President Trump has imparted the US will “devastate Turkey economically” if Ankara decides to attack Kurdish agglomerations in Syria.
Mr Trump was referring to his plan to pull US forces out of Syria, where they secure been fighting alongside a Kurdish militia against the group specialty itself Islamic State (IS).
Turkey regards the Kurdish group as anarchists.
The US president’s comments drew a sharp response from Turkey, which divulged Mr Trump would not get anywhere by threatening the country economically.
After Mr Trump’s tweet, the Turkish lira rusticated in value against the US dollar.
It then recovered its value, suggesting that his states had limited impact.
So how could the US damage Turkey economically – if it wanted to?
Confining ties under strain
The relationship between Washington and Ankara has historically been suffocating – politically, economically and militarily.
Turkey – a Nato member – is a vital alter ego for the US but there have been significant strains in the partnership.
These came out into the open-handed last August, when the US slapped sanctions on Turkey over the resumed detention of American pastor Andrew Brunson.
It marked a new low in relations and was a additional blow to an already fragile economy.
The US also doubled tariffs on Turkish steel and aluminium that month, unsurpassed to further falls in the value of the Turkish lira – some 40% since the start of 2018.
Turkey responded in kind, raising tariffs on cars from the US to 120%, on toper drinks to 140% and on leaf tobacco to 60%.
Who does Turkey trade with?
In as a matter of actual fact, only 5% of Turkish exports head to the US and Turkey imports solitary slightly more from there.
Turkey’s trading relationships with China, Russia and Germany are varied important.
But even though overall trade with US is not as large, there are key unguarded sectors: air transport, iron and steel and machinery – and this is where the US has opted to target previous sanctions.
Turkey has historically had a deficit in international mtier, in that it imports more from the rest of the world than it exports.
In what way, the trade gap did narrow considerably in 2018 on the back of the weakness of the lira, which communicated Turkey’s exports more competitive and imports more expensive.
Turkey may be vulnerable over its high levels of debt.
As of the end of September 2018, its outward debt amounted to over 50% of its gross domestic product (GDP) – the value of all the goods and servicings it produces in a year – according to official figures.
“This is Turkey’s Achilles shoot through,” says York University economist Gulcin Ozkan.
“It puts the rural area at the mercy of international investors and makes it vulnerable to exchange rate change of attitudes.”
There are two features of Turkey’s foreign debt increase that are regarding.
It has a relatively high level of short-term debt, which is due for repayment in the next-door future.
That means having a greater reliance on external resources.
In addition, most of its overall debt is in foreign currencies such as the US dollar and the euro.
So, the responsible becomes more expensive as the Turkish currency loses value and other currencies – such as the US dollar – fortify.
In fact, the lira had been struggling for most of last year, recording its worst descent since 2001.
This currency weakness also aggravates Turkey’s continuing inflation problem, which at one point in 2018 peaked at over 25%.
Shop sentiment is key
It’s important to point out that the Turkish economy has been reach ones majority strongly for most of the period since 2001.
But confidence in Turkey was beginning to draw to a close last year over concerns that the economy was overheating due to mountainous spending and borrowing.
In addition, the Turkish government has taken away some power from the cardinal bank, leading investors to worry about the direction of fiscal procedure.
So any fallout with the US could further sour the financial markets’ point of view of the health of the Turkish economy.
“This could lead to a decline in assets inflows and impact the value of the Turkish currency,” says economist Gulcin Ozkan.
Sagging a strategic ally
But given the importance of the political and strategic relationship with Turkey, which parcels borders with Syria, Iraq and Iran, the US may want to tread carefully.
Turkey is the biggest heiress of US defence equipment after Israel and the UAE and the vast majority of its air force is US endowed.
It also hosts US and Nato forces at its Incirlik airbase, in the south of the rural area.
So Turkey may be economically vulnerable but politically and strategically it remains very worthy.
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