New US Trade Tariffs could Cause Headwinds for Both Pound Sterling and the Turkish Lira, Keeping the GBP/TRY Exchange Rate Volatile
President Donald Trump’s administration announced last week that it would impose tariffs of 25% on imports of steel and 10% on imports of aluminium, igniting fears that his move could spark a global trade war and causing volatility for the GBP/TRY exchange rate.
The President’s move towards protectionism and the implication of his ‘America First’ campaign pledges comes at a bad time for the UK, given that a strong free-trade deal with the US has been one of the commonly floated reasons why Brexit will afford the UK great opportunities elsewhere.
On the topic of his trade tariffs, Trump tweeted yesterday;
‘We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminium industries are dead. Sorry, it’s time for a change! MAKE AMERICA GREAT AGAIN!’
It appears that the White House did initially plan to exempt certain countries, including the United Kingdom, from the tariffs, but these have since be dropped, suggesting the UK could struggle to secure special treatment from the current administration.
Downing Street remains optimistic, with a spokesman telling Business Insider;
‘I think both the prime minister and the president have been clear on the importance of reaching a post-Brexit bilateral trade deal. The US is our biggest trade partner. We invest over £500 billion in each other’s economies and over one million Americans work for UK companies, so you would expect us to remain close partners and continue to work at the highest levels to make the case for UK industry to the US government.’
However, markets are jitterier than governments and wear their feelings on their sleeves, so the GBP/TRY exchange rate could see some weakness if Trump follows up with more tariffs and analysts forecast the likelihood of a favourable UK-US trade deal after Brexit are dwindling.
GBP/TRY Exchange Rate Forecast to Advance if US Trade Tariffs Harm Turkey’s Steel Exports
The GBP/TRY exchange rate could find some support over the coming weeks as new trade tariffs are levied by the US against steel and aluminium – the former of which Turkey is a key exporter to the US.
Turkey exported US$1.1 billion worth of steel to the US in 2017, which equates to 5.6% of the nation’s total steel imports and makes Turkey the sixth largest steel exporter to the US.
Tariffs could therefore have a significant impact upon the Turkish economy, with Economy Minister Nihat Zeybekci stating even before the tariffs were officially announced that;
‘Such measures will hit Turkish importers, producers and exporters. If they complain about US measures we will assess the situation and are more likely to take retaliatory measures.’
The Turkish government has already signalled that it may retaliate by imposing tariffs on imports of US cotton, which last year totalled around US$738 million.
Turkey desperately needs to avoid trade disputes, however, after data last Monday showed that the nation’s trade deficit had more-than-doubled year-on-year to –US$9 billion in January, after widening 64% year-on-year in December.
Short Term GBP/TRY Exchange Rate Forecast; Turkish Interest Rate Decision to Weaken Turkish Lira?
While the long-term fears over the viability of a post-Brexit trade deal with the US and the impact of tariffs upon Turkey’s steel exports will provide continuous headwinds for the GBP/TRY exchange rate, impactful data this week could create short-term volatility.
Tomorrow sees the latest monetary policy announcements from the Central Bank of the Republic of Turkey (CBRT).
Although inflation remains firmly around 10.3% year-on-year, economists do not expect the central bank to shift interest rates from the current level of 8%.
Meanwhile the UK data calendar ends a quiet week in terms of releases with a glut of trade, manufacturing, industry and construction data, as well as the February GDP estimate from the National Institute of Economic and Social Research (NIESR).