Turkey's partnership with United States in jeopardy, Erdogan warns

Blanche Robertson
August 12, 2018

The embattled Turkish lira tumbled over 16 percent to new record lows against the dollar as strains with the United States intensified, but President Recep Tayyip Erdogan defiantly proclaimed Turkey would emerge victorious in an "economic war".

He did not offer an explanation for the tariff hike, which raises the tariffs to 20 percent on aluminum and 50 percent on steel, though there are a couple of possibilities.

A plunge in the Turkish lira rocked global equities and emerging markets on Friday and fear of more turmoil sent investors scurrying for safety in assets like the yen and USA government bonds. Following the tweet, Turkey responded by imposing duties on $1.8 billion in USA goods including coal and paper. The currency is down about 40 percent so far this year.

Although the nations had been allies for decades, Mr. Erdogan said Turkey "now has alternatives".

He was speaking at a rally in the Black Sea town of Unye. "You are exchanging your strategic partner in North Atlantic Treaty Organisation for a priest".

Calling on the US, Erdogan said: "It is a shame".

Without naming countries, Erdogan said supporters of a failed military coup two years ago, which Ankara says was organised by a US-based Muslim cleric, were attacking Turkey in new ways since his re-election two months ago. Given the ultra-loose monetary policy in the USA and Europe and the giant asset purchase schemes stemming from United States and eurozone quantitative easing, investors were moved to seek higher returns in Turkey and other emerging markets.

Ankara had already taken measures to respond and would continue doing so, he added. If there are euros, take these out. "Relations with countries who behave like this have reached a point beyond salvaging", said Erdogan, who warned of "economic war".

One analyst who certainly wasn't speaking in hushed tones on August 11 was Win Thin at Brown Brothers Harriman & Co.in NY.

On Thursday, Erdogan said "If they have their dollar, we have the people, we have Allah".

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"The US runs the risk of losing Turkey as a whole".

Erdogan said high foreign exchange rates were being used as a weapon against Turkey. "Failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies", Erdogan said.

But, the U.S. had "repeatedly and consistently failed to understand and respect the Turkish people's concerns".

What are the other issues of disagreement?

Brunson was among many foreign nationals detained by Turkish President Erdogan in the wake of a failed 2016 coup attempt. The US has refused to extradite Fethullah Gulen, who lives in Pennsylvania.

The 64-year-old also highlighted the major difficulty in battling the Kurdish insurgency which has full U.S. support for fighting Islamic State fighters in northern Syria.

"Do not worry!" He said Turkey was not afraid of "threats" and added Turkey had "alternatives" for economic cooperation in many places "from Iran, to Russian Federation, to China and some European countries".

What were the latest U.S. measures? Trump's tweet Friday showed that in many cases, the political and economic factors overlap - Trump's decision to double sanctions on Turkey was made possible by a key trade law called Section 232 that gives the USA president very broad powers over tariffs in cases of national security.

The lira tumbled 14 percent in one day, to 6.51 per dollar - a massive move for a currency that will make the Turkish poorer and further erode global investors' confidence in the country.

The two governments have been at odds over a wide range of topics - from diverging interests in Syria, to Turkey's ambition to buy Russian defence systems, and the case of evangelical pastor Andrew Brunson, who is on trial in Turkey on terrorism charges. United States stocks were also rattled.

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