Osman Şenkul
Turkey’s external debt, trade deficit and energy imports make it highly dependent on foreign currency. Although it has foreign currency-earning services such as tourism, these are sometimes affected by factors such as the drought we experienced this year and regional conflicts. For this reason, exports are the most stable source of foreign currency. Without exports, repaying external debt becomes difficult, exchange rates rise, inflation increases, the value of the Turkish Lira (TL) declines, and the economy becomes unstable.
In addition, Turkey has long been dependent on imports for its production. Although there are occasional statements about the existence of some resources, energy sources such as natural gas and oil are among the biggest drains on foreign exchange reserves. Furthermore, key intermediate goods for industrial production, such as chips, machine parts, and chemicals, as well as other high-tech products, are imported. In contrast, exported goods are generally low to medium value-added. Consequently, since imports exceed exports, a trade deficit arises, along with a current account deficit. Financing this deficit requires foreign currency.
When all these fundamental factors are considered together, exports emerge as the most vital element for the sustainability of the economy, as they bring foreign currency into the country.
Looking at the actual data, Turkey’s exports increased by 5.2 percent year-on-year to $156.36 billion in the January-July 2025 period, driven by July’s record exports of $24.95 billion. while imports increased by 6.9 percent to 212.22 billion dollars. However, despite these positive figures, Mustafa Gültepe, President of the Turkish Exporters’ Assembly (Türkiye İhracatçılar Meclisi – TİM), highlighted the structural issues underlying exports during his assessment on Bloomberg HT earlier this week.
Gültepe stated that automotive exports increased by approximately 23 percent, while the chemical sector experienced growth of over 30 percent in the last two months. Gültepe also mentioned an increase in the defence industry, pointing to the effect of exchange rates on this growth and stating that the exchange rate contributed 1.9 billion dollars to exports in July alone. “The numbers look good, but people are asking why we’re still complaining. However, it’s important to read the details of the export data carefully,” said Gültepe, emphasising that Turkish exporters are facing challenges in global competition.
Gültepe stated that the momentum gained in exports during the pandemic has weakened over the past two years. He said that labour costs, which have increased 2.5 times in dollar terms, have become a major burden for exporters.
Gültepe also mentioned the imbalance in the interest rate, exchange rate and inflation triangle, saying, “The goal is to reduce inflation, but the tools used, namely high interest rates and other parameters, are pushing us out of the competition. You are forced to raise prices on products sold in dollars, not by 3 percent or 5 percent, but by even higher increases. The buyer (importer), not wanting to change retail prices, is shifting to markets where they can source the same product from alternative suppliers.”
Stating that prices can be increased in line with inflation in the domestic market but that this flexibility does not exist in foreign markets, Gültepe said, “If your inputs increase by 100 percent in Turkish lira terms but your sales prices only rise by 20 percent, the 80 percent difference becomes unsustainable. What happens then? The thing you were selling for 11 dollars now costs 12 dollars.” Gültepe added, “Additionally, no one should expect a devalued Turkish Lira. A very strong Turkish Lira has a significant impact on industry.”
In short, exporters are complaining about high interest rates used to combat inflation rather than increasing production, because more production is necessary to increase exports. However, as Gültepe also points out, the high interest rate policy pursued to curb inflation is making production more costly, thereby seriously weakening Turkey’s competitiveness in export markets. In other words, the industrial sector, especially companies engaged in export-oriented production, may experience production cuts due to a decline in demand. This could lead to a decrease in factory capacity utilisation rates, postponement of new investments, and job losses, particularly in export-oriented sectors. Many SMEs and large firms that produce based on foreign exchange revenue expectations may begin to face issues such as inventory, cash flow, and debt repayment problems when exports slow down. In sectors heavily dependent on exports, there may be an increase in bankruptcy filings and insolvencies, leading to losses in foreign markets.
Therefore, it is necessary to eliminate the impact of high interest rates and provide special support to sensitive countries and sectors in order to sustain economic growth without disruption and enable export-oriented industries to maintain their competitiveness in international markets.
With all this on the agenda, another point that should be prioritised and worked on is, of course, closely monitoring international economic and political developments and being proactive. The most important of these developments is the sudden increase in import tariffs imposed on certain countries at the whim of US President Donald Trump, or the introduction of new tariffs where none existed before.
This development is of considerable concern to Turkey, as Trump threatened New Delhi with “much higher tariffs” in a post on social media. Trump wrote on the social media platform Truth Social, “India is not only buying large amounts of Russian oil, but is also selling much of it on the open market for huge profits.”
The main reason why this is of particular interest to Turkey is that it shares the same rationale as India; Turkey imports the most crude oil and petroleum products from Russia, at 2,568,150 tonnes, followed by Iraq with 481,667 tonnes and Kazakhstan with 421,314 tonnes. Furthermore, Turkey’s aviation fuel exports increased by 65 percent in November last year compared to the same month of the previous year, reaching 479,612 tonnes, while marine fuel exports decreased by 55.7 percent, amounting to 37,734 tonnes. As can be seen here, Turkey, like India, imports the majority of its petroleum and petroleum products from Russia, and in turn sells the petroleum products it obtains from this (aviation and marine fuels) to generate significant revenue.
Therefore, we cannot rule out the possibility that Trump will apply a similar decision to Turkey, given the significant turmoil his decision caused in India.
In addition, Trump had already removed Turkey from the United States’ Generalised System of Preferences (GSP) list in 2019. With this decision, approximately 1,700 items are now subject to tariffs when exported to the United States. This change in status had already weakened Turkey’s competitive position in the U.S. If additional tariffs similar to those imposed on India are implemented, this disadvantage could be further exacerbated.
Naturally, the contraction in exports to the US will reduce foreign exchange inflows and thus increase pressure on the Turkish lira. In this scenario, despite high interest rates, exchange rates will rise, inflation, which has been reduced by only five points in two years according to Turkish Statistical Institute (TURKSTAT) data, will rise more rapidly this time, and all input costs for industry will also rise rapidly. Of course, in this scenario, production will decline, capacity utilisation will decrease, investments will be postponed, and the already historically high broad definition of unemployment will rise further.
In short, structural reforms and a transition to a production economy are essential for a sustainable economy. “High production,” not “high interest rates,” is necessary to reduce inflation and increase exports. Furthermore, the most effective defence against Trump’s possible “tariff attack” would also be a “high production-supported shield.”