By Hakan Okçal
Donald Trump’s “Liberation Day” tariffs continue to shake the global economy and wreak havoc. Although President Trump announced a 90-day pause for most countries on April 9, letting markets soar after days of economic turmoil, he decided to hit China with further tariffs of an unprecedented 125%. There is no question that this will deepen the trade war with China.
Regardless of the tariff pause, all major countries are still reflecting on worst-case scenarios. It is highly disputable whether President Trump will achieve his declared goal of striking fair and balanced trade deals with America’s partners. Let us hope that common sense will prevail and tariffs will be mutually lowered to reasonable levels through negotiations. However, given President Trump’s dithering, there is nothing but turmoil and chaos to be expected on the horizon.
Since every country is subject to different levels of tariffs by the U.S., initial responses were varied. Turkey is one of the lucky ones. Turkish goods entering the U.S. market will only be subject to a 10% blanket tariff increase. This must be due to the balanced $30 billion of annual trade with the U.S., since Turkey’s imports and exports usually match. Therefore, the initial reaction from Turkish official circles was muted.
IS MODEST OPTIMISM REALISTIC?
There was even some modest optimism. Some in the business world said that this situation could give Turkey a comparative advantage over its competitors.
This is not an unfounded position, if one disregards a wide range of handicaps. Turkey’s exports to the U.S. mostly range from chemical products to cars and spare parts, followed by ready-to-wear clothing and carpets. Electronics and electrical appliances have also gained prominence in the last few years. So these products can indeed be exported to the U.S. and sold at lower prices than rivals that have been hit much harder.
However, one should not overlook the fact that Turkey is itself a net importer of intermediary goods for the final products it exports. Thus, any price hike elsewhere will increase Turkish prices and take away its advantages. One way of ensuring competitive prices can be to devalue the Turkish lira by letting the currency float freely in the financial markets, which is already an overdue decision. Yet, in the current political environment, marred by severe political unrest caused by the arrest of Ekrem İmamoğlu, Istanbul’s popular Mayor and an archrival of Erdoğan at the next elections, such a bold decision is unimaginable.
One additional opportunity some have seen is the country’s elevated value as a destination for investments that might allow companies to circumvent barriers. China has already chosen Turkey as a production hub for cars even before Trump's decisions. However, it would be naive to think that the U.S. will not react to attempts to find loopholes.
SAFE HAVEN FOR TURKEY
If Turkey is to seek sounder paths to an economic remedy, the best option should be further bolstering its economic ties with the EU, its number one economic partner.
The EU’s share in Turkey’s exports was around 41% and imports around 29% last year. The EU exceeds any other partner by a large margin. When it comes to direct foreign investments, the EU members are again in the lead, although many are reluctant due to Turkey’s present human rights record.
Under the current Customs Union with the EU, Turkey can export much more easily to Europe whereas it finds it extremely difficult to export to major Asian markets, especially to China, Korea and Japan. Therefore, Asian countries can only play a secondary role in Turkey although their share is on the rise. If Turkey needs to seek a safe haven, this can only be the EU.
However, the EU may be inclined to turn inward and close itself off, raising barriers to protect its markets from the adverse effects of a global crisis. Trade may decline with Turkey in the worst-case scenario. To avoid such an outcome, Turkey must take the right steps to widen the scope of the Customs Union by revising it, a process which has been shelved by the EU mainly due to Turkey’s dismal human rights record. The Cyprus issue, also imposed by the EU as an impediment, should not block Turkey’s way to a wider Customs Union. Turkey should not be compelled to provide a unilateral solution to this problem. The Cyprus knot cannot be untied unless the Greek side is encouraged by the EU toward a fair solution.
Thus, the key to the revision of the Customs Union will be the return of democracy and the rule of law in Turkey. This can only happen if the current struggle for rights and freedoms bears fruit. There is no doubt that this responsibility falls squarely on the shoulders of the Turkish people, and in fact, the Turkish people have risen up to fulfil their historical mission. Friendly democratic governments should be more vocal in condemning the incarceration of Mr. Imamoğlu and his close associates, as well as the human rights abuses committed against young demonstrators peacefully defending their constitutional rights. Pikachu and his Turkish friends must not be left alone.
