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Minyanville.com

US Missing Huge Opportunity by Not Opening Up Trade With Turkey

Free trade would mean lower prices on goods here in the US, better opportunities for American companies, as well as increased employment.

Joshua Newell and Anthony Randazzo
March 11, 2011

Something was missing from Francisco Sanchez’s speech on boosting trade with the Middle East last month. Obama’s Trade Czar highlighted the UAE, Saudi Arabia, and Qatar as excellent prospects for freeing up economic relations with the US, but for some reason the world’s 17th largest economy and biggest non-oil economic force in the Middle East was absent: Turkey.

As a leading emerging market in terms of stability, with a growing footprint in the financial world, the Republic of Turkey is not just a causal NATO ally. Nor is it just a member of Goldman’s “Next 11” investable equity markets. It is an economic power with massive potential for partnership with the United States.

Turkey’s economy has been growing strongly for the past decade, and the Turkish government has realized this, attempting to open up commercial relations with other countries to continue this growth at an ever-quickening rate. Turkey signed a free trade agreement (FTA) with Lebanon in November of 2010 and has numerous other FTA proposals pending, in addition to its participation in the European Customs Union. Even Iran recently announced it would seek to triple its trade volume with Turkey in 2011 and remove all barriers to trade.

The United States ignores economic partnership with Turkey at its own loss. While Turkish exports to the US have stagnated since 2001, Turkish exports to the EU, Middle East, North Africa, and the Balkans have all increased by threefold in the same period. These countries have realized the advantages of freer trade with Turkey and are currently reaping the benefits.

With persistent unemployment plaguing American households the gains of free trade with Turkey are pointedly sharp. Free trade means lower Turkish tariffs on exported American goods, especially American food and agricultural products (which are currently at about 18%). Some other tariff examples include motor vehicles (10%), tennis shoes (17%), and cotton (7%).

Getting rid of these taxes would lower prices and increase demand, allowing American companies to expand their business in the ever-growing Turkish consumer market. This would also make capital investments in Turkey more attractive, opening up a wealth of opportunities. Increased demand and sales for American companies would then lead to creating jobs and stimulating the economy in the process.

The benefits of free trade are not only better, less expensive products in Istanbul and Izmir, freer trade would lower (or eliminate) US tariffs on Turkish imports into the US. Some products such as Turkish clothing currently cost between 15% and 20% more because of import duties. These tariffs are laid on American consumers; taking them away would allow Americans to pay less on everything from wool coats (16% tariffs) and leather goods (6%) to pillows (5%) and baby clothes (9%).

Some have argued that lowering US tariffs would create more competition for American companies and hurt workers here. However, considering that Turkey is a world leader in the apparel and leather industries, countless American businesses would see their input costs lowered by removing the taxes on imports from Anatolia. This would make business more profitable (read: more money to expand and hire laborers) while potentially lowering costs for American consumers as well.

Plus, Turkish firms in the US hire American workers. Companies such as Sarar, a predominantly menswear store with locations across the country, and Goldas, a jewelry manufacturer headquartered in New York, are subject to these high import duties. Eliminating such duties would allow them to grow their business in the US, where they would hire more Americans and provide business for other American companies, such as equipment manufacturers or maintenance firms.

The US currently has FTAs with 17 countries. Close military allies (Israel), Muslim countries (Jordan), and emerging economies (Chile) are all represented. These pacts remove most tariffs and other technical trade barriers, but they also attempt to facilitate cooperation and education efforts, illustrating to businesses the opportunities that exist and cutting down on the costs of market research.

Opening up trade with a country who is being compared to rising economic powers such as Brazil and South Korea is a no-brainer for the United States, especially considering the aforementioned economic benefits of free trade. Now that the Obama administration has made the Middle Eastern economy a trade priority, there is little reason to not consider Turkey for an FTA. Other countries have realized the gains of increased trade with Turkey. If the government continues to dawdle on trade with Turkey, it will indeed miss this fantastic opportunity to provide a much needed shot in the arm to the American economy.


Joshua Newell is Trade Policy Intern

Anthony Randazzo is Director of Economic Research


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