Istanbul, Turkey

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What The Tanking Economy In Turkey Means For The U.S.

August 15, 2018 - 3:16 pm
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ISTANBUL (WCBS 880/AP) -- The economy in Turkey is tanking – and you should care about it.

As the Jim Tankersley of the New York Times told WCBS 880’s Steve Scott on Wednesday, the troubles in Turkey are essentially rooted in the fact that the country borrowed a lot of money to spend on major infrastructure projects that President Recep Tayyip Erdoğan has undertaken to push his populist agenda.

“Investors essentially have lost confidence that the government’s going to be able to pay back its debts, and so there’s been this run away from the Turkish currency – the lira – and that has created a huge problem for people across Turkey and the world,” Tankersley said.

The Turkish lira has dropped to record lows in recent weeks, having fallen some 42 percent so far this year. The currency strengthened to around 6.20 lira against the dollar on Wednesday after the government took steps to shore up the currency by reducing the daily limit in bank foreign currency swap transactions and amid news that the finance minister would address foreign investors on Thursday.

But even if Turkey seems like a world away, its economic troubles are having an effect in the U.S. The U.S. trades with Turkey with both imports and exports – and products such as Turkish rugs are going to be available at much lower prices than usual because the Turkish currency has weakened.

But that does not mean, by any stretch, that the Turkish economic collapse is good news for the U.S.

“We compete with Turkey on a lot of global markets, and if their products get cheaper than our products, then suddenly, we’re at a competitive disadvantage. And that’s maybe the most interesting thing for me – for my home state of Oregon – we grow a lot of hazelnuts, and they sell a lot of hazelnuts on the world market, and Turkey is our number one competitor, and lo and behold, all of a sudden, Oregon hazelnuts are much more expensive compared to Turkey’s, and so Turkey is probably going to have much higher exports than we will to those markets,” Tankersley said.

Meanwhile, Turkey is also in a major political dispute with the U.S. Erdoğan has called on Turks to quit selling some American products, while tariffs have been imposed on others.

On Tuesday, Erdoğan said Turkey would boycott U.S. electronic goods, singling out iPhones. He suggested Turks would buy local or Korean phones instead, although it was unclear how he intended to enforce the boycott.

But some merchants fell in line anyway.

"We don't like those who don't like us," said Rifat Tepe, an electronic goods seller in Istanbul who said he will heed Erdoğan’s call.

Haydar Tastan, an Istanbul resident shopping for a cell phone, said a boycott of American goods could be a "great thing" but he wished there were alternatives.

"I'm not looking for a new product anyway," he said. "I'm looking for something that's secondhand."

Turkey also announced Wednesday that it is increasing tariffs on imports of certain U.S. products as a local court denied an American pastor's appeal to be released from house arrest. In a decision announced in the Official Gazette, Ankara said it will impose extra tariffs on imports of products including rice, vehicles, alcohol, coal and cosmetics.

Tariffs on American cars were doubled to 120 percent while the tariff on alcoholic drinks rose to 140 percent. Turkey's Vice President Fuat Oktay said on Twitter that the tariffs on certain products were increased "within the framework of the principle of reciprocity in retaliation for the deliberate economic attacks by the United States."

Cevdet Erdol, president of the Health Sciences University in Istanbul, urged Turks to boycott U.S. tobacco products and "to stop smoking altogether," according to Turkey's state-run Anadolu news agency. It said the southeastern Turkish city of Gaziantep has halted imports of American brands and products.

Analysts question the effectiveness of any Turkish boycott of U.S. goods and view Turkey's tit-for-tat taxes as mostly symbolic because they have relatively little value to a global trade giant engaged in similar disputes with China and other major economies. But the Turkish government's framing of its problems as an epic battle for sovereignty against outside enemies, particularly President Donald Trump, resonates among core supporters, even as fears grow that further falls of the Turkish lira could threaten bankruptcies among Turkish firms carrying high foreign currency debt.

Many economic crises in emerging market countries like Turkey follow periods of domestic support for governments that focus on electoral gains and avoid unpopular economic reforms, and pressure on the Turkish lira is likely to persist if Turkish authorities shun decisive action, said Nafez Zouk, an analyst at Oxford Economics. Possible measures include an interest rate hike, capital controls, a reduction in spending and an easing of tensions between Turkey and the United States, which are NATO allies, he said.

Meanwhile, Tankersley warned that the crisis in Turkey could have further ramifications for the world economy.

“It’s what we call a contagion and it could be a real problem – both for a direct effect, because there are, you know, loans are held by banks, bond holders, and lenders around the world, and so if they essentially have to write bad loans off their books, that hurts those banks; hurts the countries those banks are in – a lot of them being European," he said. “But the other reason is that it could spook investors away from other countries they think might be like Turkey – like Argentina or other emerging markets – and so that would be a way in which sort of the crisis in Turkey spreads to other parts in the world.”

Tankersley noted that unlike with Greece, the International Monetary Fund is not stepping in to shore things up in Turkey.

Some Turks have taken to selling their gold for extra cash as the crisis starts to bite.

"Everyone has taken out the gold they've been hiding under their pillows," said jewelry shop owner Tuncay Lus. "The customer isn't buying anything right now. They're just selling. We don't have enough money" to buy all the gold.

A local court in Izmir, meanwhile, rejected the appeal by American Pastor Andrew Brunson to be released from house arrest pending his trial on espionage and terrorism-related charges. 

A higher Turkish court was still considering the appeal and Brunson's lawyer, İsmail Cem Halavurt, told CBS News on Wednesday that he would not consider the appeal formally rejected until the higher court issues its ruling. He said that was likely to happen by the end of business on Wednesday.

A previous appeal by Brunson was rejected at the end of July.

(© 2018 WCBS 880. CBS News and The Associated Press contributed to this report.)