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Turkey Was Ripe for a Currency Crisis. Will It Spread?

The country’s plight sparks fears of an emerging-markets meltdown.

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The hurt that President Trump laid on Turkey on Aug. 10 was feather-light— a doubling of tariffs on imported Turkish steel and aluminum. Turkey sells only about $1.4 billion in primary metals to the U.S. in an average year, according to the U.S. Commerce Department. So the new levies will reduce the country’s gross domestic product by just about 0.04 percent. And that’s assuming Turkish mills and smelters have to cut prices by 25 percent to retain their American customers—the hit will be even less if the Turks find customers in other nations that aren’t jamming it with high tariffs.

So why did a 0.04 percent slap on the wrist—more of a tap, really—cause the Turkish lira to plummet; prompt President Recep Tayyip Erdogan to complain of “economic warfare”; push down the currencies of Argentina, India, Indonesia, Mexico, Russia, South Africa, and Zambia; and raise Italy’s borrowing costs to their highest vs. Germany’s since May? It’s simple, actually. Conditions for a crisis were ripe. Financial weakness and poor policies in Turkey and other vulnerable nations supplied dry tinder. Two headstrong characters, Erdogan and Trump, butting heads like flint and steel, provided the spark. “Countries go through stress in two ways, gradually and then suddenly. We’re seeing the ‘suddenly’ right now,” says Samy Muaddi, a Baltimore-based money manager at T. Rowe Price Group who manages the Emerging Markets Corporate Bond Fund.