Can Turkey and the U.S. achieve $100 billion in bilateral trade?

by on 22 September 2019

President Recep Tayyip Erdoğan plans to meet his American counterpart President Donald Trump on the sidelines of the UN General Assembly this week in New York.

The presidents will likely address Turkey’s controversial purchase of Russian S-400 missile systems. Also on the agenda will be the ambitious $100 billion bilateral trade volume goal that was the focus of U.S. Secretary of Commerce Wilbur Ross’s 5-day visit to Turkey earlier this month.

Currently, however, “Turkish-American trade is around $20 billion excluding services. It is hard to see how this number can be increased fivefold in a short period of time,” Henri Barkey, an adjunct senior fellow at the Council on Foreign Relations, told Ahval.

“Our focus,” Secretary Ross said while in Turkey, “is trying to have immediate deliverables that are tangible, concrete, and substantial first steps which, subject to approval by our President and President Erdoğan, could be announced in connection with the UN in New York around the 25th of September.”

The pledge comes amidst a period of economic difficulty for Turkey, as investors worry about the potential for new U.S. sanctions related to the purchase of Russian S-400 missile systems, last years currency crisis, and domestic political uncertainty. A Reuters poll of economists in August predicts a longer recession for Turkey.

After a decade of strong economic growth, the Organisation for Economic Cooperation and Development (OECD) projected the Turkish economy to contract 0.3% in 2019 in its September Interim Economic Outlook (IEO) report. This was an improvement from the OECD’s May IEO report, which projected a 2.6% contraction of the Turkish economy in 2019.

GDP growth was stronger in the first half of 2019 than expected, in part due to temporary fiscal spending measures, but “investment continues to contract and credit growth is still weak.” President Erdoğan’s meeting with President Trump offers an opportunity to achieve positive developments on their bilateral trade goal, which could boost flagging investor confidence.

Secretary Ross acknowledged the significant discrepancy between current trade and the $100 billion target at a reception hosted by the Union of Chambers and Commodity Exchanges (TOBB) in Ankara. In his remarks, he said, “While $100 billion sounds like a lot, this total would constitute only 1.8 percent of the $5.63 trillion of U.S. imports and exports of goods and services.”

Increasing exports to the U.S. would be a greater challenge for Turkey, which also faces worrisome trade relations with the European Union (EU) and the U.K., its second-largest export destination. In 2017, Turkey’s exports to the U.S. were only 5.3% of its total export volume of $166 billion. Europe remains a much larger export destination for Turkey, where it sent $92.5 billion of goods in 2017.

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Turkey’s Customs Union with the EU facilitates the flow of industrial goods, but is otherwise limited in scope and affords Turkey no voice in EU trade policy, including the EU’s Brexit negotiations. The EU and Turkey recognize the value of upgrading the Customs Union, but talks are stalled by bilateral disputes between Turkey and EU member countries.

Of more immediate concern is the looming hard Brexit. If the U.K. pulls out of the EU without a replacement trade deal, Turkey stands to be the most severely impacted country, losing $2.4 billion in exports per year according to UN Trade and Development research.

The complicated web of trade problems Turkey faces means any progress in Turkey-U.S. trade development could be critical for Turkey’s economic recovery.

Turkey’s Minister of Trade, Ruhsar Pekcan, used her meeting with Secretary Ross on Sep. 10 to reiterate bilateral issues Turkey sees as obstacles to Turkey-U.S. trade, including steel tariffs and the Trump administration’s decision to remove Turkey’s designation under the Generalized System of Preferences (GSP), which offers developing countries reductions of some U.S. tariffs.

President Erdoğan wants more than just patchwork tariff reductions. On Sep. 10 he said, “We have put the free trade agreement talks with my friend Trump, on the agenda.”

Secretary Ross tempered expectations of free trade negotiations in an interview with CNN Türk. He said, “the question is whether we can make progress on other issues that legitimize a free trade agreement.” But he also made clear, “It is a little early to talk about a free trade arrangement.”

“A free trade agreement is unlikely to receive a positive response from the Trump administration that has proven to err on the side of protectionism except when the US is likely to benefit,” Barkey told Ahval.

“Erdogan is probably aiming for a political rapprochement at a time when relations have been strained because of the S-400s,” Barkey said. Even if President Trump were open to a free trade agreement, “[The U.S.] Congress is not in the mood to sign off on a trade agreement with Turkey given this crisis and Turkish human rights violations.”

The meeting between President Erdoğan and President Trump in New York may indicate just how seriously the two countries can be expected to take “tangible, concrete, and substantial first steps” to advance bilateral trade.

Ian J. Lynch – ahvalnews.com