U.S.-Turkey Trade Relations

U.S.-Turkey Trade Relations

Updated November 9, 2022
U.S.-Turkey Trade Relations
Turkey is a NATO ally straddling Europe and the Middle
bid has stalled amid a number of complicated developments
East. With a large consumer class, skilled and youthful
in Turkish domestic matters and Turkey-EU relations.
labor force, and geostrategic location, Turkey has been
With 11.4% GDP growth in 2021, Turkey has been among
attractive to U.S. companies for business and investment.
the world’s fast-growing major economies, rebounding
Yet, U.S.-Turkish trade and investment ties are relatively
from economic fallout from the Coronavirus Disease 2019
weak overall, accounting for a fraction of U.S. international
(COVID-19) pandemic. Turkish domestic consumption and
trade and investment. Constraints to greater U.S.-Turkey
exports have been a driver of this growth. Yet, Turkey faces
economic activity may include a range of economic,
a number of economic challenges. Amid broad global
political, and geographical factors. U.S.-Turkey tensions,
concerns about rule of law in Turkey, Turkish President
including over Syria and various matters concerning Russia,
Recep Tayyip Erdogan has surprised markets by
may complicate efforts to expand trade ties. Given Turkey’s
undermining the central bank’s independence, leading the
economic and broader strategic significance, Members of
bank to repeatedly cut interest rates while the economy
Congress may continue to monitor U.S.-Turkish trade ties
faces high inflation. Officially topping 80% year-on-year in
and policy developments.
August 2022, inflation has reduced Turks’ purchasing
power, affected domestic and foreign investment in
“Due to the ongoing prominence of broader foreign
Turkey’s economy, and fueled domestic political discontent
policy issues in U.S.-Turkey engagement during 2021,
ahead of elections scheduled for 2023. Rising energy and
progress on economic matters was limited, though
other import costs are contributing to a widening current
both sides remained committed to furthering the goal
account deficit. Turkey’s currency, the lira, has faced a
of boosting two-way trade.”—Of ice of the U.S. Trade
series of crises since 2018, and is under further pressure
Representative (USTR), 2022 Trade Policy Agenda and
during a time when the U.S. dollar is strengthening
2021 Annual Report, March 2022.
globally. The value of the lira has dropped by around one-
Turkey’s Economy
third against the U.S. dollar in 2022.
Turkey, an upper-middle-income country, was the world’s
Turkey’s economy is projected to grow more slowly in
19th-largest economy in 2021, with gross domestic product
2022; the International Monetary Fund estimates 5% GDP
(GDP) of $815 billion (current U.S. dollars). Services and
growth. In addition to market uncertainty about President
industry comprise most of Turkey’s GDP, but agriculture
Erdogan’s unconventional economic policies, Turkey is
remains a top job source. Tourism is a significant services
vulnerable to rising global energy prices and other
sector, and key manufacturing industries include textiles
economic spillovers from the pandemic and Russia’s war
and apparel, iron and steel, chemicals, and autos. Turkish
on Ukraine.
firms are typically toward the end of global supply chains,
U.S.-Turkey Trade and Investment Ties
manufacturing end-use products of high value and sourcing
intermediate inputs elsewhere. An exception is Turkey’s
After declining by 8% in 2020, U.S. total trade with Turkey
auto industry, which supplies parts to foreign automakers.
(exports plus imports of goods and services) grew by 33%
to $33 billion in 2021. Goods account for more than three-
International trade has become an increasingly important
quarters of bilateral trade. In 2021, U.S. goods exports to
part of Turkey’s economy, representing 71% of its GDP in
Turkey grew by 19.5% to $12.0 billion, and U.S. goods
2021. Turkey has a diversified export base, and relies
imports from Turkey grew by 44.9% to $15.9 billion,
heavily on energy imports. It has reduced its international
resulting in a bilateral goods trade deficit of $3.9 billion
trade barriers since 1995, after acceding to the World Trade
(see Figure 1). Top bilateral exports were aerospace
Organization (WTO) and concluding a customs union with
products and parts, oil and gas, waste and scrap, basic
the European Union (EU).
chemicals, and certain agricultural products. Top bilateral
imports were textile furnishings, petroleum and coal
The Turkey-EU customs union allows free movement of
goods between the two economies (excluding agriculture,
products, certain fabricated metal products, apparel, and
coal, and steel). It also binds Turkey to the EU’s common
iron and steel and ferroalloy.
external tariff. As such, Turkey must open its market to
Bilateral services trade totaled $5.5 billion in 2021. U.S.
countries with which the EU has trade agreements, on EU-
services exports were $3.4 billion and imports were $2.1
negotiated terms; yet, it lacks any guarantee of reciprocal
billion, resulting in a trade surplus of $1.2 billion.
market access from these countries.
Transport, various business services, and travel were top
traded services bilaterally.
After a financial crisis in the early 2000s, Turkey’s
economy generally recovered, benefitting from market-
In 2021, U.S. foreign direct investment (FDI) in Turkey
oriented reforms, stronger rule of law in commercial
was $6.2 billion and Turkey’s FDI in the United States
markets, and investments in infrastructure. EU membership
totaled $2.3 billion (stock, historical-cost basis), both less
prospects helped drive economic reforms, but Turkey’s EU
than 1% of U.S. FDI with Europe overall. Yet, U.S.
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U.S.-Turkey Trade Relations
investment ties with Turkey are active. More than 1,000
U.S. firms. In exchange for Turkey’s commitment to
U.S. firms have a presence in Turkey, many dating back
withdraw its DST and transition to a new global tax
decades and some using Turkey as a regional business hub.
framework, the United States terminated related trade
In 2019, U.S. firms operating in Turkey had 59,000
action against Turkey. The United States reached parallel
employees.
deals with some other countries on their DSTs.
Figure 1. U.S. Goods Trade with Turkey, 2010-2021
Meanwhile, U.S. “Section 232” national security-based
tariffs of 25% on certain U.S. steel imports from Turkey
remain, as do Turkey’s retaliatory tariffs (ranging from 4%
to 70% on $791 million of U.S. imports, 2019 trade data).
In the WTO, Turkey is challenging the U.S. Section 232
tariff measures, and the United States is challenging
Turkey’s retaliatory tariff measures.
The USTR has criticized Turkey’s “onerous and
unpredictable” testing requirements for agricultural
biotechnology for certain imports from the United States
(e.g., wheat, rice). It has stated that Turkey’s efforts to
harmonize its food safety laws with the EU could pose

barriers for U.S. exporters , to the extent that they are not
Source: CRS, data from U.S. Bureau of Economic Analysis (BEA).
based on international standards or science-based
assessments. Differences in regulatory approaches are a
Turkish trade with Europe far outpaces U.S.-Turkey trade.
long-standing issue in U.S.-EU trade relations.
In 2021, for merchandise trade, the EU bloc comprised
41.9% of Turkey’s exports and 31.5% of its imports; and
U.S. firms face a host of other challenges doing business in
the United States comprised 6.5% of Turkey’s exports and
Turkey. Issues cited by the USTR include Turkey’s
4.8% of its imports (per WTO data). For Turkey, the United
 bureaucracy and weakening rule of law;
States is its second-largest FDI source (8.1% share), after
 “forced” localization barriers to trade, such as requiring
the Netherlands (15.7%) (official Turkish data for
storage of Turkish citizens’ personal data within Turkey;
cumulative FDI inflows, 2003-2021).
 high average agricultural tariffs (21.2%, versus 4.5% by
Selected Developments and Issues in
the United States, trade-weighted average tariffs in
Bilateral Trade Relations
2020, per the WTO);
The United States and Turkey primarily engage on bilateral
 hikes on tariffs in multiple sectors, which are within
trade issues through a 1999 Trade and Investment
WTO limits (high “bound” rates) but increase
Framework Agreement, which they revived in 2017 to
uncertainty for U.S. exporters; and
discuss issues such as digital economy, intellectual property
 inadequate IPR regime, including Turkey’s role as a
rights (IPR), and market access. They also have a bilateral
source of and transshipment point for counterfeit goods.
investment treaty that entered into force in 1990.
Turkey’s deepening economic ties with Russia may also be
The United States and Turkey do not have a free trade
a concern. In August 2022, Turkey and Russia agreed to
agreement (FTA). Turkey previously sought to negotiate an
increase some aspects of their business cooperation, a move
FTA with the United States, prompted by concerns about
that has caused consternation for U.S. and other Western
the potential market-opening effects of the now-ceased
trade partners. Some U.S. officials are wary that Russian
U.S.-EU Transatlantic Trade and Investment Partnership
firms could use Turkey to evade sanctions. In September,
(T-TIP) FTA negotiations during the Obama
Turkish state banks suspended their use of Russia’s Mir
Administration. Interest in a deal to expand U.S.-Turkish
payment system in response to U.S. concerns.
trade resurfaced during the Trump Administration, but
elicited mixed responses within Congress. Prospects for
Issues for Congress
potential future talks may be tied to improvement in
Members of Congress may examine the current state of
bilateral relations on other issues, as well as potential future
U.S.-Turkish trade and investment ties, and the
U.S.-EU trade talks.
opportunities and challenges that U.S. firms face in Turkish
In May 2019, President Trump terminated Turkey’s
markets. They may consider whether to pursue an
eligibility for the Generalized System of Preferences (GSP),
expansion of U.S. trade and investment ties with Turkey
a U.S. trade and development program granting
and efforts to resolve current trade frictions, and if so, in
nonreciprocal, duty-free treatment to certain U.S. imports
what forms. In doing so, they may examine the role of trade
from developing countries that meet eligibility criteria.
in overall bilateral relations and U.S. interests in the region.
President Trump cited Turkey’s increased level of
For more information, s ee CRS Report R44000, Turk ey:
economic development in making the termination. More
Back ground and U.S. Relations In Brief, by Jim Zanotti and
generally, GSP expired at the end of 2020 and would
Clayton Thomas.
require congressional reauthorization to restart.
Shayerah I. Akhtar, Specialist in International Trade and
In November 2021, the United States and Turkey reached a
Finance
political agreement on Turkey’s digital services tax (DST),
which the United States viewed as discriminatory against
IF10961
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U.S.-Turkey Trade Relations

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https://crsreports.congress.gov | IF10961 · VERSION 6 · UPDATED