By Homogram | Economic Insight | July 2025
Trade Wars: Türkiye’s Economic Risk and What Firms Need
Global trade wars are no longer simple disputes over tariffs—they now serve as powerful financial tools. Countries are using tariff strategies not just to alter trade flows but to manipulate the value of their foreign liabilities. This shift has critical implications for mid-sized, trade-reliant economies like Türkiye.
At Homogram, our May 2025 analysis examines how these tariff-driven financial strategies can reshape national debt burdens, and what that means for Türkiye. Drawing on the latest NBER working paper and our own exposure indices, we explore how Türkiye’s trade structure, debt profile, and currency vulnerabilities position it at the frontline of risk—and strategy.
Tariffs as a Financial Weapon
Trade-induced shifts in the “terms-of-trade”—the relative price of a country’s exports vs imports—can change the real value of international debts. A nation with large mismatches between its foreign assets and liabilities across different goods can theoretically neutralize its debt burden through smart tariff design.
This model, explained in the May 2025 NBER paper by Aguiar, Amador, and Fitzgerald, underpins our adaptation for Türkiye. Their framework shows that valuation effects—shifts in debt burden purely through changes in prices—can be a deliberate outcome of trade policy.
Türkiye’s Risk Profile in Focus
Türkiye emerges as a high-risk case in this global trade recalibration. The country’s net foreign assets (NFA) stand at -46% of GDP, compared to a global average of -23%, signaling a deeply indebted position.
net foreign assets (NFA)
Türkiye vs Global Average, 2025
Figure 1. Net Foreign Assets (% of GDP): Türkiye vs Global Average, 2025
Not only does Türkiye carry significant foreign debt (USD 475 billion), but 57% of it is denominated in foreign currencies, mainly USD and EUR. This currency mismatch intensifies the impact of trade wars and tariff shifts, especially during periods of Lira depreciation.
Adding to this vulnerability is Türkiye’s high trade openness—exports and imports represent 61% of GDP, far above the global average of 48%.
Trade Openness (% of GDP)
Türkiye vs Global Average, 2025
Figure 2. Trade Openness (% of GDP): Türkiye vs Global Average, 2025
With 41% of exports going to the EU, Türkiye is directly exposed to the policy maneuvers of a region known for active regulatory and tariff adjustments.
Furthermore, 62% of Türkiye’s industrial production inputs are imported, especially in key sectors like automotive and machinery, which account for 64% of total exports. These sectors face twin risks: rising input costs due to tariffs and weakened demand due to geopolitical frictions.
Implications for Public and Private Stakeholders
The valuation effects from trade wars could hit Türkiye in three major ways:
- Rising costs for imported industrial inputs
- Revaluation of foreign-denominated debt
- Demand contraction in key export markets
These impacts are not theoretical—they are already visible in market behavior, investor sentiment, and currency fluctuations.
Recommendations by Homogram
To enhance economic resilience, Homogram suggests the following:
Government Actions:
- Diversify Türkiye’s external debt portfolio to reduce reliance on USD and EUR.
- Accelerate regional trade agreements in MENA and Central Asia.
- Provide production incentives for domestic manufacturing of high-import inputs.
Private Sector Strategy:
- Use hedging instruments like currency forwards to manage FX risk.
- Invest in local supplier development to reduce dependency on imported goods.
- Integrate tariff monitoring into pricing and sourcing decisions.
Final Thoughts
Trade wars are no longer just about exports and quotas—they are about financial engineering. The Turkish economy, with its current structural dependencies, faces real risks but also opportunities to adapt.
As global trade strategy becomes more sophisticated, Türkiye must not remain reactive. Instead, it must reorient its policies and private sector practices toward self-reliance, diversification, and forward-looking risk management.
At Homogram, we connect the dots between macroeconomic shifts and on-the-ground market realities. This study is part of our ongoing effort to provide clear, data-backed insights for smarter policy and business decisions in Türkiye and beyond.
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