Last Updated Aug 10, 2018 4:55 PM EDT
U.S. stocks sank sharply Friday amid concerns about Turkey's economic crisis and its potential to drag down trading partners around the world. Indeed, European banks suffered especially steep losses Friday as investors worried that financial turmoil in Turkey will spread to them.
Turkey's currency hit a record low of 6.24 per dollar and has fallen more than 70 percent percent since the start of the year. The lira has been weighed down by growing concerns over the economic policies of President Recep Tayyip Erdogan and a dispute with the U.S. over Turkey's detention of an American evangelical pastor on espionage and terror-related charges.
Raising the pressure, President Donald Trump vowed in a tweet to double U.S. tariffs on Turkish steel and aluminum imports, to 50 percent and 20 percent, respectively.
"Our relations with Turkey are not good at this time!," he said.
The lira tumbled further immediately after Mr. Trump's tweet. The Dow Jones industrial average closed the day down 196 points, or 0.8 percent, to 25,313, while the broader S&P 500 index and tech-heavy Nasdaq composite both fell 0.7 percent.
American exports of agricultural products to Turkey totaled $1.4 billion in 2016, making it the 18th largest agricultural export market for U.S. farmers. Leading domestic export categories include cotton ($495 million), tree nuts ($361 million), distillers' grains ($137 million), soybeans ($58 million), and tobacco ($51 million).
The U.S. slapped sanctions on two Turkish officials earlier this month over a detained American pastor who is being tried on espionage and terror-related charges.
Market analysts warn that Turkey's deteriorating economy could hurt other emerging economies. World stock markets also fell Friday, particularly in Europe, as investors worried about risks of contagion.
Investors are assessing the financial sector's exposure to the country's currency and budget woes, although analysts say U.S. and western banks have limited exposure to Turkey. They also say the eurozone is healthier, making it better able to withstand economic shocks.
"The plunge in the lira which began in May now looks certain to push the Turkish economy into recession, and it may well trigger a banking crisis," Andrew Kenningham, chief global economist with Capital Economics, said in a note to clients. "This would be another blow for [emerging markets] as an asset class, but the wider economic spillovers should be fairly modest, even for the eurozone."