helm, it is fast losing friends, allies, and influence. Trumps desire to “run the world” by himself is a catastrophe that will take time to fix after he is gone. His tariff policies may have good intent, but they are blowing up in the face of American consumers and businesses. The uncertainty that Trump is causing is harmful to US businesses and the world economy.

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