It’s the classic essay/exam question – “What caused X?”. As any savvy student will tell you, there’s always a way to answer it too. So, the First World War might be said to have been caused by the assassination of the Archduke Franz Ferdinand in one sense, but there are many, many underlying factors that led to that being the trigger point. There’s normally a definite trigger point (or a couple) but beyond that ‘it’s complicated’.
At the moment, the talk is less of actual war and more of trade war but the questions remain the same. The situation in Turkey has exploded into a full-blown crisis in recent weeks – with the lira falling by 40 per cent – leaving the rest of us asking that age-old essay question.
So, what’s the trigger for Turkey’s woes – and what are the complicated underlying factors?
Spotlight on Trump
There’s little doubt that US President Donald Trump has had a role to play in events in Turkey – and President Recep Tayyip Erdogan would certainly place the blame on him. But to understand tensions between the two leaders fully you need to look back to October 2016. This was the period in which Erdogan thwarted what he saw as a failed coup attempt – to which he responded with tough measures. One man caught up in the aftermath was US pastor Andrew Brunson, who was arrested and accused of helping a group behind the alleged coup.
Last month, Trump branded this move a ‘total disgrace’. He told the media: “Turkey has been a problem for a long time. They have not acted as a friend.”
He followed up his comments by announcing a review of Turkey’s access to the US market – which could harm more than $1.6 billion worth of exports – with specific tariffs on steel in the same vein as those imposed earlier this year to hit back at China. Erdogan accused Trump of economic warfare and responded by calling for a boycott of American products.
The factors fuelling the crisis
The words – and actions – of Donald Trump have, therefore, played a big role in Turkey’s economic woes but they haven’t happened in isolation.
As The Independent notes, the country has a large country account gap – seven per cent of GDP last year – with inflation allowed to build up to three times the central banks five per cent target.
Erdogan has pursued a policy of borrowing to pay for big infrastructure projects – building up debt – and has refused to raise interest rates because he believes this causes inflation. Critics say his authoritarian leadership style and nepotistic regime contribute to a problem – with investors cautious about the Turkish regime’s ability to handle a crisis. This economic and political backdrop has been key to understanding why the crisis has erupted and why it’s been so serious.
But, of course, it’s not just Erdogan’s leadership style to consider. Donald Trump’s tough talk – particularly when it comes to tariffs and a trade war – can be very influential and spark fears in the markets, as this guide from DailyFX shows. Many countries around the world are nervous about what could happen if the US turns against them, making the situation that be more fraught than in previous years and with previous presidents.
Turkey’s economy appears to have been in a fragile state – Trump’s tough talk and tariffs has, however, been the spark to ignite the issue.
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