Why Trump's Turkey Tariffs Are Worrying Investors

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Trump raised the stakes on Friday when he said that his administration would double its tariffs on Turkish steel and aluminum.

Earlier on Friday, Trump ramped up his attack on Turkey by doubling USA tariffs on Turkish aluminium and steel imports to 20 percent and 50 percent, respectively.

The President had tweeted at Turkey's Islamist President Recep Tayyip Erdoğan last month to free Pastor Brunson, writing: "He has been held hostage far too long".

Despite Trump's insistence, Turkey has not budged in freeing American pastor Andrew Brunson, who has been detained by Turkey for nearly two years on charges that he was working with a terrorist organization and was a spy.

Washington and Ankara are at odds over the detention of USA evangelical pastor Andrew Brunson on terrorism charges in Turkey.

Trump announced the action Friday on Twitter.

In what appears to be a diplomatic riposte, Turkey later said Erdoğan had held a phone call with Russian president Vladimir Putin to discuss economic ties, suggesting it might gravitate further away from its North Atlantic Treaty Organisation allies toward cooperation with Russia, whose relations with the west are at their lowest since the cold war.

Erdogan, who was re-elected two months ago, told Turks not to panic - but paradoxically urged them to buy lira to fight an "economic war".

"If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks", he said during an address to supporters.

"This is a domestic and national struggle", Erdoğan said, according to The Associated Press.

Whether or not further declines in the Rand occur now depend largely on the fate of the Lira.

The slump is attributed to the tensions with the United States and concerns about President Recep Tayyip Erdogan's control of monetary policy.

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The currency turbulence coincides with the most bitter dispute with the United States since the 1974 Turkish invasion of Cyprus, which so far shows no sign of abating.

The currency slid almost 8 percent in relation to the dollar to a record low of 6.59 shortly after Trump announced the increase on metals duties on Twitter.

After winning a June election with revamped powers, Erdogan tightened his control over the central bank and appointed his son-in-law Berat Albayrak to head a newly-empowered finance ministry.

"Don't forget, if they have their dollars, we have our people, our God", he said.

Erdogan on Thursday portrayed the currency drop as a "campaign" to harm Turkey and called on the people not to worry.

Calling on the U.S., Erdogan said: "It is a shame".

But analysts say that while there may be losses at some banks, Turkey's economic problems do not pose a big threat to Europe or other big economies like the United States.

Erdogan retaliated last weekend with sanctions of his own against the American counterparts of the sanctioned Turkish ministers.

He did not offer an explanation for the tariff hike, which raises the tariffs to 20 percent on aluminum and 50 percent on steel, though there are a couple of possibilities.

Washington and Ankara have been at odds over a wide range of topics - from diverging interests in Syria to Turkey's ambition to buy Russian defence systems, and the case of evangelical United States pastor Andrew Brunson.

"The surge in Turkish inflation, bond yields and the even more dramatic plunge in Turkey's exchange rate in 2018 suggest that the country could now be in danger of heading for a bust", Berenberg economist Carsten Hesse said.

It's an awkward triangle, given that Turkey is a Nato member, Russian Federation is Nato's number one threat and the organisation is obliged to defend any member that is attacked. Hard currency debt issued by Turkish banks suffered similar falls.

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