USA tariffs hike adds to Turkey's economic problems

Euro vs US Dollar Chart- 5min

The latest escalation between Ankara and Washington was denounced by the Turkish press, with pro-government daily Sabah saying "the currency attack" was no different from the attempted coup of July 2016.

"If they have their dollar, we have the people, we have Allah, " he said.

The Canadian dollar weakened to a more-than two-week low against its USA counterpart as geopolitical risk rattled global financial markets, offsetting stronger-than-expected domestic jobs data.

The currency's drop - 41 percent so far this year - is a gauge of fear over a country coming to terms with years of high debt, worldwide concern over President Recep Tayyip Erdogan's push to amass power, and a souring in relations with allies like the U.S.

United States investment bank Goldman Sachs alarmed investors with an assessment that a further drop in the lira to 7.1 to the dollar "could largely erode" the excess capital of Turkish banks.

"I'm not aware of any prior administration using tariffs in this way, and there's a very simple reason: because they're an incredibly blunt instrument that often can have blowback on American workers and consumers as we've seen in the China context", said Ned Price, a former Central Intelligence Agency officer who also served as a National Security Council spokesman during the Obama administration.

"This will be the response to those who have declared an economic war", he said, blaming Turkey's woes on what he described as an "interest rate lobby" seeking to push the country to higher rates.

The fallout from Donald Trump's trade war with Turkey - which has sent the country's currency plummeting - may lead to financial turmoil across Europe, experts fear.

Relations between the two countries deteriorated in the wake of US President Donald Trump's decision to increase tariffs on Turkish aluminum and steel to 20% and 50% respectively.

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"They say we will not give this or that". "The dollar, the mollar, will not cut our path", said Erdogan, using a figure of speech he repeatedly uses to mock something. Erdogan has appealed to the people to convert their dollars to liras, saying Turkey is in the midst of an "economic war" with the West.

Friday saw the lira's value falling over 15 percent, bringing the decline to over 40 percent since the beginning of the year.

The currency drop is particularly painful for Turkey because the country finances a lot of its economic growth with foreign money.

The Treasury Department targeted Turkey's justice and interior ministers with financial sanctions last month after the government refused to allow Brunson to return to the U.S.

In fact, political tensions between the U.S. and Turkey have been on the rise as of late amidst the unresolved situation around USA pastor Brunson and recently United States sanctions on two Turkish officials. Two days later, Secretary of State Mike Pompeo warned that Turkey that the "clock had run out" to release Brunson.

Erdogan had on Friday held a phone call with Russian President Vladimir Putin to discuss economic and trade issues as well as the Syria crisis. Turkey's energy minister announced on August 8 that Turkey will keep buying liquid natural gas from Iran in violation of US sanctions.

Independent analysts argue the central bank should instead raise rates to tame inflation and support the currency.

"Unless the United States starts respecting Turkey's sovereignty and proves that it understands the dangers that our nation faces, our partnership could be in jeopardy", Erdogan said.

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