Trump Would Hate To Have To ‘Cripple’ Turkey’s Economy Over S-400 Dispute

One hallmark of the Trump presidency is the administration’s penchant for throwing America’s economic weight around to bully and badger allies and foes alike into acquiescing to Washington’s demands.

Simply put, Trump isn’t above crippling another nation’s economy if that’s what it takes to get his way – just ask the Iranians. Although he continues to insist he doesn’t want to lay waste to China economically, you wouldn’t know it if you looked at a timeline of trade escalations.

Another country that’s variously found itself in dire economic straits over the past year thanks at least in part to Trump is Turkey, which was very nearly forced into the arms of the IMF late last summer when the US cranked up the pressure in order to secure the release of detained Christian pastor Andrew Brunson.

Of course, Turkey was already on the fast track to a currency collapse thanks to President Recep Tayyip Erdogan’s decision to appoint his son-in-law as economic czar following the June 2018 election (in which he consolidated power). Erdogan’s steadfast refusal to countenance decisive central bank action to shore up the lira was the proximate cause of the problem, but US sanctions didn’t help, and neither did Trump’s doubling of metals tariffs last August.

On Wednesday, three sources told Bloomberg the US is considering at least three sanctions packages for Turkey in the event Erdogan moves ahead with purchasing Russian-made S-400 missile systems, and one of those packages sounds particularly onerous.

“The most severe package under discussion between officials at the National Security Council and the State and Treasury departments would all but cripple the already troubled Turkish economy”, Bloomberg writes, adding that “any of the options would come on top of the months-old US pledge to cut off sales of the F-35 jet to Turkey if President Erdogan keeps his vow to buy the Russian system.”

Apparently, the most popular option remains hitting Turkish defense companies with CAATSA sanctions, cutting them off from the US financial system. Any punitive measures could be implemented as early as next month.

Needless to say, this isn’t what the lira needs right now, less than a week ahead of the Istanbul re-run and amid ongoing worries about the fragility of the Turkish economy and financial system. The currency nosedived on the news, before trimming losses.

Earlier this week, Turkey rolled out another Band-Aid measure to support demand for local bonds amid fears the Moody’s downgrade would dent already deteriorating market sentiment. It’s been a fitful year for Turkish assets as questions about the country’s reserves and the usual worries over central bank independence weigh on sentiment.

Erdogan has remained characteristically obstinate when it comes to the S-400s. He and Trump will likely try to sort the problem out at the G20.

Like every other autocrat on the planet, Erdogan has Trump’s respect and the duo are known for cordial fist-bumps. Additionally, Erdogan has been quite adept at manipulating the US president on key regional issues including compelling the US to abruptly withdraw troops from Syria late last year.

In any event, renewed sanctions would not be the best news for Turkish assets, or for the beleaguered economy, although it should be noted that Fed cuts would help to soften the blow by decreasing pressure on vulnerable emerging markets, very much unlike last summer, when hawkish Fed policy triggered an EM meltdown just months into Powell’s tenure.

Read more: ‘Inshallah’, You’ll Finally Understand That Turkey’s Erdogan Isn’t Backing Down On S-400 Purchase

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