By Behiye Selin Taner and Lisa Lambert
ISTANBUL/WASHINGTON (Reuters) - President Tayyip Erdogan told Turks on Friday to sell their gold and U.S. dollars to support the country's currency which plunged after U.S. President Donald Trump escalated a feud with NATO ally Turkey by doubling tariffs on metals imports.
The Turkish lira <TRYTOM=D3> has long been falling on worries about Erdogan's influence over monetary policy and worsening relations with the United States.
On Friday the currency dropped as much as 18 percent at one point, the biggest one-day fall since a 2001 financial crisis in Turkey.
Reverberations spread through global financial markets, with European stock markets especially hit as investors took fright over banks' exposure to Turkey. U.S. stocks were also rattled.
The lira has lost more than 40 percent this year. It hit a record low after Trump announced he had authorized higher tariffs on imports from Turkey, imposing duties of 20 percent on aluminium and 50 percent on steel.
The lira, Trump noted on Twitter, "slides rapidly downward against our very strong Dollar!"
"Our relations with Turkey are not good at this time!" he wrote.
An important emerging market, Turkey borders Iran, Iraq and Syria and has been mostly pro-Western for decades. Financial upheaval there risks further destabilising an already volatile region.
Without naming countries, Erdogan said supporters of a failed military coup two years ago, which Ankara says was organised by a U.S.-based Muslim cleric, were attacking Turkey in new ways since his re-election two months ago.
The new duties on Turkey are double the level that Trump imposed in March on steel and aluminium imports from a range of countries. The White House said he had authorized them under a section of U.S. trade law that allows for tariffs on national security grounds.
Turkey's trade ministry said the tariffs were against World Trade Organization rules.
FOCUS ON PASTOR
While Turkey and the United States are at odds over a host of issues, the most pressing disagreement for Trump has been the fate of American Christian pastor Andrew Brunson, who is on trial on terrorism charges for allegedly supporting a group that Ankara blames for a failed coup in 2016. He denies the charges.
Turkish officials held talks in Washington this week but there was no breakthrough.
The Turkish financial crisis set off a wave of selling across emerging markets, reviving the spectre of contagion that has been the sector's Achilles heel for decades.
The lira sell-off deepened concern over whether over-indebted Turkish companies will be able to pay back loans taken out in euros and dollars after years of overseas borrowing to fund a construction boom under Erdogan.
The president, who says a shadowy "interest rate lobby" and Western credit ratings agencies are attempting to bring down Turkey's economy, appealed to his countrymen's patriotism.
"If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks. This is a national, domestic battle," he told a crowd in the northeastern city of Bayburt.
"Some countries have engaged in behaviour that protects coup plotters and knows no laws or justice," he said. "Relations with countries who behave like this have reached a point beyond salvaging," said Erdogan, who warned of "economic war."
In an opinion piece in the New York Times on Friday, Erdogan said Turkey's partnership with the United States could be in jeopardy unless Washington "starts respecting Turkey’s sovereignty."
"Before it is too late, Washington must give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives. Failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies," Erdogan said.
Turkey, home to the Incirlik air base which is used by U.S. forces in the Middle East, has been a NATO member since the 1950s. It is host to an X-band radar, a critical part of the Western alliance's missile defence system again Iran.
The United States has increasingly used economic sanctions against foes such as Iran or North Korea but it is highly unusual for an administration to impose import tariffs over political or judicial issues with other countries.
“I’m not aware of any prior administration using tariffs in this way, and there’s a very simple reason: because they’re an incredibly blunt instrument that often can have blowback on American workers and consumers as we’ve seen in the China context,” said Ned Price, a former CIA officer who also served as a National Security Council spokesman during the Obama administration.
(Turkish banks; external assets and liabilities: https://tmsnrt.rs/2McsLts)
Although Erdogan struck a defiant tone, his foreign ministry called for diplomacy and dialogue to solve problems with Washington and Trade Minister Ruhsar Pekcan said "we implore President Trump to return to the negotiating table."
Ankara wants the United States to extradite Fethullah Gulen, a Pennsylvania-based cleric who Turkish authorities say masterminded the 2016 coup attempt in which 250 people were killed. Gulen denies the allegation.
Brunson, an evangelical Presbyterian from North Carolina, was jailed for allegedly supporting the group that Turkey blames for the failed coup and was moved from prison to house arrest in July.
His cause resonates with Trump's Christian conservative supporters, who could be influential as Republicans seek to retain control of Congress in midterm elections in November.
(GRAPHIC: Emerging market currencies slide - https://tmsnrt.rs/2vzelu5)
Jay Sekulow, an attorney for Trump who is also representing Brunson’s family, told talk-show host and political commentator Sean Hannity’s radio programme on Friday: "We're close to getting a resolution in that case." He offered no further details.
"This could be the most expensive pastor in world history," Sekulow said, referring to the harm being done to Turkey's economy.
Erdogan enjoys the support of many Turks even though rents and food and fuel prices have all surged.
(Additional reporting by Susan Heavey, Matt Spetalnick, Yara Bayoumy and David Brunnstrom in Washington and Tuvan Gumrukcu in Ankara; Writing by David Stamp and Alistair Bell; Editing by Frances Kerry and James Dalgleish)