"Economic war" is coming, will Turkey bow to the United States?

Turkish President Erdogan in the article published in the New York Times on the 11th warned the United States not to take risks and continue to make a move that threatens the relations between the two countries, otherwise Turkey will seek "new partners and allies." The day before, the United States announced that it would raise tariffs on steel and aluminum in Turkey, causing the Turkish currency Lira to plummet. 

   Analysts pointed out that the US "raid" tax increasing has dealt a heavy blow to the Turkish economy and further escalated the tension between Turkey and the United States. The Turkish government faces two major challenges of easing diplomatic conflicts and solving economic problems.

The United States launched "economic war"

US President Trump announced on the 10th that he has ordered a doubling of import tariffs on Turkish steel and aluminum products. Trump attributed this move as "we (the United States) has a bad relationship with Turkey." The White House said that the decision to double the tariff on steel and aluminum for Turkey will take effect on August 13.

On the same day, the Turkish lira fell by 17% against the US dollar, and this year the totally decline has exceeded 40%. The lira also fell sharply against the major international currencies such as the euro and the pound.

On the afternoon of the 10th, Erdogan delivered a speech in the northern Turkish city of Bayburt, saying that Turkey faces an "economic war" and called on the people of the country to be calm and change the "dollar, euro and gold at home to Turkish lira." ". However, this speech did not stop the lira's decline.

As a big economic powerhouse in the Middle East and an important emerging economy country, the Turkish lira’s double-digit plunging within a day is thrilling, dragging down major European and American banking stocks.

The acceleration declining of the Lira exchange rate has caused concerns about the prospects of the Lira in the international market. Goldman Sachs warned that if the lira exchange rate continues to decline, the Turkish banking industry will face the risk of capital erosion.

The prospect of Turkey-US relations is worrying

Public opinion believes that the United States and Turkey have not yet reached a settlement on the release of the American pastor Brunson, who was detained by the Turkish side. This is the direct reason why the Trump has decided to increase the import tariffs on the aluminum products and steel. Whether Turkey will agree to the US request in the Brunson case is worthy of attention.

Turkish analysts believe that the current priority of the Erdogan government is to stabilize the financial market, and may have to compromise with the US. Considering the sentiments of some nationalists in the country, Turkey may not release Brunson directly, but will make some concession.

In addition, the alliance relation between Turkey and the United States within the framework of NATO will not be materially affected for the time being. In recent years, although Turkey and the West have increased their differences and meanwhile the relations with Russia have warmed up, in the military and economic fields, Turkey is still more interested in Europe and the United States. Erdogan’s article in The New York Times also emphasized that Turkey and the United States have long been NATO Allies.

However, the easing of the relationship between the United States and Turkey is not an easy task. Turkish analysts pointed out that in addition to the Brunson case, there are still many contradictions that need to be resolved between the United States and the United States, including the extradition of religious figures, the legality of Syrian Kurdish armed forces, and the purchase of weapons from Russia.

In an interview with reporters, David Pollock, a senior researcher at the Near East Policy Institute in Washington, USA, pointed out that Trump’s tax increase decision will make the US-Turkish relationship fall into a vicious circle of contempt. The United States should be an ally rather than an enemy. The United States will damage the structure of its allies within NATO and put the relationship in a difficult position.

The government faces challenges in governing

Although the lira's collapse was triggered by escalating tensions between Turkey and the United States, analysts said that macroeconomic problems such as high inflation and high foreign debt were the underlying reasons for the lira's "endless fall."

Turkey's official data show that Turkey's consumer price index rose 15.85% in July, a record high in nearly 14 years. In the first quarter of this year, Turkey’s external debt totaled US$466.7 billion, accounting for 52.9% of GDP. The US interest rate hike and US dollar strength further pushed up Turkey’s debt service cost. In addition, the current account deficit in Turkey in the first half of this year has also increased significantly compared to the same period last year.

As of press time, the Turkish government has not announced substantive rescue measures. The Turkish people’s disappointment with the government has risen. A vendor selling handicrafts in downtown Ankara said that he supported the Justice and Development Party and President Erdogan in the June election because Erdogan promised to stop the lira from depreciating, but only after more than a month. The lira has fallen sharply and it is disappointing

Some analysts pointed out that Erdogan and his leadership of the Justice and Development Party have long been in power, thanks in large part to the significant economic success, and most sectors of Turkish society have benefited from economic growth. How to get out of the current economic difficulties and solve problems such as inflation, currency depreciation and unemployment are related to the governance prospects of the Erdogan government.

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