Turkey’s central bank can’t bail them out: It had just $74 billion in foreign currency reserves in August compared with more than $102 billion in the same month in 2016.
Washington could cripple the nation of 81 million people if it cut off Turkish banks’ access to the U.S. financial system.
The Turkish stock market has lost about 7 percent of its value since President Recep Tayyip Erdogan last week ordered his military into Syria. Treasury Secretary Steven Mnuchin has said the United States could “shut down the Turkish economy.” But Trump has limited the financial punishment for the Turkish invasion. He has imposed sanctions on a handful of current and former Turkish officials, doubled tariffs on imports of Turkish steel and halted negotiations aimed at increasing trade between the two countries.
“This is mostly bluster,” said economist Jacob Funk Kirkegaard of the Peterson Institute for International Economics.
Separately, federal prosecutors in Manhattan on Tuesday charged a state-owned Turkish bank with participating in a massive scheme to evade U.S. sanctions on Iran. Turkiye Halk Bankasi, known as Halkbank, was accused of fraud, money laundering, and sanctions violations in connection with efforts to give Iran access to “billions of dollars worth" of oil revenue, said Geoffrey S. Berman, U.S. attorney for the Southern District of New York.
That prosecution is the outgrowth of a long-running federal investigation, which already has resulted in a January 2018 guilty verdict against a top Halkbank official.
But Congress also may force the president to follow through on his tougher talk. Sens. Lindsey O. Graham (R-S.C.) and Chris Van Hollen (D-Md.) are pushing for an early Senate vote on a sanctions package that would target Erdogan as well as Turkey’s energy and military industries.
On Tuesday, the president insisted he was cracking down on the Turkish leader. “We’re being very tough on Turkey. …We put the strongest sanctions you can imagine but they get a lot, we have a lot in store if they don’t have an impact, including massive tariffs on steel," the president said at the White House.
Trump already has the power to do more. Under the Countering America’s Adversaries Through Sanctions Act (CAATSA), he could prevent Americans from investing in any Turkish company or security and move to prevent the International Monetary Fund and World Bank from aiding the country.
Since last year’s crisis, Ankara has treated its battered economy to lavish government spending and easy lending by domestic banks. Exports and tourism have benefited from the weaker lira, which makes Turkish goods less expensive for foreign customers.
The Federal Reserve’s interest rate reductions, which began in July, also have eased pressure on Turkey and other emerging markets. The bigger the gap between U.S. and Turkish rates, the more capital is sucked out of Turkey and into American investments.
While it continues to heal, the Turkish economy is barely growing. The IMF said last month it expects Turkey to grow at a rate of just 0.25 percent this year.
The president’s order to “immediately stop negotiations, being led by the Department of Commerce, with respect to a $100 billion trade deal with Turkey,” drew the most attention in Monday’s White House announcement.
Commerce Secretary Wilbur Ross last month traveled to Ankara and Istanbul for several days of talks aimed at facilitating greater trade between the NATO allies.
“President Trump has pledged to President Erdogan that we will become even more important partners, and that trade and investment are central to our relationship,” Ross said in a speech to a business group in Ankara.
“The United States and Turkey have a tradition of working together, and we want to make sure that it not only continues, but expands long into the future,” he added.
The U.S. and Turkish business communities have high hopes for expanded trade. But halting these efforts will have little genuine impact, especially in the short run. The $100 billion figure Trump cited was a goal for U.S.-Turkish trade that he and Erdogan had agreed to at the Group of 20 summit in Japan several months ago.
“I think it’s going to be well over $100 billion soon,” Trump said with Erdogan by his side at the Osaka meeting.
But with total merchandise trade between the two countries today at just $20 billion, achieving the $100 billion target was unlikely, analysts said. There are no formal negotiations aimed at a comprehensive trade agreement.
“It is unrealistic that we were going to quintuple trade with Turkey, and it is dishonest to then claim we won’t do what was impossible anyway and feel that we are punishing Erdogan,” said Michael Rubin, an analyst at the American Enterprise Institute. “That’s the trade equivalent of putting Turkey on double-secret probation.”
But Rubin said Trump could damage Turkey’s already shaky economy, which is slowly recovering from last year’s currency crisis. Trump’s first round of steel tariffs on Turkey last August accelerated a 40 percent plunge in the lira that began several months earlier.
The United States is the fourth-largest buyer of Turkish steel, consuming about 5 percent of the country’s output, according to the International Trade Administration.
“They ship a lot of steel to the United States. They make a lot of money shipping steel – they won’t be making so much money,” Trump told reporters Tuesday.
Among the tariff casualties will be the U.S. operations of Borusan Mannesmann, one of Turkey’s largest steelmakers. The company’s Baytown, Tex., plant imports Turkish steel, which it uses to produce pipe for the oil and gas industry.
Still, as Turkish military units fan out across parts of northern Syria that, until recently, the United States patrolled, Trump promised Monday that “big sanctions on Turkey” would be forthcoming. What’s been announced to date doesn’t qualify, analysts said.
“The Turks will not be too bothered by the sanctions Trump put forward compared to what he said he would do,” said Bulent Aliriza, a former Turkish Cypriot diplomat now at the Center for Strategic and International Studies. “These are not likely to have much of an impact.”