Why there’s so much tension between the USA and Turkey? And how will affect India-s currency?

(Courtesy: Efdd)

On August 10, President Donald Trump tweeted, “I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!”

Evidently, the distaste between the USA and Turkey falls in line to the country’s latest trade policy of increasing the tariffs on imports. Admittedly, unlike as is the case with China and other countries, the decisions to increase tariffs with Turkey is, on many levels justified, given the falling value of Turkish currency.

Since the beginning of August, Turkish currency has taken a big hit, which is, in part, due to the rising borrowing rate in major economies. At the time of writing this, 7.2 Lira can purchase one US dollar, which is an all-time low. Although this isn’t much of a concern for the policymakers, given the other economic factors, including unemployment, remains at their normal level.

However, the levied tariffs on Turkish products can put a big burden on Turkey’s economy in the coming days. And President Erdogan’s resolution to not increase the interest rate, which is usually a standard practice when the value of home currency starts falling, can make things even worse.

All these can cascade into having a global impact. For example, along with the USA, many other countries lent big money to Turkey, including the European countries. Now, since Turkey’s economy is showing signs of weakness, with possible continuity in its current trendlines, other countries might shift their policies and approach, fearing bad loan. This could lead to a slight restriction in the money supply in the global economy, which can then hurt other small countries who rely heavily on foreign fund.

Now point to note here is that Turkey isn’t really a very big country and its biggest lender is the USA. So, the global impact will be very small and there wouldn’t be anything big to worry about.

As for how it will affect the Indian economy, the impact will be negligible. Honestly, a lot will depend on how European banks steer their policies if they are unable to recover the loan form Turkey.

However, if the situation does get worse and Turkey does find it difficult to repay the loan amount on time, we can see the country turn to International Monetary Fund (IMF) for financial assistance, which will literally capsize any possible global impact of falling Turkish economy and poor relationship between the USA and Turkey.

As of right now though, there isn’t much to be worried about—except for Turkey, of course, for as longs as President Donald Trump loves Tweeting.