Erdogan tells Turks to buy plunging lira as Trump turns the screws

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"Aluminum will now be 20% and Steel 50%", Trump said in a tweet.

The United States is the biggest destination for Turkish steel exports with 11% of the Turkish export volume. That is two times the level announced earlier this year in March.

One of the triggers of the turmoil has been a standoff with the US over detained American pastor Andrew Brunson. Trump wrote on Twitter.

The lira dropped by over 11 percent in value in one day on Friday morning to almost six lira per dollar. The currency has fallen 66 per cent since the start of the year, pushing up the cost of goods for Turkish people and shaking global investors' confidence in the country.

A Turkish man waits to change his US dollars with Turkish liras inside a currency exchange shop in Ankara, Aug. 10, 2018. The Turkish currency shed about 17% of its value in a single day.

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The collision results from inflexibility over two policies, the first being Erdogan's firm belief (against conventional economic theory) that high interest rates cause, rather than curb, inflation.

Those words will further alarm many investors, suggesting that Turkey will neither impose a conventional economic programme to protect its currency nor find a way to come to terms with the U.S. over a tangle of issues that have brought them to loggerheads - chiefly, the jailing of USA missionary Andrew Brunson on terrorism charges.

Secondly, Turkey has a huge problem with spiralling inflation, which now stands at 16pc year-on-year by official estimates even before the latest episode of Lira weakness.

His characteristic defiance has further unnerved investors.

Erdogan has been putting pressure on the central bank not to raise interest rates in an attempt to help borrowers.

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And it remains unclear if the bank would be willing to sharply lift rates, with analysts saying the nominally independent institution is under the influence of Erdogan, who wants low rates to keep growth humming.

Adding to Turkey's fiscal woes, new pension and spending increases announced by president Erdogan in the lead-up to his recent election win have further weakened the outlook for Turkey's public finances. "This will be my nation's response to those who have declared an economic war", Erdogan said during the rally.

"If there is anyone who has dollars, euros or gold under their pillows, they should go exchange it for liras at our banks", he said Friday. "You will not make money at the expense of Turkish people".

In his tweet about the new tariffs, Trump said "Our relations with Turkey are not good at this time!".

"One area we are more concerned about is contagion into the European market via the banking sector. Turkey has been trending towards authoritarianism & becoming more anti-American". Brunson is on trial and faces up to 35 years in prison if he is found guilty.

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On August 1 Washington announced sanctions against Turkey's justice and interior ministers, prohibiting U.S. entities and citizens from doing business with them, after threatening to impose "large sanctions" if Ankara failed to free Brunson. The White House dismisses the charges as baseless and has accused Ankara of hostage taking. And under Turkey's new executive presidential system, Erdogan pretty much calls all the shots. "Relations with countries who behave like this have reached a point beyond salvaging".