Trump's sanctions won't bite a vulnerable Turkish economy

  • In Business
  • 2019-10-15 17:05:44Z
  • By Associated Press
Turkey US Syria
Turkey US Syria  

FRANKFURT, Germany (AP) - The sanctions the U.S. announced against Turkey this week over its offensive in Syria fall well short of doing serious damage to an economy still healing from a recession and currency collapse.

President Donald Trump could take far tougher action that would deter foreign investment and credit that Turkey badly needs - but doing so could backfire in a number of ways, and it's not clear he really wants to.

Trump has said he could "destroy and obliterate" the economy of Turkey, and has called on the country to rein in its offensive in Syria. The statement follows backlash from both Democrats and Republicans over Trump's decision to give Turkey a green light for its military incursion against Kurdish fighters who had been U.S. allies.

The sanctions announced Monday, however, did not match the rhetoric and were seen as minimal by analysts and financial investors.

The measures were limited to the Turkish defense and energy ministries and three Turkish officials, the ministers of defense, energy and interior security. They block transactions involving any assets they may have in the U.S. financial system and bar U.S. residents and businesses from dealing with them. The U.S. also raised tariffs on Turkish steel exports from 25% back to 50%, where they were in May, and suspended talks over a U.S.-Turkey trade deal.

Given the dominant role that U.S. financial institutions and the dollar play in world commerce, such measures fall far short of what the U.S. could do by targeting Turkey's banks and their links to the global financial system. Turkey's currency and stock market both rose Tuesday as investors breathed a sigh of relief that harsher measures were not imposed.

Timothy Ash, emerging market strategist at Bluebay Asset Management, called the sanctions "minimal" and "window dressing," noting that the trade deal was years off in any case.

The muted initial response from investors "flies in the face of President Trump's threat," said Jason Tuvey, senior emerging markets economist at Capital Economics in London.

One risk from the current sanctions, Tuvey said, is that they may be a prelude to tougher ones, given support in Congress for action against Turkey.

And even though the direct impact on the economy may remain slight, the bigger risk could be on investor and financial market confidence in the country. The imposition of sanctions has re-started talk of Turkey possibly putting limits on the flow of money to prevent it from being taken out of the country. That could support the country's currency but deter foreign investors.

"If Turkish financial markets do come under fresh downward pressure, the resulting tightening of financial conditions will stifle the recovery from last year's recession. The impact would probably be a lot more severe if sanctions are expanded to include Turkey's financial sector," Tuvey wrote in a research note.

Trump's move against Turkey does not come close to sanctions against Iran, where the U.S. persuaded the international financial messaging system SWIFT to cut off Iranian banks. The U.S. re-imposed the sanctions as it withdrew from a deal limiting Iran's nuclear programs.

That said, Turkey's economy remains vulnerable despite returning to economic growth after a recession and currency plunge in 2018. Its currency, the lira, has recovered and a strong tourism season this summer helped reduce the net outflow of money and investment.

The country is still plagued by double-digit inflation and the International Monetary Fund said last month that economic stabilization "remains fragile." Many companies owe money in foreign currency, leaving them vulnerable to another drop in the lira.

German automaker Volkswagen said Tuesday it was postponing a decision on where to locate a new production plant. German media have reported that Izmir in western Turkey was the leading candidate over sites in Bulgaria and Serbia.

Josef Braml, head of the Americas program at the German Council on Foreign Relations, said that Trump appears to be trying to get ahead of calls for sanctions from Congress amid resentment among security officials over Trump's decision to let Turkey invade a strip of northern Syria to create a buffer zone. The military action is aimed at Kurdish fighters whom Turkey considers terrorists but who have been U.S. allies fighting Islamic State.

Braml said that much may depend on what kind of understanding Trump reached with President Recep Tayyip Erdogan before announcing he would withdraw U.S. troops from the area, giving Erdogan a free hand. "He didn't sell the Kurds for nothing," Braml said.

Tougher sanctions risk unintended consequences, such as pushing Turkey closer to China. Trump did not impose sanctions on Turkey even after Erdogan last month defied the U.S. over buying oil and gas from Iran.

Trump appears to want to appear tough on Turkey to pre-empt questions from Congress and the U.S. security services over the implications of his decision to let Turkey attack the Kurds in Syria, Braml said.

"It's always better, if you have a revolt against you, to get ahead of it," he said. "You appear as the strong man who is doing sanctions, otherwise Congress would force him to do something."

The open question, Braml added, is "whether he's really serious about using the full arsenal - if it's just window dressing or is he more serious."


More Related News

Fox News Anchor Confronts Kayleigh McEnany on Her Mail-In Voting Hypocrisy
Fox News Anchor Confronts Kayleigh McEnany on Her Mail-In Voting Hypocrisy

White House press secretary Kayleigh McEnany may have found herself in an uncomfortable position on Thursday when Fox News anchor Ed Henry briefly pressed her on her lengthy history of voting by mail.Over the past several weeks, President Donald Trump has railed against mail-in ballots as more states consider expanding the process amid the coronavirus pandemic, falsely claiming that vote-by-mail is rife with fraud and abuse. The president's repeated falsehoods on the topic were eventually flagged by Twitter, prompting outrage from conservatives and the president drafting an executive order about social media.During a typically friendly interview with McEnany on Fox News' America's...

Fauci: Hydroxychloroquine not effective against coronavirus
Fauci: Hydroxychloroquine not effective against coronavirus

Dr. Anthony Fauci's comments come days after a 96,000-patient observational study concluded new findings about hydroxychloroquine.

Kathy Griffin Gets Backlash for Tweet About Giving Trump Syringe Filled With Air
Kathy Griffin Gets Backlash for Tweet About Giving Trump Syringe Filled With Air

Comedian Kathy Griffin has once again stirred up controversy with a tweet about President Trump. Griffin's name became trending on Twitter on Tuesday night after she tweeted about stabbing the president with a syringe full of air. Her post was in response to a tweet from CNN's chief White House correspondent Jim Acosta, who wrote […]

Inside the Dizzying Effort to Pitch Trump to Black Voters
Inside the Dizzying Effort to Pitch Trump to Black Voters

WASHINGTON -- Nearly every week this spring, President Donald Trump's reelection team has held one of the most peculiar events of the 2020 online campaign: "Black Voices for Trump Real Talk." It is a dizzying effort by Trump's black advisers to put their spin on his record -- often with a hall-of-mirrors quality, as they push false claims about opponents while boosting a president who retweets racist material.The most recent session, on Saturday night, was one of the most head-spinning yet. For an hour on a livestream, three black Republicans tried to portray former Vice President Joe Biden as a racist, while ignoring decades of racially divisive behavior by Trump, from his remarks on the...

Widower of late Scarborough staffer asks Twitter to take down Trump
Widower of late Scarborough staffer asks Twitter to take down Trump's tweets

Trump has resurrected conspiracy theories about a 2001 accidental death to attack critical talk show host Joe Scarborough.

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply


Top News: Business