A financial shockwave has ripped through Turkey, when its currency nosedived on concerns about its economic policies and a dispute with the US, which President Donald Trump stoked further with a promise to double tariffs on the NATO ally.
The lira tumbled 14 per cent in one day, to 6.51 per US dollar, a massive move for a currency that will make the Turkish poorer and further erode international investors' confidence in the country.
The currency's drop - 41 per cent so far this year - is a gauge of fear over a country coming to terms with years of high debt, international concern over President Recep Tayyip Erdogan's push to amass power, and a souring in relations with allies like the US.
The diplomatic dispute with the US was one of the triggers that turned market jitters into a full-blown route this week.
Turkey has arrested an American pastor and put him on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago. The US responded by slapping sanctions on Turkey and threatening more.
The sides held talks in Washington this week but failed to resolve the spat, and Trump took advantage of Turkey's turmoil on Friday to turn the screws on the country.
Trump tweeted that he had authorised the doubling of steel and aluminium tariffs "with respect to Turkey."
Trump said the tariffs on aluminium imports would be increased to 20 per cent and those on steel to 50 per cent as the Turkish lira "slides rapidly downward against our very strong Dollar!"
"Our relations with Turkey are not good at this time!" he wrote.
Trump made the 50 per cent steel tariff official with a presidential proclamation Friday evening.
The United States is the biggest destination for Turkish steel exports with 11 per cent of the Turkish export volume. The lira fell further after Trump's tweet.
Turkey's woes have been aggravated by investor worries about the economic policies of Erdogan, who won a new term in office in June with sweeping new powers.
Erdogan has been putting pressure on the central bank to not raise interest rates in order to keep fueling economic growth. He claims higher rates lead to higher inflation - the opposite of what standard economic theory says.
Independent analysts argue the central bank should instead raise rates to tame inflation and support the currency.
Erdogan on Friday appealed for calm and called on people to change foreign money into local lira.
"Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks. This is a domestic and national struggle."
He appeared to blame foreigners for trying to hurt Turkey, saying: "This will be my people's response against those waging an economic war against us."
The currency drop is particularly painful for Turkey because the country finances a lot of its economic growth with foreign money. As the currency drops, Turkish companies and households with debt in foreign currencies see the cost of repaying those loans expand.
Coupled with an inflation rate of nearly 16 per cent, that could cause severe damage to the local economy.
Foreign investors could be spooked and try to pull their money out, reinforcing the currency drop and potentially leading to financial instability.
Analysts say that while there may be losses at some banks, Turkey's economic problems do not pose a big threat to Europe or other big economies like the United States.
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