August 10, 2018
WASHINGTON — President Trump said on Friday that he would double the rate of tariffs on steel and aluminum imports from Turkey, inflicting additional pain on President Recep Tayyip Erdogan, whose country is in the midst of an economic crisis.
Trump Hits Turkey When Its Down, Doubling Tariffs
Mr. Trump’s abrupt and unilateral action came amid worsening relations with Turkey, which has continued to detain an American pastor on espionage charges despite the United States’ insistence that he be released.
In a Twitter post on Friday morning, Mr. Trump said the United States would now impose aluminum tariffs of 20 percent and steel tariffs of 50 percent on Turkey and cited the country’s deteriorating currency, the Turkish lira.
While Mr. Trump’s decision appears aimed at punishing Turkey over its failure to return the American pastor, the decision spooked markets and raised the possibility that he could similarly increase tariff rates on other trading partners that have seen their currencies fall against the strengthening dollar, most notably China.
As of midday trading, the S.&P. 500 stock-index was down by about 0.5 percent, and the Dow Jones industrial average also lagged. The United States dollar continued to strengthen against other currencies, including the Turkish lira.
Trump Hits Turkey When Its Down, Doubling Tariffs
Mr. Trump has in the past accused China, the European Union and others of manipulating their currencies to make their exports cheaper for Americans to buy. Mr. Trump strongly warned China against further depreciation of its currency as part of a flurry of early-morning tweets several weeks ago.
Rapid depreciation in another country’s currency lessens the impact of Mr. Trump’s metals tariffs, because exports become less expensive and the tariffs do not pack as big a punch. Mr. Trump also recently complained that a “stronger and stronger” United States dollar was “taking away our big competitive edge.”
Chad Bown, a senior fellow at the Peterson Institute for International Economics, said the president’s move sent a “worrisome” signal to the world.
“He is tweeting that when a crisis emerges — which could happen in Turkey — his gut instinct is to exacerbate the problem by imposing more tariffs, instead of stepping in with leadership to help resolve the emergency,” Mr. Bown said.
Earlier this month, the United States hit two top Turkish government officials with sanctions in response to the pastor’s imprisonment. The evangelical pastor, Andrew Brunson of North Carolina, had been held in a Turkish prison for 21 months and was recently moved to house arrest for health concerns. Turkish officials have accused him of helping out in a failed coup attempt against Mr. Erdogan.
Mr. Trump had thought he and Mr. Erdogan had an agreement that Turkey would release Mr. Brunson in exchange for Israel releasing a Turkish woman accused of funding Hamas. The Turkish woman was released, but Mr. Brunson remains in Turkish custody.
If the doubling of the tariffs was in fact direct retaliation for the treatment of the pastor, Mr. Trump would be undermining the stated rationale of the steel and aluminum tariffs — to protect American metals producers considered vital for national security.
A White House spokeswoman, Lindsay Walters, said on Friday that the president had authorized the increase in tariffs based on a threat to national security.
But a key ally of Mr. Trump, Senator Lindsey Graham of South Carolina, appeared to attribute the tariff escalation directly to the dispute over the pastor, saying in a series of tweets:
Another Republican senator, Rob Portman of Ohio, seemed to warn Mr. Trump against “misuse” of the section of the law that allows the president to impose tariffs on national security grounds:
Scott Paul, the president of the Alliance for American Manufacturing, which represents steel companies and steel workers, said that Turkey had been poised to ramp up its steel exports into the United States, in part because of the declining value of its currency, and in part because the European Union, Mexico and Canada had also been hit with steel and aluminum tariffs, which has made Turkish metal exports more competitive. He said Mr. Trump had the power to increase tariffs accordingly.
“There are limits, of course, but exchange rates and tariff level revisions must be considered to sustain the level of relief provided to America’s steelmakers on the basis of national security concerns,” Mr. Paul said. “That’s well within the administration’s authority.”
The plunge in Turkey’s currency has been triggered by markets, rather than the intervention of politicians seeking to artificially hold their currency down. The lira has fallen more than 40 percent against the dollar this year, as investors’ fears rapidly escalated that the country would not be able to pay its debts.
Eswar Prasad, an economist at Cornell University, said the use of tariffs in this scenario set “a worrying precedent for future trade sanctions that could be triggered by purely market-driven changes in exchange rates.”
“It could serve as a template for further tariff actions against China if the renminbi depreciates further relative to the dollar, even if that depreciation were mainly a reflection of the relative strength of the U.S. and Chinese economies,” Mr. Prasad said.
The currencies of other emerging markets slumped in response to Turkey’s sell-off Friday. South Africa’s rand dropped by nearly 3 percent. Argentina’s peso fell by more than 3.5 percent. The currencies of Russia, Brazil and Mexico all dropped by more than 1 percent, according to FactSet data.
Investors rushed to the safety of the American dollar and Treasury bonds, pushing yields lower. The yield on the United States 10-year note fell below 2.90 percent. The ICE Dollar Index, a measure of the dollar’s strength broadly, rose by 0.8 percent, a relatively large swing.
On Friday, Mr. Erdogan appealed directly to Turks, asking them to use any dollars, euros or gold they owned to purchase domestic currency. The Turkish lira plummeted against the dollar Friday, dropping by more than 13 percent.
Stock markets in the country dropped by more than 3.5 percent on Friday. Prices for Turkish government bonds fell, pushing interest rates sharply higher. The yield on the 3-year lira-denominated Turkish government bond has risen to more than 23 percent in recent days. Last year, the bond was yielding less than 10 percent.
Turkey has insisted that its iron and steel sectors do not pose a threat to the United States, and it retaliated against Mr. Trump’s levies in June with tariffs on $1.78 billion of American goods.
The effect of the additional tariffs will be relatively small, given that Turkey supplied just 2.8 percent of American steel and aluminum imports last year. But some companies will be hit hard by the measure, such as Borusan Mannesmann, a Turkish-owned manufacturer that imports steel pipes from its parent company and finishes them at its plant in Baytown, Tex.
Trade tensions between the countries escalated in early August, when the United States Trade Representative announced that it would be reviewing Turkey’s eligibility for a program called the Generalized System of Preferences, which allows countries to export certain goods to the United States duty-free.
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