Talking Turkey and Taking Stock

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Washington, DC – This week’s title and topic are just too easy. Indeed, Scott and I used the first half of it last week for our Trade Guys podcast. The case of Turkey does, however, demand a bit more attention than Scott and I gave it. This column will look at it primarily from a trade and geopolitical perspective. My CSIS colleague at the Simon Chair, Stephanie Segal, has approached the problem more broadly with her piece, “Turkey Risks Escalate: What it Might Mean for Other Emerging Markets.”

The first thing to remember is that our president did not cause the current Turkish economic crisis, although he has unquestionably been an aggravating factor. The real causes appear to be excessive borrowing in dollars, poor management of the economy, and confidence-destroying measures like Erdogan making his son-in-law finance minister. We’ve seen this movie before, or at least part of it, in Mexico in the early 90s and Thailand in the late 90s, to mention two, and it doesn’t end happily. The imbroglio over the U.S. pastor has made things worse, but this train was veering off the tracks before that.

The US tariffs and Turkish retaliation, however, do contain some useful lessons. Once again our president has discovered that national leaders are harder to bully than competing New York real estate developers. Important issues like national pride and domestic political survival complicate the negotiating process. By making the dispute public and by raising the stakes, Trump has simultaneously put Erdogan in a position where he cannot accede to our demands without political cost at home and given him an excuse to blame Turkey’s economic problems on the United States rather than his own bad policies. Usually problems like diplomatic hostage-taking, which is what this is, are solved by quiet back room diplomacy that produces a face-saving outcome for both sides. That appears to have been tried in this case, and it may well have been Turkey who backed out of a deal. But Trump has now shut the door to that option, and by publicly taking on someone even more intemperate than he is, he risks turning a small problem into a much larger one that could ultimately affect overall US-Turkish relations and NATO stability by pushing Turkey closer to the Russians. Once again Putin gets a present from the U.S. president, and there is no off-ramp in sight.

This episode also must be added to the pile of unfinished trade projects that proves “winning” is not as easy as the president says. The only agreement we have actually completed is with Korea, which is now in doubt because of the threat of auto tariffs. The Koreans not unreasonably think that having made one bunch of concessions, including on cars, it is at the very least bad form to punish them anyway.

Meanwhile, negotiations on NAFTA may or may not be lurching toward a conclusion one full year after they started. Even if an agreement on autos is reached, which seems to be possible, it is hard to see something ready for signing by the end of August, which is the Mexicans’ preferred target date so that their outgoing president can sign it before he leaves office.

The China negotiations are in worse shape, with tariffs and threats of tariffs escalating and threatening major damage to our overall economic relationship and, again, with no apparent exit ramp. A Chinese delegation will visit this week, but it appears that the discussions will be about having more discussions rather than about our substantive differences. That makes it more likely than not that further tariffs will go into effect and further Chinese retaliation will follow.

Talks with the European Union are beginning, but it is hard to see any short-term agreement. The issues to be discussed have for the most part been on the table for years and are not capable of easy resolution. The overhanging threat of auto tariffs, which the president no doubt believes brought the European Union to the table, also makes the negotiations more difficult due to the oft-stated European reluctance to negotiate “with a gun to their heads.”

Meanwhile, discussions with Japan, like most discussions with Japan when they don’t want to do something, continue to go in circles with polite statements about progress with no tangible outcomes. We have seen this movie before, too. In addition, the frequently promised bilateral negotiations with somebody, anybody, have yet to materialize.

On its face, the nicest grade one could give the president’s trade program after 18 months is an incomplete. However, if you factor in the collateral damage the threats, tariffs, and retaliation from other countries have caused our farmers and manufacturers, the only possible grade is an “F.” Bottom line: “winning” is turning out to be a lot harder than the president thinks, but, sadly, producing more losers turns out to be easy. Our fight with Turkey is only the most recent example of both.

© 2018 by the Center for Strategic and International Studies. All rights reserved.
William Reinsch
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William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) and is a senior adviser at Kelley, Drye & Warren LLP. Previously, he served for 15 years as president of the National Foreign Trade Council, where he led efforts in favor of open markets, in support of the Export-Import Bank and Overseas Private Investment Corporation, against unilateral sanctions, and in support of sound international tax policy, among many issues. From 2001 to 2016, he concurrently served as a member of the US-China Economic and Security Review Commission. He is also an adjunct assistant professor at the University of Maryland School of Public Policy, teaching courses in globalization, trade policy, and politics.

Reinsch also served as the under secretary of commerce for export administration during the Clinton administration. Prior to that, he spent 20 years on Capitol Hill, most of them as senior legislative assistant to the late Senator John Heinz (R-PA) and subsequently to Senator John D. Rockefeller IV (D-WV). He holds a B.A. and an M.A. in international relations from the Johns Hopkins University and the Johns Hopkins School of Advanced International Studies respectively.

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