Trump, Erdogan and melting lira

By Dr. Imran Khalid

Turkey's unabated economic crisis has taken a further nose dive, with the Turkish lira tumbling almost 18 percent in a record low against dollar in a single day, following President Donald Trump's tweet to double the U.S. import tariffs on Turkish steel and aluminum.

Amid the festering dispute between the two countries over the imprisonment of U.S. pastor Andrew Brunson, this move from Trump has plunged relations between the NATO allies to their lowest in decades. The lira's freefall and rattling financial markets are the obvious side effects of this bitter episode.

"I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20 percent and Steel 50 percent. Our relations with Turkey are not good at this time," Donald Trump tweeted on Aug. 10 to exhibit his indignation to a rather combative public speech by Turkish President Recep Tayyip Erdogan just a day earlier.

The U.S. is the biggest and most lucrative destination for Turkish steel exports, accounting for more than 11 percent of the Turkish export volume. Trump's new punitive measure will effectively expel Turkish aluminum and steel from the U.S. market.

Despite being close NATO allies for decades, the relations between the two countries have never been linear. There have been many ups and downs, but this time, due to the inflated arrogance of Donald Trump, things seem to be turning nastier with each passing day.

Washington is overtly disturbed by the continued detention of Brunson, a supporter of Fethullah Gulen who is wanted on terrorism charges for allegedly supporting a group that Ankara blames for a failed coup against Erdogan in 2016.

Trump vehemently supports Brunson on behalf of the evangelical base and seeks his extradition. In fact, the U.S. government has already frozen U.S. assets of two key important and influential Turkish ministers because of their role in the arrest of Brunson.

The Turkish lira is now the third-worst-performing in the world, after Venezuela, whose currency has collapsed practically to the ground, and Argentina. The outlook regarding the interest rates is also not bright. Argentina leads the interest rates list with 40 percent, which is followed by Venezuela (20.8), Iran (18), Turkey (17.75) and Nigeria (14).

Though Erdogan, having equipped with sweeping executive powers in recent elections, is trying his best to restore confidence in the Turkish currency through his typically outspoken speeches, laced with lofty nationalist rhetoric, so far he has failed to put the brakes on the lira's downward spiral.

"If they have their dollar, we have the people, we have Allah," Erdogan roared in a public speech while inciting Turkish nationalist sentiments. Certainly very motivating words for the Turkish public whose vast majority now consider him a hero against the hegemonic imperialism of Trump.

These words have worked well in winning public support on home front, but they are creating more difficulties for him with regard to the fast-melting lira. His nationalist rhetoric, which Trump is "reciprocating" with equally aggressive tweets, is backfiring because the global financial markets see the tension between Trump and Erdogan to exacerbate to the point of diplomatic impasse.

Any such intense and prolonged standoff between Washington and Ankara does not augur well for the peace and stability in the Middle East, particularly in the Syrian imbroglio where Turkey is supposed to be an important stabilizing factor.

If viewed against the recent American sanctions on Iran, the situation is further complicated for Ankara as it tries to find a way out of one of the worst currency crises in its history. Trump has categorically warned that any country that trades with Iran will not be able to trade with the U.S.

Yes, Turkey has already declared it is not obliged to abide by any U.S. sanctions on Iran, but still the Turkish economy will be under extra pressure since Turkey buys almost 44 percent of its oil from its eastern neighbor Iran, with an annual trade volume of more $10.7 billion.

The ultimate next impact of this episode will be a possible hike in oil (and gas) prices. Turkey's other oil and natural gas source is Russia, its northern neighbor, also subjected to U.S. sanctions, and Turkey needs to import oil and gas in order to put its rattling economy back on track. In fact, Trump has made it easier for Erdogan to move towards its neighbors for support.

In his recent opinion piece in The New York Times, Erdogan wrote, "Before it is too late, Washington must give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives. Failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies."

So, Erdogan has an alternate plan. He knows well that Putin, despite his close links with Trump, will be ready to provide the shoulder to bail him out of the thick situation. Earlier this year, Erdogan displayed similar resistance to the Pentagon's intense opposition to Turkey's plan to acquire a Russian missile defense system. His assumption is that Trump will not squeeze Ankara to the limit of falling into the lap of others, particularly Moscow and Beijing.

The U.S. desperately needs the logistical support of Turkey to bolster its operations in Syria. Although Erdogan has struck a defiant tone ― he has no other option but to put up a brave face ― his foreign ministry has called for diplomacy and dialogue to solve problems with Washington.

This reflects an encouraging fact that pragmatism is still alive in Ankara and Erdogan, in spite of his nationalist theme, is also aware of the prospects of collateral damage from too much stubbornness on both sides.

Erdogan has effectively capitalized on the situation by projecting Turkey as a "victim" and getting support from his fellow countrymen as well as sympathetic support from friendly countries ― Qatar is the first one to come forward in this regard.

Sooner or later, Erdogan and Trump will have to resort to the negotiating table ― both can't afford to let the situation get out of control. After all, a destabilized Middle East theater is a dreadful proposition.

Dr. Imran Khalid (ikhalid99@yahoo.com) is a freelance contributor based in Karachi, Pakistan. He has been contributing articles on international relations to various newspapers and journals in the region since 1995.