Expert on US Terminating Duty-Free Status: Tool to Keep Ankara Under Pressure

US President Donald Trump said in a letter to Congress that the United States has terminated Turkey's duty-free status based on its increased level of economic development. Sputnik has discussed this in further depth with Dr Oguz Demir, director of the EU Research Centre in Istanbul and an expert on the Turkish economy.

Sputnik: In your view, what complications can this message from the US president lead to in Ankara-Washington relations?

Oguz Demir: Turkey and US relations have been in tension in the last year, but through the end of the year the relationships started to be better. President Trump and President Erdogan had several phone calls about improving the economic relations, political relations. But the main thing [prompting] President Trump [to make] this decision was, I think, the Turkish government contract about S-400s from Russia.

The conflict between Turkey and the United States about these S-400s was the main point for a while between Turkey and the US. This decision, I think, is also a little bit [painful] for the Turkish economy, because the total volume of exports from Turkey to the United States was around $10 billion, and $1.7 billion of that trade were under this preferential or duty-free exemption. By this decision, I think President Trump tried to give a message to the Turkish government that this political tension between Turkey and the US, if it goes again, then there will be some economic consequences. Because you may remember in October, President Trump threatened the Turkish government [with] hurting the Turkish economy with some kind of sanctions. I think this is a tool that President Trump is using to keep Ankara under pressure by some kind of economic issues.

Sputnik: Can you give us a bit more information with regard to the specifics in the economic trade agreement on arms sales between the two countries?

Oguz Demir: It is a very unstable relationship between President Trump and the Turkish government, because once you see that everything is going well, and then two days later everything is going worse. I think this is the way that President Trump does politics in the international level. So S-400 is a priority topic for the US government because Turkey was always purchasing such kind of big defence industry investments from the United States. But this time, the destination changed from the US to Russia. So, there are some kinds of conflicts between those two countries.

This is the only way that President Trump, with the last year of experiences, understood that the Turkish government is under pressure from economic challenges and he is using these challenges as a tool to keep the Turkish government to the track that they want it to be; but the Turkish government is still insisting about buying those S-400s from the Russian government. I think this debate will be a hot topic for the next few weeks, between Turkey and the US, Turkey and Russia, the main topic that we will be following for the next few weeks.

READ MORE: Trump Says Washington to Terminate India, Turkey Duty-Free Status

Sputnik: Give us an overview of the current impact on the economy in Turkey. What can you add in terms of the way the economy is and [how] these current bad relations [with America] are affecting the everyday business person in Turkey?

Oguz Demir: When you look to the numbers, especially after the crisis in August 2018 in Turkey, the main thing was now that the interest rates are 25 percent, which is huge trouble for not only the construction industry, but also for the all economy, because the consumers have been under the pressure of debt burden and the companies, especially the real [estate] industry and the construction industry, do not have easy access or cheap access to the credit that they used to get in 2003-2005. The inflation rate was announced at around 20 percent, which is very high for the Turkish economy.

I think that the main point here was the exchange rates. The Turkish lira‘s depreciation in the last year was around 80-90 percent, now it is balancing, but on the other hand, still, we are feeling the impact of these curves of the depreciation within the country. The Turkish-US relations were one of the major factors that affected this depreciation. This increasing tension between Turkey and the international community, if the US dollar again starts to gain value or Turkish lira starts to depreciate, this is the new perception within the country. Everybody is looking to the currency rates, and if there will be another huge depreciation in the Turkish lira, everybody knows that inflation will rocket [up] again.

So, the government is also trying to keep the prices low or at least trying to stop the price increases. But as soon as I understand these kinds of troubles between the Turkish government and the international community, if it will have an influence on the currency rates, the country will be again in trouble. So the Turkish economic policy [is] focused on keeping the rates stable, keeping the price increases decelerated. So, in this case, Trump's move is not only important for influencing it like a $2 billion trade, which is like 1 percent of Turkish exports. It is not a big deal, but it is a sign of future tensions between Turkey and the United States. It is a potential risk for the Turkish government and the Turkish people to have another trouble with the depreciation because of the political instability in the international level.

READ MORE: US Senators Urge Trump to Protect Syrian Kurds From Turkey After Troop Pullout

Sputnik: What kind of response can we expect from Turkey on this issue between Turkey and the US government, with regard to the duty-free products that we were discussing?

Oguz Demir: I think the Turkish government will in the first instance will not fight back, because, as you see, in this case not only Turkey, but India is also written in the letter by President Trump to be out of the US government's duty-free exemption. So I think the first thing [is] the Turkish government will follow to figure out how to fix this problem. President Trump mentioned in his letter that the Turkish government, Turkey with its economy, is not a developing economy anymore, but a developed economy, it has high GDP. I think this is just an excuse.

It is not the main idea that the Turkish government will be pushed by the US government about this S-400 thing. I think that is the main thing that the US is going after. I don't think that the Turkish government will step back so easy with such kind of a decision. I think next weeks if the S-400 deal will continue there will be higher tensions and there will be higher impacts on the Turkish economy. But if the US will figure out a way to convince the Turkish government about this thing, then everything goes back in order, in terms of Turkey-US relations. So, for the moment I think that diplomatic channels will work to convince that this is an important time for Turkey, for the increasing tension between Turkey and Russia. But then, you know, we will see based on Trump's moves.

The views expressed in this article are those of the speaker and do not necessarily reflect those of Sputnik.