In response to Washington’s tax increases, Turkey has slapped an additional tax on imports of a broad range of US goods. Under a newly signed decree, President Recep Tayyip Erdogan has confirmed that Turkey will impose an additional 120% tax on passenger cars, 140% on spirits and 60% on tobacco. The Turkish President also announced that Ankara would boycott US electronic goods products. Turkey’s Vice President Fuat Oktay said Ankara’s decision to increase taxes on those imports was based on the principle of retaliation to the US administration’s deliberate actions aimed at harming the Turkish economy.
Diplomatic disputes over Turkey’s detention of US pastor, Andrew Brunson, have turned into an economic war with retaliatory actions on the trade front. President Erdogan insisted that his country would not lose out in any trade war with hostile countries. From what was a close alliance in NATO, Turkey and the US have quickly moved to confrontation. The US has warned of further economic pressure on Turkey if Ankara refuses to release Brunson. Meanwhile, Turkey vowed to crack down on every plot to destroy its economy. The Turkish Interior Ministry announced that an investigation is being conducted into 346 social media accounts that have posted negative information about Turkey’s domestic currency, the lira, with the aim of weakening Turkey’s interests.
According to Andrew Kenningham, a world leading economist from Capital Economics, the lira has lost 45% of its value since the beginning of the year, pushing Turkey toward the brink of a recession, and this can definitely lead to a banking crisis. The Central Bank of Turkey stated that it is willing to apply all necessary measures to ensure financial stability, while pledging to provide the liquidity needed for banks. With the latest adjustment, the Central Bank will pump nearly 10 billion lira, US$6 billion and a volume of gold worth US$3 billion into the financial system.
Amid the rising tensions in its relations with the US, Turkey is tightening its arms in ties with Russia. Ankara and Moscow have just reached an agreement to promote their strategic partnership, marking the start of an unprecedented period of warmth in the history of bilateral ties. The two former rival countries are coming closer together in the context of tense relations between Russia and the West. Ankara is taking moves to turn the axis of its relationship towards Moscow, as both sides share a common front in responding to US and Western pressure.
The devaluation of the lira reflects worries, including the issue of tensions in Turkey’s relations with the US. Analysts said that although the current state of the lira is mainly a domestic matter limited to Turkey, the aforementioned proceedings could cause emerging countries to be affected, as their currencies plunge in fear of the financial turmoil in Turkey being contagious. There is a growing concern about the prospect for a repeat of the 1997 event, when the Thai baht crashed, triggering a currency crisis in Asian economies. According to experts, the devalued lira is putting pressure on stock markets, with fears that the crisis in Turkey could affect the world economy.
Turkey is sending a strong message that the US will fail in its plot to influence the Turkish judiciary, while the White House has warned of heavier blows if Ankara refuses to release pastor Brunson. It can be seen that the crisis in US-Turkey relations not only affects the interests of the two sides but also affects the financial markets in many countries. If the two allies do not seek to bring their relationship back to normal, the reciprocal retaliatory moves will cause tension in the region and influence other axes of international relations.
