Trade wars can lead to EU-Turkey reconvergence

Barçın Yinanç-ISTANBUL

The European Union’s uncompromising emphasis on the rules of the game might be changing due to trade wars, according to Memduh Karakullukçu, president of Istanbul-based Global Relations Forum. This fundamental mind shift could provide an opportunity for a European-Turkish reconvergence, he said.

“With the change that is forthcoming, I am implying a reversal of direction where Europeans would see value in having more than transactional relations with Turkey,” he told the Daily News.

Tell us how you view trade wars.

There is a potential reversal of the pecking order among the big powers.
The Chinese feel they may surpass the U.S., and the Americans feel that this is a possibility. That potential change in the pecking order is the underlying driving force of the trade wars.
One of the scenarios is decoupling: the Chinese may end up being somewhat decoupled from the global trading and technology order, which will slow down their growth and the possibility of a catch-up.

With this decoupling, technology production and new technology waves may come with separate standards rather that globally-equivalent compatible standards. We are potentially talking about a whole restructuring of globalization as we know it.

But the fundamental question is an existential one: who is going to be the leader of the 21th century? As long as that question is not answered with finality, these back-and-forth tensions will continue, and that will bring immense uncertainty to the global system.

That, in turn, will bring down global growth rates, which has huge implications for countries like ours because we thrive on global growth and trade. There is a whole range of repercussions that we’ll have to deal with.

Let’s elaborate on these repercussions.

There is a good chance that this will be a less open, less globalized world. That will take adjusting because our economic model since the ‘80s has been based on openness and trade and integrating with the world. If the world itself is fragmenting, we don’t know yet the shape of the fragmentation. It could be simple decoupling: China and maybe a few other countries around China versus the rest of the world. For us, it might be either a matter of choosing between blocks; this will have all kinds of other implications from security to democracy, to values, etcetera. Or we may have the diplomatic skills and the leverage to play one against the other.

Normally, Turkey used to align itself with the Western bloc, which is actually fragmented as well.

This 70-plus years of tradition and understanding brings us to that conclusion. But there could be nuances. At the moment, the Europeans are upset that the multilateral system is being undermined by the U.S. President. But they know that their economic understanding is closer to the U.S. than the Chinese. Yet they have significant exposure in terms of trade with the Chinese so they are worried about upsetting China. They are playing a very difficult balancing game.

If the Europeans find a middle way, we could tag along and that would be a nice solution. If the Europeans become an independent pole so you have the Chinese and the U.S. and the Europeans as separate economic competitors, then we would have a very interesting choice.

Tell me what are Turkey’s strengths and weaknesses facing these trade wars.

The downside is that as this turmoil continues and the Chinese trade with the globe decreases, global growth is likely to be below what we thought it would be. That would be bad news for us.

On the upside, as the Chinese are being pushed out of the trading system and global value chains by the Americans, it already is benefiting other countries. The trade diversion brings opportunities especially in global value chains.

Can we bring ourselves into those global value chains? Do we have the industrial ability to interject into those global value chains? Another point: we entered an era where economic power is being weaponized extensively. The Americans are using their economic might, they are putting tariffs, and they are imposing sanctions.

Europeans are very frustrated with this. We have allies that are not happy. So I would advise us to look around for strong players who are unhappy with misuse of economic power and to work with them.

Does that mean that Turkey should align with its traditional allies?

Because of our mental habits, that comes up as the natural solution. But I don’t want to rule out something more creative. Within the belt and road initiative (BRI), the Chinese have already reached out into Greece and Italy. If the Europeans find a way to work with the Chinese, that means there are possible configurations where we can share the same spirit and value system with our traditional allies and pursue pragmatic exceptions. And BRI may prove to be one of them. I think there will be pockets of exceptions and opportunities, and we’ll need to be more creative and open-minded identifying those opportunities.

Turkey is also affected by weaponization of economic power. Will Europeans be our natural allies?

Traditionally, Europeans were really happy with globalization. But due to the recent developments, for the first time you see the Germans approaching the French position on using economic power for political purposes. That’s a fundamental mind shift. You see the state getting into the game of economics; this is a different mental arrangement, which I think could provide an opportunity for a European-Turkish reconvergence.

How do you think Turkey’s relations with the EU will unfold? How important will be the updating of the customs union?

The customs union process is precious, and we should proceed to build on it.

But we should not be locking ourselves into one or two instruments. There is much more room to find other ways to leverage the political economic interface that is emerging. If the Europeans want to be an independent economic pole in the world, Turkish presence in some form will add value to that project.

What I am saying is different than the traditional understanding of Turkey’s strategic value in terms of its geopolitics, etc.

EU’s uncompromising emphasis on the rules of the game might be changing. Their industrial policies are very strict, for instance. But when you start creating room for flexibility within European rules, that creates a new set of opportunities where we can talk about a lot of issues on a different level.

But how would this translate into reality? There has already been a change into transactional relations.

I am talking about a change in the reverse direction. Going from the deeper integration and membership to transactional is obviously a downgrade.

With the change that is forthcoming, I am implying a reversal of direction where they would see value in having more than transactional relations with Turkey. We might have a reversal of that downward trend mainly because they are forced to play a much bigger game, provided, of course, we share with them their vision of global order. It is a matter of testing waters on both sides. Do we have similar principles? In some sense, we do: Turkey would prefer a world governed by rules, and that’s what the Europeans want.