Terms of Trade!..

Yesterday, when Professor Mahfi Eğilmez mentioned it on social media, I felt the need to highlight again this important matter.

I regularly check terms of trade to stay informed. The terms of trade which are defined as the ratio between the index of export prices and the index of import prices, show us that we sell cheap and buy expensive.

According to the latest data, the terms of trade, which was 97.5 in January 2021, declined by 24.7 points to 72.8 in January.When this data is above 100, it means that export prices increase more than the import prices, thus a country has positive terms of trade. In the past 10 years, Turkey’s terms of trade have gone above 100 twice, in 2016 and 2020.

“The way things are going; current account deficit will become chronic.”

The interesting thing is that while the amount and value of exports have risen, the import quantity index increased almost as much as exports, while the value index went up by 30 points more than exports, which means, it is actually the import prices that disturb the balance, not the increase in imported goods.Most of Turkey’s exports consist of final products, as for its imports are mostly raw materials, intermediate and investment goods. There is no price flexibility in imports, we have to buy regardless of the price. But the case is different for exports. Buyers of the final goods may not always be OK with prices. Therefore, a price cut becomes unavoidable.

The only solution to this problem is to domestically produce intermediate goods instead of importing them. However, in Turkey, intermediate goods producers do not like competition. There are also those who want to make all final goods producers dependent solely on them. But this situation can no longer be sustainable.

We absolutely need to create a design that will revive and diversify our production of intermediate goods. In this way, we would need less foreign currency and improve our supply chain practices.