"As I have stated strongly before, and just to reiterate, if Turkey does anything that I, in my great and unmatched wisdom, consider to be off limits, I will totally destroy and obliterate the Economy of Turkey (I’ve done before!). They must, with Europe and others, watch over the captured ISIS fighters and families. The U.S. has done far more than anyone could have ever expected, including the capture of 100% of the ISIS Caliphate. It is time now for others in the region, some of great wealth, to protect their own territory. THE USA IS GREAT!"
This single tweet by Donald Trump should provide reams of material for study by psychologists (“my great and unmatched wisdom”) and grammarians (“I’ve done before”), not to mention fact-checkers. As someone who deals in economics, I’ll limit my comments to the promise to “totally destroy and obliterate the Economy of Turkey” bit, by which he presumably means more sanctions.
Trump never destroyed or obliterated the Turkish economy with sanctions, but he made the problems created by President Recep Tayyip Erdoğan's irresponsible policies even worse by more than doubling tariffs on Turkish steel and aluminum in August 2018. The lira was already in trouble before the tariff move but Trump’s tweet made things worse. By the end of 2018, the Turkish currency was down 30% for the year, forcing interest rates to punishing levels and sending the economy sliding into recession.
Trading on the basis of Trump’s tweets is a risky business because of the huge gap between what he threatens and what he does. As of Wednesday, Turkish troops were bombing Kurdish towns and crossing the Syrian border, and Trump’s reaction was nothing more than it was a “bad idea.”
- Why Moody's analysts are starting to sweat about Israel's economy
- Wait for it: The Middle East is about to convulse again
- Are Syrian refugees destined to be the Palestinians of the 21st century?
Still, Turkey is not out of danger yet. Erdogan had engineered a rapid recovery from last year’s recession via massive lending by state-owned banks, but he did so at the cost of making the kinds of structural changes that could have produced sub-stable growth. Trump’s threats and the distinct possibility they will be followed by action (if for no other reason than that Republican lawmakers are demanding it) could quickly send Turkey back into recession.
The Turkey business is part and parcel of a Trump policy of relying on aggressive sanctions more than his predecessors. You can understand why. The short-term record of sanctions wreaking havoc on targeted countries is quite impressive. The economies of Iran, North Korea and Venezuela have all felt the pinch, as have the Chinese tech companies that came into Trump’s crosshairs.
Sanctions fit nicely into Trump’s worldview of America as a business pursuing its economic interests. They are a tempting alternative to sending to troops overseas or turning to the UN and other international organizations to solve problems.
War is almost always unprofitable on a simple cost-benefit analysis; and international organizations are slow, cumbersome and don’t easily give in to U.S. demands.
Trump’s famously said that trade wars are“good, and easy to win.” He apparently thinks the same applies to sanctions.
Unfortunately, sanctions are no better or easier to win than trade wars. Here are three reasons why.
One is that targeted countries don’t necessarily look at themselves as business corporations ready to cut their economic losses and do a deal. The regimes in North Korea and Venezuela have yet to buckle to Trump’s sanctions. Iran not only hasn’t buckled but has hit back exactly where Trump is most vulnerable, with small armed attacks that the president refuses to respond to in kind. The result is that his Iran sanctions policy is being undercut.
The second is that Trump insists on imposing sanctions without first winning over America’s allies, much less the rest of the world. That means the U.S. has to jawbone others to join it by imposing secondary sanctions on foreign businesses by plain old threats. For now, the strategy is working to the degree that it is, thanks to the pivotal place of the dollar and U.S. banks in the world financial system. Those who defy the U.S. risk paying a heavy price.
But the more Washington employs unilateral sanctions, the more it will anger other countries that resent being unwilling players in U.S. games.
So far, the efforts by Russia, China and the European Union to free themselves from the U.S. grip have come to little. For instance, the EU’s INSTEX system for circumventing the dollar and U.S. banks in order to trade with Iran has gotten off to a slow start, but the will to do so will grow if Trump clings to his sanctions mania.
Finally, there is the effect on world trade as businesses are forced to add to their list of risks the possibility that Trump will impose yet more sanctions or declare a trade war, or maybe just tweet a threat to do so.
Between exchange rates, wars, revolutions and natural disasters, they have enough to cope with; they don’t need extra trouble from a mercurial world leader. Unfortunately, that is exactly what they are getting and the world economy has already begun to pay the price.