US-Turkey Trade Relations: Shaping the Future Together
By: Ipek Ariogul, THO Non-Resident Fellow
2018 was not the best year for Turkish-American relations. The visa crisis in 2017 was followed by the conviction of the executive of Turkey’s state bank Halkbank in New York. The tension escalated further with Pastor Brunson’s continued detention in Turkey and Turkey-Russia rapprochement. Trump administration doubled tariffs on steel imports from Turkey in the summer of 2018. Finally, the US sanctions against Iranian oil and gas will go into effect on 4 November. It’s worrying for Turkey as it’s highly dependent on external energy sources and Iran is a key supplier.
One can look at all these challenges and say that (and some do), Turkey and the US are no longer friends or allies. However, one who has a historical knowledge or over a certain age would know that the two countries have gone through many difficult times and conflicts in the past but have always found a way to stabilise the relationship even if they couldn’t reach a concrete solution for each and every problem. For different reasons, Turkey and US need each other. Stability in the region asks for strong US-Turkey ties built on mutual understanding. Leaving the geopolitical dimension of bilateral relations to the experts, let me briefly summarize the trade ties between these two major G20 countries which will most likely remain as significant global actors in the 21st century.
A historical look always gives a better understanding of international matters, political or economic, and Turkish-American relations is no exception. Although diplomatic relations dates back to 1831, bilateral relations advanced significantly following the Truman Doctrine in 1947. America became a key strategic and trade partner for Turkey.
1950s in Turkey was marked with the first liberalization and market economy efforts along with American and European technical help and implementation of major infrastructure projects. For the first time in their lives, well-off Turkish families met with American brands such as Hoover vacuum cleaner or Westinghouse fridge through popular commercials in the magazines. In 1959, American Ford Company founded its first assembly factory in Turkey through a partnership with Koc (Turkey’s one of the oldest and largest conglomerates). At the time, the image of best machinery, cars or home appliances, was either German or American and this image still exists in the minds of millions today.
The 60s and 70s were the years of “planned economy’ during which Turkey was oriented inwards and adopted an economic model based on industrialization and protectionism. These were also the years when one of the oldest American brands Coca-Cola entered the Turkish market. Coca-Cola’s commercial slogan in 1964 was: “the world famous Coca-Cola is now in our country”. However, it wasn’t until the 1980s when many others discovered the Turkish market.
Like in the US, the 80s were marked with strong market economy and liberalization efforts. With the convertibility of the Turkish lira and various reforms, imports and FDI from the West increased. Many American consumer brands including McDonalds, Johnson & Johnson and Colgate-Palmolive entered Turkey. It became popular among Turkish teens to hang-out with friends at McDonald’s or Pizza Hut.
American investments in Turkey and bilateral trade continued to flourish in the next two decades. In 2000s, relations prospered further during the single-party government and ample global liquidity environment which brought stability to Turkey following coalition governments, domestic financial crisis in 2001 and restructuring of the banking sector. While Germany has remained as Turkey’s largest export and bilateral trade partner and Turkey still runs a trade deficit with the US, the striking fact is that the US has rapidly become a more important export market for Turkey. The difference between Turkey’s exports to Germany and the US has narrowed significantly and Turkey’s exports to the US doubled in the 2008–2017 period.
Let’s speak through the numbers. US is now Turkey’s 5th largest export and 4th largest import market. Turkey, on the other hand, is the US’ 28th largest export and 34thlargest import market. Turkey’s exports to the US have increased dramatically by 30% and reached $8.6bn while imports from the US also increased by 10%. In January-August 2018 period, exports to the US fell by about 8%, mainly due to strained relations and sanctions, but imports continued to rise by another 5%. Looking at the main trade items, Turkey exports vehicles, iron & steel, machinery, carpets, textile and stones to the US. The US mainly exports aircraft, iron & steel, mineral fuels, machinery, cotton, tree nuts, grains and soybeans.
Foreign direct investment (FDI) has also grown steadily parallel to bilateral trade. In 2017, Turkey attracted $171m FDI from the U.S. (2% share in Turkey’s total FDI). In the last five years, cumulative FDI from the U.S. was $2.8bn, making US the 4th largest FDI source for Turkey following the Netherlands, Germany and the UK. In the last 15 years, US has been the largest FDI source for Turkey following the Netherlands. According to Turkish Central Bank figures, Turkey’s FDI in the US was about $750m in 2017, the highest among Turkey’s FDI in other countries.
Let’s take a closer look at trade in two sectors which have seen a significant surge in the last decade: Defence and natural stones. Turkey aims to improve its manufacturing capabilities and develop a self-sufficient national defence by 2023, the centennial of the Turkish Republic. Technology transfer and R&D are the ways to achieve this goal and it offers significant opportunities for U.S. companies. As of 2017, Turkey’s total defense exports reached $1.8bn, US being the number one market constituting 34% share in Turkey’s total exports. Total defense imports reached $1.4bn in the same year, US companies receiving 35% of the market share.
Natural stones (marble, granite and travertine) is another sector with huge trade potential for two countries. Only in the first five months of 2018, Turkey’s total exports in natural stones reached about $800m and the US has become Turkey’s largest market following China. More and more American buildings are built or decorated with the stones of Turkey which owns 40% of the world’s natural stone reserves and offers a good price/quality ratio.
Despite challenges, Turkey’s economy is in a better shape than the world average as Turkish officials noted during the roundtable discussion hosted by the Turkish Heritage Organization (THO) on 24 September in New York. Turkey will continue to offer significant business opportunities to the US with its large consumer base, entrepreneurial spirit, geographic location and appetite to prosper. Both countries are keen to reach the highest trade potential in many sectors including defense, IT, consulting, energy, finance, agribusiness and health. Commercial ties would deepen and broaden significantly if they keep a long-term vision based on mutual interests.