This spat coincides with growing trade tensions between Ankara and Washington. The US is now reviewing Turkey’s duty-free access to US markets via the Generalized System of Preferences programme, pushing the Turkish lira to a new low. Turkey also fielded retaliatory tariffs following the import taxes announced by the US in recent months. In an attempt to up the pressure on Ankara, the US doubled tariffs on Turkish steel and aluminium in August. Trump announced the tariffs in a tweet, adding that bilateral relations are ‘not good at this time’.
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In late July, Turkey’s central bank refused to raise interest rates, despite pressure from the international community to do so to alleviate rising inflation. Prior to the election, Erdoğan repeatedly promised to take over greater control of central bank policy, so the failure to raise rates sparked fears that Erdoğan was following through on this promise. He has called interest rates the “mother and father of all evil”. The Turkish lira promptly lost 3% off the dollar, a reaction from the markets similar to the one they had when his re-election was announced. The Turkish economy is dependent on foreign investors and moves such as this one, which may hold a certain domestic nationalist appeal, are driving away foreign money and sparking fears for the future health of the Turkish economy.
As painful as Zarrab’s testimony must have been for some in Ankara, the revelations seem to have done little to rock the foundations of the current Turkish government, and Erdogan’s hold on power looks secure. However, the case comes amid the worst deterioration of US-Turkish relations for decades, and its fallout is unlikely to be over.