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Is Trump's action against Turkey another example of the US seeking short-term gains at the expense of long-term influence?

17 August 2018

Since the time of President Theodore Roosevelt, US foreign policy has been to "speak softly and carry a big stick". Today, the approach is slightly different. 'Shout loudly and threaten' could potentially be a more accurate description. Whilst in the short-term this may achieve what appears to be a positive outcome, in the long run, it may result in the US having a declining influence in the world.

In the last ten days, we have seen the stability of the Turkish economy come under threat as US-Turkish relations deteriorated. Turkey is highly indebted and the Turkish Lira has been declining since the attempted coup and subsequent crack down on the opposition two years ago. When Trump put sanctions on officials to get a pastor released from custody, the currency decline became precipitous. Far from stepping in to help a NATO ally, he then hit them further with tariffs in steel and aluminium with the threat of more. Historically, diplomats would have been in a position to quietly resolve the situation, and a single citizen apparently caught up in a crackdown on the opposition would not have impacted the global financial markets. Today, the falls in the Turkish currency threaten their ability to repay their debt, which is largely held by European banks, causing ripples through the wider financial markets. 

The population of Turkey is 82 million; it is the 17th largest economy in the world; has the second largest number of military personnel in NATO and is home to large US military bases. It became a secular, democratic state when Ataturk came to power in 1923. However, recently President Erdogan has been promoting an Islamist agenda and has been taking more power to the presidency. Turkey straddles the entrance to the Black Sea between Europe in the West, the former Soviet Union countries to the North and strategically important borders with Syria, Iraq and Iran in the East. It seems extraordinary for the US to apply sanctions to a fellow NATO member at this time. If Turkey is pushed into a corner, the US will be hoping the "big stick" prevents Erdogan speeding up his Islamic reforms and does not drive them further from the West.  The European Union, Germany in particular, will not want to see Turkey collapse.  However, the help Turkey has received has come predominantly from the east rather than the west, with Qatar offering $15billion of investment and there have been rumours of talks with Russia.  Note that Qatar has ties with Iran and poor relations with Saudi Arabia, Bahrain and the UAE. In recent days, a combination of support from the outside and governmental action has resulted in the Turkish Lira recovering some of its losses and there are signs any contagion to other markets may be contained.

Trump's trade tariffs, aimed at reducing the deficit with China in particular, may also be unproductive. With the Chinese exporting over $500billion of goods to the USA and only importing in the region of $130billion, the US can apply tariffs much more heavily on China than they can on the US. So, when it comes to simple tariffs, the US has to be the winner. However, that is a huge simplification of the relationship. The Chinese have recycled much of their trade surplus into the US treasury market, funding US economic growth. Since President Trump started talking tariffs, the currency has fallen 10%. This counters the effects of the tariffs and threatens a deflationary impact elsewhere. Trump needs the Chinese to influence North Korea where he appears to have successfully lured the North Korean leader to the negotiating table but still no deal has been concluded. Next week, US-China trade talks will resume and in the end, I expect the Chinese will give some ground and Trump will claim victory. Meanwhile, Chinese global influence is growing through investment in the Third World and the One Belt One Road initiative in Asia. 

The fall of the Soviet Union and the Berlin Wall was, in the end, not brought about by military action but by the forces of economics. The post-Second World War Marshall Plan, whereby the US gave economic assistance to Europe, led to prosperity in the West while the East lagged behind under communism. The US economic influence spread through global trade and US companies benefited hugely from globalisation. Trump appears to be set on a course that will hamper if not reverse this process. To answer the initial question, it is fair to predict that the US is at risk of losing long-term influence for short-term economic gains.



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