Trump preparing further sanctions against Turkey

Getty

• US Treasury Secretary Steven Mnuchin threatens further
  sanctions against Turkey if it fails to release detained
  American pastor Andrew Brunson.
• “We have more that we’re planning to do if they don’t
  release him quickly,” Mnuchin told a cabinet meeting, without
  elaborating on what would be involved.
• Further sanctions or tariffs could exacerbate the
  already fragile economic situation in Turkey, and broader
  emerging markets.

Treasury Secretary Steven Mnuchin on Thursday evening said that
the US is ready to take its diplomatic conflict with Turkey to
the next level, and could look to impose fresh sanctions on the
state, if President Erdogan continues to refuse to release
imprisoned American pastor Andrew Brunson.

“We have more that we’re planning to do if they don’t
release him quickly,” Mnuchin said during a White House cabinet
meeting on Thursday, according to reports from pool reporters. He
did not elaborate on what measures the US is willing to take if
Turkey continues to play hardball over Brunson.

Brunson, a pastor who is a long time resident in Turkey, is
alleged by the government to have links to the outlawed
Kurdistan Workers Party and the Gulenist movement, both of which
are accused of being involved in 2016’s failed coup against
Erdogan.

Washington has already placed a series of sanctions against
Turkey, including last week’s announcement of a doubling of
tariffs on metal imports into the US from Turkey. Those sanctions
caused great turmoil in financial markets, and contributed to the
huge slump seen by the Turkish lira in the last two weeks.

The lira’s collapse has plunged the entirety of the
emerging market space into chaos, with
contagion causing the likes of the South African rand, the
Argentine peso, and the Indonesian rupiah, to slump in
response.

Although the lira has started to recover this week, and is
now down only 10% from mid-last week, having at one point been
more than 30% lower. However, if Washington were to place further
sanctions on Turkey, it is highly likely that the lira would see
another slump, which would in turn exacerbate the problems with
Turkey’s fragile economy. 

Inflation in the state is at a 14-year high in Turkey,
at close to 16%, but the country’s central bank — which is under
the control of Erdogan — refuses to raise interest rates, a
simple mechanism for bringing down rampant inflation.

Turkey is also seemingly
on the brink of a major debt crisis, as a weakening lira
makes it harder for Ankara to pay its international dues.

Tilmann Kolb of UBS wrote in a note last week that Turkey
could be headed into “a full-fledged balance-of-payments
crisis.”

“At this point, we are not sure if the policymakers have a
detailed plan for coordination or disagree on the measures, or if
communication and implementation are being blocked at the highest
level,” Kolb wrote.

Further sanctions would likely make this an even more
likely outcome, and could cause an even greater spiral effect on
the state.

While Turkey’s economy is fairly unimportant globally, the
country itself holds an important strategic position as a buffer
zone between the West and the Middle East, and as such has

outsized influence in foreign policy circles. As such,
any economic crisis in the country could be a major threat to the
West.