Turkey’s Economic Tightrope: Balancing Act Between EU and US Trade
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Turkey’s remarkable economic integration into the global system, a decades-long achievement, now faces significant headwinds. Liberal market policies initiated in the early 1980s culminated in a customs union for industrial goods with the European union (EU) on December 31, 1995. This union propelled Turkey’s manufacturing sector, catapulting it into the top 20 global exporters when the EU is considered a single bloc. The alignment of trade regulations strengthened Turkey’s competitiveness within the EU single market.However,the global economic landscape has shifted,presenting a major challenge.
Foreign trade comprised 55.2% of Turkey’s GDP in 2023, a stark contrast to the approximately 50% for the EU and a mere 18.7% for the United States. The EU is Turkey’s largest export market, totaling almost €96 billion (about $100 billion) in 2023—considerably more than exports to China and Russia combined. The EU is by far Turkey’s largest export market,
highlighting the crucial nature of this relationship. Unlike the trade deficits with China and Russia, Turkey enjoys a more balanced trade relationship with the EU, suggesting strong economic complementarity. In contrast, American-Turkish trade, lacking a free trade agreement, has grown at a slower pace and is less diverse, despite the United States consistently being Turkey’s second-largest individual export market. As of November 2024, these exports stood at $16.4 billion within an overall annual trade volume exceeding $30 billion.
An Economy Driven by Trade
Turkey’s economic success is intrinsically linked to its trade relationships. The EU’s fifth-largest trading partner, Turkey exchanged €206 billion (about $215 billion) worth of goods with the EU in 2023.This close industrial integration is particularly crucial as the EU seeks to near-shore its supply chains for greater security and efficiency. the Draghi report highlighted Europe’s declining competitive power, and Turkey offers EU businesses easier access to Middle Eastern and African markets. A rules-based trade and investment relationship would benefit both sides in these volatile times.
Trump 2.0 and Turkey’s Trade Policy
The Trump administration’s protectionist policies substantially impacted Turkish-American trade. Despite the reported “bromance”
between Trump and Turkish President Recep Tayyip Erdoğan, tensions arose.Trump imposed 25% tariffs on Turkish iron and steel imports in 2018, later doubling them to 50%. According to data from the U.S. International Trade Commission, this resulted in approximately a 23% drop in Turkish exports to the United States by 2023, significantly impacting Turkey’s position as a steel supplier.turkey retaliated with tariffs on various U.S. goods, leading to a significant decrease in U.S.exports to Turkey. These measures were not driven by trade concerns but rather by the detention of an American pastor in Turkey.
Further complicating matters, the United States imposed additional sanctions on Turkey in 2019, targeting its defense and energy sectors, following Turkish military operations in Syria.Turkey was also excluded from the U.S. Generalized System of Preferences,resulting in a loss of nearly $2 billion in exports. Given trump’s past actions and ongoing disagreements between the United States and Turkey, particularly regarding Syria and Israel, smooth economic relations seem unlikely. There are already indications that Trump might impose further sanctions unless Erdoğan adopts a more cooperative foreign policy.
While some in Turkey expect Erdoğan and Trump’s relationship to lead to lower tariffs and increased exports, this optimism must be tempered by realism. Trump’s previous policies and disregard for the rules-based trading order necessitate a hedging strategy. deepening economic relations and modernizing the customs union with the EU offers a more predictable and stable path.
A Transformed Economic Landscape
The global trading order has become increasingly fragmented since Trump’s first term, defying hopes for a return to a rules-based system. Multilateral agreements on trade, climate, and global health are weakening amidst rising geopolitical tensions. Competition over new technologies, such as green conversion and artificial intelligence, is intensifying. China’s export controls on critical minerals and the United States’ restrictions on investments and exports to China exemplify this trend. The EU, facing declining competitive power, is also resorting to protective trade measures.This complex habitat presents significant challenges for developing economies like Turkey.
Westward, One Step at a Time
Recalibrating Turkey’s international trade policy is crucial, but this requires economic rationality, pragmatism, and adaptability.Despite narratives suggesting a shift away from the West, Turkey and Europe remain economically interdependent. The customs union serves as the foundation of this interdependence, but modernization is necessary to encompass services, agriculture, and improved dispute settlement. According to the World Bank and an EU impact study, modernization would significantly benefit both sides, perhaps increasing Turkish GDP by 1.84%. Turkey’s High Tech Investment Program (HIT-30), with planned investments of around $30 billion, could contribute to these goals.
While the European Commission proposed modernizing the customs union in 2016,rising authoritarianism in Turkey and strained relations led to a halt in 2018. Though, recent developments, including competitive elections in Turkey, a more pragmatic foreign policy, and geopolitical factors, have rekindled interest. The European Community-Turkey association Council resumed activities in November 2023,and a high-level dialog on trade and customs union modernization took place in July 2024.Despite challenges, including Turkey’s need to strengthen its commitment to democracy and the rule of law, a positive climate has emerged. Both the EU and Turkey share a mutual interest in boosting economic integration, and a modernized customs union offers a path to long-term prosperity.
Turkey’s Economic Tightrope: Navigating Trade Relations with the EU and US
Is Turkey’s economic success tied too its strategic balancing act between the European Union and the United States?
Editor: Considering Turkey’s economic reliance on its trade relationships, notably following decades of integration with global markets, could you share your outlook on Turkey’s current economic tightrope between the EU and the US?
Expert: Turkey’s economic tapestry is intricately woven with threads extending into both the European and American markets. Since the 1980s, Turkey has pursued liberal market policies, resulting in a customs union with the EU. This strategic alignment has substantially bolstered Turkey’s manufacturing sector, embedding it firmly within the global economic fabric as one of the top exporters, particularly when the EU is considered as a single economic entity. though, the scales have tipped recently due to shifting global trade dynamics, which spotlight Turkey’s strategic challenge in harmonizing its economic ties with both Europe and the United States.
Editor: Considering that the EU is Turkey’s predominant export market, highlighting its economic complementarity, how crucial is the modernization of the Turkey-EU customs union, and what benefits could it bring to both parties?
Expert: The modernization of the Turkey-EU customs union is not just a strategic move but a necessary evolution for sustained mutual benefits. This union, pivotal as 1995, now demands an update to include services and agriculture, alongside more robust dispute settlement mechanisms. Reflecting on recent analyses by the World Bank and EU impact studies, a modernized customs union could substantially boost Turkey’s GDP, perhaps by up to 1.84%. Furthermore, Turkey’s High Tech Investment Program, earmarking $30 billion, aligns perfectly with the EU’s ambitions to near-shore supply chains, offering EU businesses strategic access to Middle Eastern and African markets.
- Key Benefits:
– Increased GDP: Predicted rise by around 1.84%.
– Enhanced Access: European access to emerging markets.
– Investment Incentives: Alignment with Turkey’s High Tech Investment Program.
Editor: The relationship between Turkey and the US has been markedly affected by protectionist policies under the Trump management. What long-term impacts might these tensions have on Turkey’s trade policies, and how is Turkey adapting?
Expert: The oscillation in US-Turkey relations, particularly under protectionist policies, has indeed left its mark. The imposition of tariffs on Turkish steel by the Trump administration and subsequent US sanctions have underscored the volatility of bilateral trade dynamics. Turkey’s response has involved diversifying its trade relations,thus reducing over-reliance on the US market. This diversification strategy serves as a hedge against the unpredictability of political conflicts influencing economic affairs. In the long term,Turkey is keenly aware that reinforcing its economic relations with the EU provides a more stable and predictable path,essential for its economic growth and security.
Editor: as geopolitical tensions escalate and the global trade order becomes increasingly fragmented,how should Turkey recalibrate its international trade policy to ensure sustained economic resilience?
Expert: Turkey finds itself at a geopolitical crossroads,where recalibrating its trade policy is vital for economic stability. This recalibration necessitates pragmatism and adaptability,effectively leveraging its economic interdependence with Europe while exploring new markets. Emphasizing modernization and diversification within its trade portfolio will be crucial. Despite evolving global challenges, Turkey’s focus on strengthening its customs union with the EU, coupled with pragmatic foreign policy adjustments, can anchor its economic trajectory, paving the way for enduring prosperity amid geopolitical flux.
Final thoughts:
As Turkey navigates its complex economic landscape,the strategic balance between its EU and US trade relationships will determine its global economic positioning. for ongoing insights into these economic dynamics, follow world-today-news.com on our social media channels and join the conversation in our comments section. We look forward to hearing your perspectives on Turkey’s economic journey and its implications for the global market.
