August 28, 2018
U.S.-Turkey Trade Relations
U.S.-Turkey trade relations have been historically less
textiles, iron and steel bars and rods, airplane parts, and
prominent than the political and security aspects of the
precious metals jewelry). This resulted in a surplus of $0.3
relationship. However, Congress is monitoring bilateral
billion, smaller than prior years as U.S. imports have grown
trade more, particularly as tit-for-tat escalation of tariffs has
relative to exports. The trading relationship is more
intensified in recent weeks amid foreign policy tensions.
consequential for Turkey; the United States was its fifth
Turkey, a NATO ally and emerging market straddling
largest export market and source of imports (around 5% of
Europe and the Middle East, boasts an economy with high
both). The EU, overall, is Turkey’s leading trading partner,
growth rates in recent years, an expanding consumer base,
representing 48% of its exports and 37% of its imports.
and links to the European Union (EU) market, which offer
potential for U.S. trade and investment. Yet, bilateral trade
Figure 1. U.S. Merchandise Trade with Turkey
ties are relatively weak overall and their further expansion
depends on a number of economic and political factors.
Turkey’s Economy
At $851 billion in gross domestic product (GDP, current
dollars), Turkey was the world’s 17th largest economy in
2017. It is smaller than other major emerging markets such
as India, which is triple in GDP. Since a financial crisis in
the early 2000s, Turkey’s economy largely rebounded due
to actions taken by the government to make market-oriented
reforms, improve rule of law in commercial markets, and
invest in infrastructure. EU membership prospects helped
Source: CRS, data from U.S. International Trade Commission.
drive economic reforms, although Turkey’s EU bid is
Services. In 2016 (latest year available), U.S.-Turkey
mostly stalled currently.
services trade ($5 billion) was about a quarter of bilateral
Turkey’s economy, while growing over 7% in 2017, has
goods trade. U.S. services exports were $3.1 billion and
faced an expanding current account deficit, heavy exposure
imports were $1.9 billion, resulting in a trade surplus of
to foreign capital flows, and high inflation rates. Under
over $1 billion. Travel (e.g., for education or business) was
President Recep Tayyip Erdogan’s policies, Turkey is in a
the top traded service. Charges for Turkish use of U.S.
currency crisis that could erode investor confidence.
intellectual property rights (IPR) also was a top U.S. export.
Turkey’s annual trade equals about half of its GDP. Turkey
Foreign Direct Investment (FDI). Turkey accounts for
has reduced its trade barriers since 1995, following its
less than 0.1% of U.S. outbound FDI, but some 1,400 U.S.
accession to the World Trade Organization (WTO) and
firms are active in Turkey, including more than 60 that have
conclusion of a Customs Union with the EU, which allows
established regional headquarters. U.S. majority-owned
free movement of goods between Turkey and the EU
multinational firms in Turkey had 51,000 employees in
(excluding agriculture, coal, and steel). Turkey has a well-
2016. Turkey also is a regional export base. It was the ninth
diversified export base, but relies heavily on energy
fastest-growing source of U.S. inbound FDI in 2017.
imports. Turkish firms are typically toward the end of
Key Trade Issues
global supply chains, manufacturing most end-use products
of high-value and sourcing intermediate inputs elsewhere.
Tit-for-Tat Tariff Escalation
One exception is the auto industry, which supplies
components to major global auto manufacturers.
The Trump Administration’s application of unilateral tariffs
has caused frictions in U.S.-Turkey trade relations. On June
Bilateral Trade and Investment Ties
1, 2018, the United States began applying 25% steel and
Merchandise. Turkey is a small but growing U.S. trading
10% aluminum tariffs under Section 232 of the Trade
partner. In 2017, two-way merchandise trade (exports plus
Expansion Act of 1962, after an investigation found that
imports) totaled $19.2 billion, more than double their 2005
these imports threatened to impair national security. The
level but less than 1% of U.S. global merchandise trade
tariff increases apply to all countries, but Turkey did not
(Figure 1). U.S. exports to Turkey totaled $9.7 billion (led
receive an initial exception like some trading partners, nor
by civilian aircraft, engines, and parts; waste and scrap
negotiate an alternative quota arrangement.
metals; cotton; coal; and petroleum coke), making Turkey
Turkey, the world’s ninth-largest steel exporter in 2017, is
the 28th largest U.S. export market. In 2017, Turkey was the
one of the countries hardest hit by the tariffs. In 2017, it
34th largest source of U.S. imports, supplying $9.4 billion in
supplied the United States $1.2 billion in steel (4.1% of
merchandise (led by passenger autos, carpets and other
steel imports) and $13.6 million in aluminum (0.1% of such
https://crsreports.congress.gov
U.S.-Turkey Trade Relations
U.S. imports). Turkey retaliated with tariffs (effective June
political issues make those prospects uncertain. If pursued,
21, 2018) ranging from 5% to 40% on $1.8 billion of
renegotiation could examine the scope of the Custom
imports from the United States, including foodstuffs, paper,
Union, such as whether to expand to services and other
plastic, structural steel, machinery, and vehicles. In the
sectors. The Custom Union’s impact on Turkey’s external
WTO, Turkey joined the EU’s challenge against the U.S.
trade also is a potential issue, particularly as the EU
tariff increases, while the United States is challenging the
negotiates trade agreements with larger economies. This
retaliatory action by Turkey and some other countries.
issue arises because, as a Customs Union member, Turkey
adopted the EU common external tariff for non-EU
The U.S. tariff dispute with Turkey has evolved in distinct
countries, and must open its market to EU trade agreement
ways. On August 10, 2018, President Trump signed a
partners on the terms negotiated by the EU—without any
proclamation doubling steel tariffs against Turkey to 50%,
guarantee of reciprocal access to those countries’ markets.
on the grounds that imports had not declined as much as
anticipated and U.S. capacity utilization had not increased
For example, Turkey previously sought to negotiate a free
to the target level. However, some analysts argue that the
trade agreement (FTA) with the United States, prompted by
new steel tariff increase appears to be at least partly
concerns at the time about the possible economic impact of
connected with Turkey’s continued prosecution of a U.S.
U.S.-EU FTA negotiations (Transatlantic Trade and
pastor whose release President Trump had demanded. Prior
Investment Partnership, T-TIP) under the Obama
to the proclamation, also on August 10, 2018, the President
Administration. Instead, the United States and Turkey took
tweeted that he had authorized a doubling of both steel and
another approach to address concerns (Table 1). Under
aluminum tariffs to 50% and 20%, respectively, and made a
President Trump, this issue could resurface with the
reference to Turkey’s depreciating currency. Since the
proposed new U.S.-EU trade negotiations announced in
announcement, Turkey’s currency has depreciated further.
July 2018, and also as a way to address the increasing U.S.-
Turkey trade tensions from recent tariff increases.
While no additional aluminum tariffs have entered into
effect, the President’s earlier statement has factored in
Table 1. Select Past U.S.-Turkey Trade Engagement
Turkey’s response. In its own complaint, Turkey is
1990
Bilateral Investment Treaty (BIT) entered in force,
challenging the United States in the WTO for doubling both
providing investor protections enforceable through
steel and aluminum tariffs. Turkey also has retaliated again
investor-state arbitration.
by modifying tariffs on the U.S. imports it previously
targeted to rates ranging from 4% to 140%.
1999
Signed a Trade and Investment Framework
Agreement (TIFA) to engage on a range of issues.
The tariff dispute has extended to other aspects of U.S.
2009
Agreed to “elevate” bilateral economic relations to
trade policy. Prompted by Turkey’s original retaliatory
level of “political-military ties” and launch a strategic
tariffs, the U.S. Trade Representative (USTR) launched a
framework of economic and commercial cooperation.
review of the country’s eligibility under the Generalized
2013
Established bilateral high-level committee to explore
System of Preferences (GSP) on August 3, 2018. GSP
how T-TIP negotiations might affect Turkey and ways
unilaterally gives duty-free tariff treatment to certain U.S.
to liberalize U.S.-Turkish trade and investment.
imports from eligible developing countries. Whether a
2017
Revived TIFA to discuss issues such as digital
country provides “reasonable and equitable market access”
economy, IPR, and market access.
is an eligibility criterion. In 2017, GSP imports (e.g., such
as jewelry and auto parts) were 17% of U.S. imports from
Congressional Outlook
Turkey, the fifth largest GSP user by import amount.
Congress could examine the costs and benefits of
addressing U.S.-Turkey differences through tariff
Other Trade Issues
escalations. Depending on the assessment, some Members
For Turkey, the United States is a generally open market;
could seek to reinforce the Administration’s approach,
more than 70% of Turkish imports enter duty-free. U.S.
while other Members could apply pressure on the
firms, meanwhile face numerous challenges doing business
Administration to encourage alternative approaches, such as
in Turkey. The USTR’s 2018 foreign trade barriers report
a negotiated resolution to the current trade frictions.
identifies issues such as Turkey’s:
Congress also could examine if the Administration is using
bureaucracy and weakening rule of law;
tariffs as a sanction against Turkey and implications for
“forced” localization barriers to trade, such as requiring
U.S. trade policy and related international trading system.
pharmaceutical production and storage of Turkish
This could prompt legislative debate over modifying the
citizens’ personal data within Turkey
President’s delegated authority
;
under Section 232. In
addition, U.S.-Turkey trade relations present longer-term
high average agricultural tariffs (43.1%, versus 5.3% by
issues of how potential renegotiation of the Turkey-EU
the United States) and hikes on tariffs in multiple
Customs Union and the proposed U.S.-EU trade
sectors, which are within WTO limits (high “bound”
negotiations could affect bilateral trade.
rates) but increase uncertainty for U.S. exporters; and
inadequate IPR regime, including Turkey’s role as a
For more information, see CRS Report R41368, Turkey:
source of and transshipment point for counterfeit goods.
Background and U.S. Relations, by Jim Zanotti and Clayton
Thomas; and CRS In Focus IF10957, Turkey’s Currency
Turkey-EU Trade Relationship
Crisis, by Rebecca M. Nelson.
Turkey’s trade ties with the EU, a key U.S. trading partner,
could affect U.S. trade. Turkey and the EU have voiced
interest in renegotiating their Customs Union, but Turkish
https://crsreports.congress.gov
U.S.-Turkey Trade Relations
Shayerah Ilias Akhtar, Specialist in International Trade
and Finance
IF10961
Disclaimer
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