Commentary | November 02, 2011

U.S.-Turkey Trade: Things Can Only Go Up From Here

There has been much debate in the last couple of years about the U.S.–Turkey relationship.

Recently the authors of this piece participated in an Atlantic Council program for young emerging Turkish and American foreign policy leaders, during which we met with former U.S. Ambassador to Turkey Jim Holmes of the American Turkish Council. To signify the surprisingly low volume of bilateral trade, Ambassador Holmes removed one M&M candy from a three pound (1.4 kilogram) bag and held it in front of us. The point was clear: if this bag of M&Ms represents the volume of all U.S. global trade, this sole M&M represents the volume of U.S.–Turkey trade.

This relationship has historically been one-sided, with the United States leading. However, since the 2008 financial crisis, this dynamic has started to change. The United  States is struggling economically, with high unemployment, stagnant economic growth, and political in-fighting. Turkey, on the other hand, has a booming economy and an increasingly independent foreign policy. Prime Minister Erdoğan coasted to reelection in June 2011 and has bold plans to make Turkey a top-10 global economy in terms of size by 2023, the 100th anniversary of the Turkish Republic. Turkey is aggressively reaching into foreign markets. Relations with Iran are underpinned by economics and imports of Iran’s natural gas. Turkey is taking the lead in investing in northern Iraq and driving economic growth there as a result. Likewise in much of Africa, in places such as Sudan, Ethiopia, and Kenya, Turkey’s investment in infrastructure bolsters economic development in a way that only China can rival. Prime Minister Erdoğan recently visited lawless Somalia to highlight famine relief, something no foreign leader had done in nearly 20 years. Turkey is developing soft power in regions of the world where American influence is decreasing.

In broad strokes, these two allies are moving down different paths: one looking inward after a rough period, the other looking outward amidst a boom period. This misalignment more than anything explains the occasional disruptions that occur in the relationship. However, there is one important area where increased emphasis would be mutually beneficial and underpin the relationship in a way that would likely realign the alliance moving forward and supersede all else: increased trade.

Just as Turkey’s foreign policy stock is rising because of increased soft power facilitated by an extended global business reach, so the United States has an opportunity to increase soft power in the critical Middle East region on the back of improved business ties with Turkey. Turkey shares borders with and has reach into Iran and Syria, and it increasingly has clout with these nations – likely greater than the United States. While this sounds frustrating from an American perspective, perhaps, in this era of revitalized coalitions following NATO’s intervention in Libya, Turkey’s regional influence can help the United States regain influence. To get to something that more closely resembles that sort of partnership, however, the United States has to bring more to the table. The United States should aggressively incentivize trade with Turkey and encourage entrepreneurs to look to Turkey.

It is bizarre that, between these two powers that are also NATO allies, bilateral trade was a paltry $14.8 billion in 2010, despite the fact that Turkey is the 17th largest economy in the world, and the United States is the largest. In 2010 the U.S. bilateral trade with China was $457 billion, compared with $178 billion with Germany, and $49 billion with India. Turkey’s unusual status as one of the few economies of note with which the United States enjoys a trade surplus ($6.3 billion in 2010), driven by three-fold growth in U.S. exports to Turkey, during which Turkey exports to the United States have remained constant, adds to the lopsided nature of this relationship. Traditionally underpinned by defense industry trade, this surplus reflects the degree to which security concerns over the past half century eclipsed economic interests and Turkey’s potential as a trading partner. As a result, Turkey is finding new markets and potentially new allies elsewhere on the back of capitalism. Analysis by the authors shows that both the United States and Turkey are expanding trade relations around the globe.  

From 1990 to 2010, with the rise of the Turkish middle class, Turkey’s number of export partners increased, and the share for each of the top 10 trading partners decreased as Turkey exported to more and more markets. Likewise, Turkish industries imported goods from more countries. As a result, even though trade growth with Turkey’s main trading partners, such as the United States, has remained flat, the cumulative effect for Turkey regardless has been one of economic growth because of Turkey’s entrance into new markets. Turkey has diversified its reach.

Turkey’s exports should be finding their way onto more American retail racks. This is where policymakers come in and need to continue to aggressively work together, as the White House’s Framework for Strategic Economic and Commercial Cooperation and its private sector counterpart, the U.S.–Turkey Business Council, have begun doing. On both sides, regulations that lead to protectionism should be eliminated. The United States should reexamine preferential trade terms for Turkey in textiles (currently only 0.6% of U.S. textile imports come from Turkey). Turkey is a member of the WTO, and the United States should investigate the further elimination of duties wherever possible. Visa procedures for Turkish business people should be loosened. Technology and know-how transfers should be aggressively promoted, as these play an essential role in strengthening strategic partnerships and stimulating joint technological projects. Young entrepreneurs should look to Turkey.

The logic is simple and straightforward. From a macro perspective, trade can underpin diplomacy. It is clear that the time has come for U.S.–Turkey relations to adapt to changing realities with respect to both countries and the global economy they are part of. A valuable market for American goods at a time when the world’s superpower seeks to recover its economic health, Turkey too stands to benefit through capitalizing on the as yet unrealized potential of American export markets. Even as the nature of Turkey’s relations change in the region where it sits and around the world, its longstanding friendship with the United States is one both governments have a vital stake in deepening. The time is right to increase trade.

Nathan Wendt is an Associate and D.C. Representative at the EastWest Institute. Idil Bilgic Alpaslan is a PhD candidate at Brandeis University, IBS and R&D Coordinator at TOBB University of Economics and Technology. Rennie A. Silva is a Researcher at the University of Maryland Laboratory for Computational Cultural Dynamics. U. Baris Urhan is a Research Associate at the Economic Policy Research Foundation of Turkey, TEPAV and the Middle East Technical University Department of Economics.