Trump Plays Hardball with Turkey
President Obama called Recep Erdogan, Turkey’s president, one of his five favorite foreign leaders.
President Trump has taken a different posture on Turkey. On Friday, August 10, he tweeted that “our relations with Turkey are not good at this time!”
Since Erdogan’s re-election in June, the Turkish lira has fallen from 4.6 Turkish lira to the dollar to over 6.4 TL to the dollar by the end of last week, a decline of 39%.
Goldman Sachs analysts warned that a “further drop in the Turkish lira to 7.1 versus the dollar could largely erode the country’s banks excess capital.” On Thursday night, the Turkish lira briefly hit 7.1TL before rebounding to 6.4TL.On Friday morning, in a move that the currency speculator George Soros would have been proud of, Trump doubled US tariffs on Turkish steel to 50% and on aluminum to 20% and announced that relations with the US are bad. At one point, the lira plummeted 18% on Friday after the Trump tweet.
Turkish lira vs.dollar
While the media have focused on Turkey’s refusal to release Pastor Andrew Brunson from prison and now house arrest, there are national security issues on which the US is pressuring Turkey. The US wants Turkey to cancel its purchase of the Russian S-400 missile defense system which Turkey has refused to do. The US Congress in July passed legislation which will block the sale of 100 F-35 fighter jets to Turkey if the S-400 deal goes through.
Trump really knows how to use US economic power. Our allies and enemies have seen that this president weaponizes American economic clout to achieve American diplomatic and national security objectives. Erdogan’s initial reaction was to say that “they have the dollar and we have Allah.” He seems not to have heard about the Almighty Dollar. We will see if a run on the currency becomes a full-fledged financial panic.
The Wall St Journal was taken aback that Trump was using “Coercive Economic Diplomacy” and unleashing “the world’s currency traders on Turkey’s lira” and the New York Times was appalled, ”Trump Hits Turkey When It’s Down, Doubling Tariffs” .
Welcome to Trump’s world where the big boys play hardball.
Carol Greenwald is a Ph.D economist and president of Potomac Investment Company