It was hoped earlier that 2025 would be a year of downward trends in inflation and interest rate dynamics. However, geopolitical tensions and the ongoing trade war (U.S. President Donald Trump’s sweeping liberation day add-on tariffs) seem to have postponed that dream for now. The global trade war has unleashed huge economic uncertainties.
These modern-era beggar-thy-neighbor policies have hit global trade hard. One thing is for sure: In the short-term, there will be a huge cost and so much pain. In the long run, though, we’re all dead! So, welcome to the era of the negative-sum tariff game.
Meanwhile, considering that trade is an engine for growth, deteriorating trade relations and protectionism are also killing the global growth dynamics. Given the ongoing trade war and the additional duties tit-for-tat, almost all major world economies are headed toward a global recession.
Though given the circumstances, a positive sum may still be possible, at least for some countries. Yet, could Türkiye emerge victorious in this ongoing eye for an eye trade war? Türkiye might still benefit from this sharp uncertainty.
In the Turkish case, strong infrastructure built in the past two decades and the macro-financial dynamics demonstrate that Türkiye could potentially be a winner of the looming uncertainty and the new normal of trade wars. The country does indeed have the right cards in this long game of thrones or the house of cards.
Protectionism on rise
April 2025 liberation day tariffs, overall, brought forth a new dimension to the ongoing trade wars. Protectionism and the tariff wars are intensifying the uncertainties. Even a stagflationary impact is earthly. Trump tariffs could eventually function as a new supply-side shock that leads to higher inflation and much higher unemployment, just as it was in the 1970s.
The ongoing trade protectionism is meanwhile contingently ending the contemporary wave of globalization. The globalization trend will likely wane and regionalization will strengthen along the way. Regional industrial clustering shall be empowered. Likewise, the world is moving toward a new era in which nearshoring is growing stronger.
There is certainly an amplified tendency toward the use of a country’s own industrialization policies and economic independence to pursue sustainable economic growth. In that sense, the aim is to reshore production and employment. Yet, reshoring production and supply chains of the U.S.-based multinationals (for instance) will be costly, and a long process too.
The U.S.-led post-WWII rules-based global economic and trading system, too, is at a critical juncture. The U.S. has literally walked away from the global trading, economic and financial system it has helped to create (and the one that has also helped the U.S. prosper in the past century or so).
Meanwhile, in a similar scenario of the 1930s, there was no deep interconnectedness, at least at this level nowadays. The level of self-sufficiency was relatively high. The present-day level of interdependence makes the direct and spillover effects (of a tariff war), as well as the domino effects, rather more complicated to quantify. Hence, the self-fulfilling nature of the crisis.
However, will the U.S. still be able to start its own golden age, as is hoped? Will these import tax policies really lead to the intended outcome? Could they help the U.S. gain its economic independence? For example, consider the high-tech and auto industries that are too dependent upon international supply chains. Amazon, Apple and Tesla are some of these companies. And the answer is crystal clear.
Turkish economic outlook
Türkiye, on the other hand, is determined to continue its export-led growth strategy. Its share of global goods exports has increased incrementally in the past two decades. However, export dependency is still low compared to the likes of China. Domestic demand is still a significant factor in growth dynamics.
Türkiye has so far had 18 quarters of uninterrupted growth (as of April 2025). And this has enabled Türkiye to be the 17th largest economy in nominal terms and 11th largest in PPP terms. Per capita gross domestic product (GDP) has surpassed the $15,000 mark and the total national GDP stands at $1,3 trillion as of the end of 2024.
Türkiye was able to attract 20 times more FDI (a total of almost $280 billion) in the past 22 years, as opposed to $14 billion between the 1950s and 2002. External finance needs are already minimized, and the country is facing the least add-on tariffs from the U.S. Yet, growth needs to continue to stabilize. And the county needs further gain in internal and external balances.
The country is already in a good position in terms of external borrowing, compared to its counterparts. High reserves act as an important buffer against internal and external shocks. Current account deficit is in decline, and external financing requirements are also decreasing. Thanks to the budget discipline, some 1.2 trillion TL was saved in 2024.
Moreover, only up to 20% of the Turkish exports are directed toward the most affected regions of this trade war, as nearly 80% of its exports are to the nearby economies. Total exports to Europe, the Middle East, North Africa and Near Asia are over 80% of the total. Therefore, the effect of protectionism should be limited.
On the one hand, the country is developing its relations with Africa and strengthening its multifaceted relations with Asia. Türkiye is further deepening its connections to the members of the Organisation of Islamic Cooperation (OIC) but also wishes to expand the scope of the customs union with the EU to the services sector.
The broad-based Trump liberation tariffs might (overall) positively affect the Turkish exporters’ access to the U.S. markets. After all, supply chains are being redirected, and Türkiye is facing the least add-on tariffs. Therefore, Türkiye is one of the countries that will likely be the most positively affected by these additional duties.
Türkiye will surely face some negative impacts too, but the gains shall be much more. Overall, a competitive advantage to Türkiye should be expected. Yet, along with that, maybe even an increasing competition with China (and other major economies) in other markets. It is only to be hoped that there won’t be any other additional external shocks.
Longer-term impacts
The global trade is at a critical juncture. And considering trade is an engine for growth, deteriorating trade relations and the protectionism trend will kill growth dynamics too. Major world economies and the global growth engines such as China might come to a halt. The longer-term growth and welfare impacts will also be detrimental.
The unleashed liberation day tariffs are indeed a modern era beggar-thy-neighbor policy. They are more of an isolation day policies rather than a liberation or independence policy. The goal is to strengthen one single economy at the expense of the other trade partners. And this protectionism trend is turning into a new normal.
However, 2025 could indeed be a critical turning point for Türkiye too. It could be the year of Turkish triumph. The geopolitical wind seems to be in Türkiye’s favor. It could be another pivotal year to achieve short-to-longer term macro goals. And the path forward surely depends on internal macro challenges as well as external geopolitical opportunities.
More specifically, while steel, aluminum and auto sectors are expected to be negatively impacted by the new Trump levies, Turkish textile exporters could benefit hugely from the new status-quo. More specifically, in textile, auto parts and home apparels (or even chemicals and defense industries) Türkiye might gain a competitive advantage.
It seems like, despite the Trump doctrine of a zero-sum multilateral trade game where the U.S. is always worse off, Türkiye provides an example of playing a positive-sum game, even in a negative-sum era of ongoing trade wars. As an additional bonus, falling oil (and other commodity) prices will also be to the benefit of importing countries such as Türkiye.