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Abu Dhabi, UAESaturday 18 August 2018

Trump hits Turkey with doubled tariffs as Lira tumbles

US president's move came as Erdogan tried to rally citizens to support currency

US President Donald Trump speaks to Turkey's President Recep Tayyip Erdogan during the Nato summit in Brussels in July 2018. AFP

Donald Trump put US ties with Turkey under further strain on Friday by announcing a doubling of tariffs on Turkish steel and aluminium on the same day the Turkish lira fell to a record low against the dollar.

Mr Trump announced the move in a tweet sent as Turkey's new finance minister Berat Albayrak was announcing measures to shore up the faltering economy.

The US has raised tariffs on goods from a number of countries under Mr Trump protectionist measures, but he cited the current state of relations in announcing the increased import duties for Turkey.

"If you have dollars, euros or gold under your pillow, go to banks to exchange them for Turkish lira. It is a national fight," President Recep Tayyip Erdogan hit back saying

The US and Turkey have been in stand-off over the detention of a US pastor who Ankara claims has links with the US-based Turkish cleric Fethullah Gulen. The US has refused to extradite Mr Gulen to Turkey to face charges of orchestrating a failed coup attempt in 2016.

The Nato allies have also been at odds over US support to Syrian Kurd armed group that Washington considers an ally in the fight against ISIS but Ankara says is a terrorist group.

The US State Department last week announced sanctions against Turkey's interior and justice ministers over the detention of the pastor, Andrew Brunson, for almost two years.

Although the move was largely symbolic, it was followed by the lira dropping to what was then a new low of five to the dollar. Experts said the sanctions had raised fears of a further deterioration in ties and undermined investor confidence in Turkey, with drastic consequences for the economy.

Mr Erdogan had earlier on Friday tried to rally citizens to support the Turkish currency by converting their gold and foreign currency into lira, casting it as "a national, domestic battle".

"This will be my people's response to those who have waged an economic war against us," he told a crowd in the north-eastern city of Bayburt.

He said Turkey was not afraid of "threats" and had "alternatives" for economic co-operation in many places "from Iran, to Russia, to China and some European countries".

The Turkish lira, which had already fallen lower than six to the dollar, fell further after Mr Trump's tweet.

Bloomberg.

According to the Turkish Daily Sabah newspaper, Mr Erdogan phoned Russian President Vladimir Putin after Mr Trump's announcement. The Russian economy has also been affected by US sanctions, with the rouble dropping nearly six per cent this week as Washington announced plans for further curbs.

But Turkey's economic woes have been exacerbated by worries over Mr Erdogan's influence over monetary policy, with the recently re-elected leader enjoying greater powers under Turkey's new system of an executive presidency.

The tensions with Washington have, for investors, underscored Turkey's authoritarian trajectory under Mr Erdogan.

"The basic reason the exchange rate has gone off the rails is that confidence in the management of the economy has disappeared both domestically and abroad," Seyfettin Gursel, a prominent economist and a professor at Turkey's Bahcesehir University, told Reuters.

"First of all, confidence needs to be regained. It is obvious how it will be done: since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders."

Mr Albayrak, the new finance minister and Mr Erdogan's son-in-law, acknowledged that the central bank's independence was critical for the economy as he promised stronger budget discipline and a priority on structural reforms.

However, he did not spell out the details of how this would be achieved during his hour-long presentation to business leaders in Istanbul.

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