Trump’s sanctions won’t bite a vulnerable Turkish economy

The US sanctions cannot cause the collapse of the Turkish economy says the Turkish President over the support of Turkey for Syria for the ongoing Syrian civil war over the years now.

President Donald Trump could take far tougher action that would deter foreign investment and credit that Turkey badly needs — but doing so could backfire in a number of ways, and it’s not clear he really wants to.

Trump has said he could “destroy and obliterate” the economy of Turkey, and has called on the country to rein in its offensive in Syria. The statement follows backlash from both Democrats and Republicans over Trump’s decision to give Turkey a green light for its military incursion against Kurdish fighters who had been U.S. allies.

The sanctions announced Monday, however, did not match the rhetoric and were seen as minimal by analysts and financial investors.

The measures were limited to the Turkish defense and energy ministries and three Turkish officials, the ministers of defense, energy, and interior security. They block transactions involving any assets they may have in the U.S. financial system and bar U.S. residents and businesses from dealing with them. The U.S. also raised tariffs on Turkish steel exports from 25% back to 50%, where they were in May, and suspended talks over a U.S.-Turkey trade deal.The US dominant role in the world as the financial powerhouse of the world is likely to use their position to punish Turkey for the role in the Syrian civil war.

Timothy Ash, the emerging market strategist at Bluebay Asset Management, called the sanctions “minimal” and “window dressing,” noting that the trade deal was years off in any case.

The muted initial response from investors “flies in the face of President Trump’s threat,” said Jason Tuvey, senior emerging markets economist at Capital Economics in London.

One risk from the current sanctions, Tuvey said, is that they may be a prelude to tougher ones, given support in Congress for action against Turkey.

And even though the direct impact on the economy may remain slight, the bigger risk could be on investor and financial market confidence in the country. The imposition of sanctions has re-started talk of Turkey possibly putting limits on the flow of money to prevent it from being taken out of the country. That could support the country’s currency but deter foreign investors.

“If Turkish financial markets do come under fresh downward pressure, the resulting tightening of financial conditions will stifle the recovery from last year’s recession. The impact would probably be a lot more severe if sanctions are expanded to include Turkey’s financial sector,” Tuvey wrote in a research note.

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