Turkey ‘could benefit from Trump’s economic and strategic policies’

BARÇIN YİNANÇ

U.S. President-elect Donald Trump’s economic and political strategies are likely to have a “mixed effect on Turkey” and it will be up to the Turkish administration to turn them into advantages, economist Fatih Keresteci has told the Hürriyet Daily News. 

Washington’s likely protectionist policies regarding China could have adverse consequences for the Turkish economy, but Ankara could benefit from Trump’s objection to a major trade deal with the European Union, which could recover Turkey’s importance, said Keresteci. 

“A secular Turkey could play an important role in the region within the framework of U.S.–Russian cooperation in the fight against radicalism,” he also added. 

What are your projections in terms of the Trump administration’s economic policies?

Trump’s economic policies are based on tax cuts, a spending boom, protectionism and deregulation of the financial system. This set up could bring growth to the United States and with it inflation. Together with deregulation, one might expect a lending boom in the banking sector. The initial reaction of the markets to Trump’s election was to push interest rates higher. A hike in interest rates in the U.S. means a hike in the funding cost of emerging economies like ours. 

Some believe that Trump may turn to mainstream policies once in government. My expectation is that in his initial days we will see him start doing what he promised. In his initial months we will see him become a different kind of leader, which could lead to a shock in the markets. 

What will be the potential consequences of Trump’s policies for Turkey?

We will see three main differences compared to past administrations: Two economic and one political. Trump will endorse a policy against China in order to combat the Chinese threat to the U.S. For instance, Chinese iron and steel enters the U.S. market via Vietnam and Cambodia. He will impose trade barriers on these countries, which could have an impact on countries like Turkey. Facing trade barriers in the U.S., those products will be looking for other markets like Turkey. Turkish companies who are aware of this possibility have already applied over anti–dumping to the Economy Ministry, which has initiated an investigation.
Meanwhile, as the world heads toward a more protectionist trend, Turkey might also endorse a protectionist policy in order to defend its local industry. 

What is the second difference?

The U.S is following a protectionist policy toward Germany, which is the leader of the European Union. It wants to weaken Germany’s economic revival, and that will continue with Trump. What’s more, the Trans-Atlantic Trade and Investment Partnership [TTİP] agreement is expected to fall off the agenda. 

The EU, under the leadership of Germany, was seeking a trade union with the U.S. in order not to lose markets in the emerging economies. The TTİP was part of that strategy. If the TTİP is not realized then the EU will have to start thinking about alternative markets. That might mean an increase in the economic importance of Turkey. So while U.S. policies toward China might have a negative effect, Trump’s stance toward Europe might have a positive effect.

But the critical point here is this: Turkey needs to turn its face toward Europe and make the EU recall its importance as an economic value. Actually the EU is already well aware of Turkey’s economic and political importance, otherwise it would have approved the European Parliament’s decision to freeze membership talks as Turkey’s current direction is not in line with European norms. Knowing that it needs Turkey economically and politically, Europe is making efforts to keep relations with Turkey on track. But one-sided efforts are not enough: Turkey needs to prioritize relations with the EU as a state policy. I see signs in that respect.

What are these signs?

While the rhetoric about joining the Shanghai Cooperation Organization as an alternative to the EU is strong, efforts are on the way to updating the Customs Union agreement [with the EU]. If on the one hand you keep saying “We’ll go our own way without the EU,” but on the other you work to update the Customs Union, this indicates that you know where you have to stand.


Let’s talk about the third difference you expect to take place with the Trump administration.

Trump likes [Russian President Vladimir] Putin. But actually there is a paradoxical situation in any possible Russian–American rapprochement. Putin benefited from a passive American administration and increased its sphere of influence. There is now one point of common interest: The fight against radical Islamists. It seems that both Putin and Trump have the instinct to act together against radical Islamists. 

In addition, Trump has often said that all the money spent in the Middle East could instead have been invested in the U.S. He has said there are certain strong leaders in the region, who should themselves design the region. Who are these leaders? Putin and Bashar al–Assad - though admittedly it is not clear how long al-Assad will remain in power. So while U.S.-Russian rapprochement redesigns the region, there will be a need for regional leaders. Who could this be? Let me give a definition rather than a name: “The leader of a secular Muslim country.” If the argument voiced by Turkish President Recep Tayyip Erdoğan during his 2011 visit to Egypt, when he said “don’t be scared of secularism,” can make a comeback, then Turkey could play a positive role in the region. But if on the contrary Turkey does not return to that position, it could face difficulties in the framework of Russian–American cooperation in the fight against radicalism. 

So Turkey is at an important crossroads. If we stand on the right side, there will be positive economic and political consequences. Some of the recent changes in foreign policy are, I believe, taking Turkey in that direction.

Let’s come back to the economy. How will Turkish–American economic relations be affected?

The U.S. is not an important trade partner for Turkey. What matters more is the effect of Trump’s policies on the U.S. Federal Reserve, which will hold a key meeting in March. By then we will start seeing how Trump is implementing what he has been talking about. That could increase inflation, and by March we might start talking about a hike in interest rates. That will have a negative impact on Turkey, especially over the first four months of the year. We could see a lot of sell-off pressure.

But by May, with higher interest rates we will see that the rise in the cost of financing will put pressure on growth in the U.S. That could lead the Fed to lower interest rates.
 
So what is your general projection?

Trump will realize after a while that he cannot change certain things. He will endorse protectionist policies but he cannot go to extremes, because when U.S. protectionist policies slow down global trade that will start hurting the U.S. itself. For instance, a slowdown in global trade will harm U.S. companies throughout the world, which means a decrease in the profits they send to the States, and that in turn will hurt the U.S. economy.