Euro-dollar parity in Turkey’s world trade
As we know, the movements of the dollar have a significant impact on world trade. The dollar, which was enacted with the Money Act of 1972, is the most impressive factor, especially in international trade. Another currency most used in international trade is the euro, which entered into circulation after 2002. It is the second preferred reserve currency after the dollar. The reserve currency order is followed by the British pound, Japanese yen and Swiss syphilis, respectively. Although each of these reserve currencies plays an important role in international trade, I would like to talk about the effects of the two major reserve currencies, the euro and the dollar, on Turkey’s trade. The euro-dollar parity shows the value of the euro against the dollar. Looking at the problem like exporters and importers, it is 3 times more important for exporters to find financing in the international market compared to their other competitors. When you look at Turkey, it is even more due to the geographical location of the country and the fertility of the soil.
Eximbank also supports our exporters in Turkey to minimize high financing costs. In this sense, exports are increasing. In the 2021 report, while the total exports are $ 68,752, the total imports figure is 82,916. There is a deficit in foreign trade. Although it is both the most developed country in America and the country to which Turkey exports the second largest, it is one of the countries with a deficit in foreign trade. In other words, its imports are greater than its exports. Exports from Germany, the country to which Turkey exports the most, fell by 9% in 2020. Its exports were EUR 1 trillion 204.7 billion and imports by EUR 1 trillion 25.6 billion. euros. The country’s foreign trade surplus amounted to 179.1 billion euros. The third country to which it exports the most is England. The volume of trade between Turkey and England was $ 18.6 billion in 2018 and $ 16.3 billion in 2019. During the period January-March 2020, $ 2.525 billion was exported to England. The global recession due to Corona is already known. The data published in Japan is truly appalling. This shows the economic conditions in Japan. In Asia, on the one hand, while talking about the virus problem, it allows states to pay interest in these regions on much more favorable terms to encourage exports. It is a great chance for the exporter to have such a counterattack in our country. In the medium term, that will make us advantageous. In 2020 compared to 2019; Exports fell 6.26% to 169 billion from 514 million dollars, imports rose 4.32% to 219 billion from 425 million dollars, while non-gold imports fell 2.4% to $ 194 billion to $ 242 million. The volume of foreign trade fell by 0.57% and fell to 388 billion 939 million dollars. The export to import coverage ratio was 77.3%, while the non-gold coverage ratio was 85.8%. Among the reasons, apart from the Euro Dollar parity, American and European purchasing companies did not send their employees to Turkey because of the virus. Two large Italian companies opened their stands and did not put any employees on the stands. Trade visits are tempted to be minimized as much as possible due to the virus. However, some estimate buying companies will visit our country instead of the Far East.
Purchasing is an important link in the supply chain. You have to sit face to face with the maker or designer. Because it is not always possible to do everything digitally. The additional taxes imposed by the United States on China are already affected. Based on Mediterranean exports, we see mainly agricultural food products. We see the iron and steel industry. There are made-up clothes. Here there is the world’s largest fresh fruit and vegetable fair in Berlin, which took place in January of last year. Citrus fair. Chinese participation was low. People started to come less and less to the fairs. The Chinese were few at the fairs. They participated less because there were Chinese companies. When you look at the ready-to-wear industry, China exports $ 838 billion to the world. In other words, one in three people in the world uses the product prepared by the Chinese. Turkey’s proximity to Europe is a big advantage. However, at another point to note here, the fact that manufacturing industry inputs are also supplied by China, they supply 40% of the manufacturing industry of Japan and South Korea for both textiles. And in the world. 30% in the USA. When you look at the world average, 20% is supplied by China. The fact that the supply of raw materials and manufacturing from China is declining may pose some problems. Turkey is dependent on foreigners for raw and intermediate materials. How are we going to produce this? If there is no problem of raw material supply from China, unless there is problem of raw material price increase, even if there is price increase, if we are to buy this product, we will have to buy it. This is where parity comes in. It imports mainly in dollars and exports consumer goods in euros. We see more and more in recent days when a change in the pair is against the euro.
Undoubtedly, this situation of euro-dollar parity has a negative impact on the exporter’s input costs. In this context, how to interpret the effect of the change in parity? As a result, it will ultimately lead to lower profitability. Turkey, as a country, achieves 49% of all general exports to the EU in euros. There are also prices in euros in the Middle East, but as the share of imports is in dollars, importers or exporters indeed have difficulties because they do not hedge. The dollar-euro parity was at 1.14 last year, then it fell to 1.08. Now it’s 1.21. So 1 dollar is equivalent to 1.21 euro. This affects our export figures. Why is that? Because we keep the numbers in dollars. Last year, $ 180.5 billion was exported, we could not count $ 4.5 billion. Because he wrote a minus because of the dollar-euro parity. Exporters will sacrifice their profits or if they can raise their prices a bit, they will. If it drops below 0.8, 1.12 1.13 1.15 will be the most suitable band. For the real exchange rate, what is the effect of the change in parity on foreign trade? The real exchange rate shows us the relative price of the basket of goods and services produced by a country compared to the basket of goods and services produced by the countries in which it competes.
New raw materials and intermediate goods depend on imports and are based on the dollar. When the export structure is a system that works on the euro, it will undoubtedly have a negative reflection in the medium and long term. It is a serious risk. About 5 years ago it was called the 1 dollar and euro-dollar parity. During this time he felt himself again. It fell back on the interval of 1.10. This is an undesirable situation for Turkish exporters. The industry has become accustomed to buying raw materials and semi-finished goods in dollars and trading in euros per product. It is a great chance for us to have a European market of more than 50%. We should not only say Europe, there is also a great interest in the African base. We export. Based on costs, 1.10 was ideal. It should not have been reduced to 1.08s. In this regard, in particular the hedging of banking instruments as a solution. Hedging is a counter-trading activity that will minimize investment risk. But coverage is the most hated subject for exporters. Both the cost of the cover and the fact that the cover is not sufficiently high in volume unfortunately complicates the use of these instruments for our small and medium-sized exporters. Or not adults. In this regard, although it can be said that it can be used, it is difficult. It’s hard to increase profits because the prices are so fixed.
Parity has fallen, commodity prices have increased. Last week, the Chinese made so many discounts on our prices. Emails ask you what you need. December’s drop fell to 2.1%. However, 7.4% in the quantity index. There is also a decline in the index of import units. Looking at the months, we see that there is a recovery. Has added value started to be created in the industry? Yes. In our country, for example, we are not very competitive in the production of honey. Why is that? because it is produced all over the world. But in the majority, we see that the added value can be put more into the production of finished products. The high technology used in the production allows us to increase the price of the products a little more. More valued on a unit basis. All of this, along with the Covid effect, is the example of Euro-dollar parity in Turkey’s world trade. In reserve currency, parity is an important indicator.