Stronger Turkey ties can give EU a trump card against US
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Improving trade ties with Turkey would make the European Union countries’ hands stronger against the U.S. amid a heating up trade war, according to Zümrüt İmamoğlu, the chief economist at Turkey’s leading business group, the Turkish Industry and Business Association (TÜSİAD).
“Turkey is in the middle of trade routes. In view of the customs union and Turkey’s ties with the European Union, Turkey’s position within these trade wars is very much dependent on Europe’s position,” she told the Daily News in a recent interview.
“Since the U.S. is trying to hurt the European economy and trade, this [updated customs union with Turkey] will provide more options. Increasing your trade with a country of 80 million is of course helpful,” she said.
Tell us where you see Turkey in the global trade wars?
Turkey is in the middle of trade routes. In view of the customs union and Turkey’s ties with the European Union, Turkey’s position within these trade wars is very much dependent on Europe’s position. Turkey’s main export destination is still the EU.
Trade wars between the U.S. and China is endangering the global economic situation. We don’t really know how long Donald Trump’s unorthodox policies will last and whether they will have permanent effects or if this is a temporary situation. We think the situation is temporary.
But even if it is going to be here for the next two or three years, it is serious. But the rest of the world seems to be very determined to avoid a trade war with U.S. and still advocate free trade.
How do you think the Turkish economy will be affected?
Turkey depends on external financing. It is dependent on capital flows which are affected from the global and domestic conditions. After the global crisis there was a serious flow to emerging markets, but it is now slowing down. If these trade wars result in a global recession, first, we need to export, but the demand side will be weakened. Second, in such recession, capital can move out of emerging markets and Turkey will be affected the most. Because it is among the most fragile emerging markets, it will be hit harder.
This is on the macro level; it seems certain sectors will also be affected.
AThe European car industry has important investments in Turkey, so, of course, that development will be important. Metals are very important for Turkey, the U.S. was one of our major export destinations and their tariffs are affecting deeply and we are retaliating in return. But retaliation will hurt Turkey too. We are putting tariffs on our imports which are making some other inputs and goods costly in our country.
Our direct trade with the U.S. is limited. It will affect us more if trade wars affect the European economy, and the indirect effects will be more important.
What is the best way for Turkey to react?
We are part of the customs union so the EU’s position is very important for us. We should not go into protectionism as well. If we are to find ourselves in a world where protectionism is on the rise then Turkey will find itself inevitably retaliating against these protectionist measures. But a more protectionist trend in the world is very dangerous. Turkey should always be on the side of free market and free trade.
We are a growing and developing country, we want to increase our exports but we can’t do that with protectionist measures.
Even within Turkey there are some ideas about whether we can grow some of our industries with the help of protectionism, whether we can use this as an opportunity. You have to be very carefully there. Indeed there could be a few good opportunities, but if you try to do this as a general policy you may start hurting the economy. That could decrease the productivity. We are already very low where we are in the value chain in the world.
Are we in a healthy dialogue with the EU on that subject? Turkey’s request to be more involved with EU’s trade with third parties has never been met.
Yes and no. It is a yes in the sense that in the last three years we have been working on the modernization of the customs union, which means opening up the services sector, agriculture, procurement procedures and revising how Turkey can be engaged in the trade policy of the EU.
Both sides are willing to deepen the customs union and as you said probably giving more say to Turkey in terms of trade policy because they also understand our position. This was actually part of the deal that we wanted to make and they were very positive on this.
At the macro level because of the tension and the stalling of the accession process unfortunately we cannot start talks on modernization. Politically it is not happening, but even the European business circles want that.
But that was before trade wars, how will the new situation affect their stance?
That would make their hands stronger against the U.S. as well. Since the U.S. is trying to hurt the European economy and trade, this (updated customs union) will provide more options. Increasing your trade with a country of 80 million is of course helpful.
Preoccupied with so many elections, do you think Turkey’s ruling elites are aware of the looming crisis in the world?
I think they are aware. Actually they have also been postponing some of the problems in the Turkish economy, which needs a very serious program to overcome its own difficulties. The global situation might make these problems even worse. Now that we have a new government and we have a good opportunity to make a fresh start for economic policy we should take care of our domestic problems and improve our relations with the West without neglecting our relations with the East.
You seem to think this might be a good time to revitalize relations with the EU.
We have a new government and five years without general elections. The elections cycles both in Europe and Turkey are over, there is an opportunity to improve the relations and it will be good in terms of trade wars if Turkey could improve trade relations, because if the world were to go into recession, that could provide some protection for us from that global recession.
How about trade relations with the East, have we been neglecting it?
It is just that we do not know those markets very well because they don’t work in the western style. Also it is very hard for Turkey to move to a market where basic costs are less than its own in terms of labor. It is hard to complete with prices in these countries.
We have to better understand our comparative advantages.
What kind of a picture do you see looking at Turkey, as it is now transitioning to a new system?
The system is very new actually and we have to understand how it is going to work. So far, what we know is that there will be fewer ministries and they will work more efficiently it seems, at least this is what is claimed.
How the coordination will be maintained, whether vice presidents will take important roles or not, we have to see the implementation.
Turkey needs more financial stability, improve its relations with the world and increase its trade.
Even if protectionism is rising we have to go and look for better deals and try to increase our exposure to the world.
What needs to be done to improve the economy?
Financial stability has been something we have been neglecting. Because we neglected these problems and focused on growth, these problems have deteriorated. Turkey has to go into a rebalancing period. Tightening the fiscal side and the monetary side is needed. Both fiscal and monetary policy should be aligned with the inflation target, and that means tightening. And that should be done in an orderly fashion so that the country does not suddenly go into recession. Macro-economic measures are not enough. We need structural reforms to improve our productivity.
After graduating from Istanbul Technical University, Zümrüt İmamoğlu received her master’s degree in economics from Boğaziçi University and completed her Ph.D. at Carnegie Mellon University.
She has been serving as chief economist of TÜSİAD since June 2015.
Prior to TÜSİAD she was a research associate at Bahçeşehir University Economic and Social Research Center (Betam).
She has taught undergraduate and postgraduate courses at Bahçeşehir University and Kadir Has University.
Her main areas of research are macroeconomics and international economics. Besides her academic work, she has contributed to policy notes and reports for both private sector and public sector policy-makers.
She has been a commentator at various media platforms such as BloombergHT and CNBC-e.