U.S. President Donald Trump said he's authorized doubling some metals tariffs on Turkey, citing poor relations with the North Atlantic Treaty Organisation ally amid an escalating conflict over its detention of an American pastor.
Fears over contagion even pushed global equity markets lower, with some European banks coming under heavy selling pressure due to their exposure to Turkey. While many of Turkey's challenges are specific to that country, there are certain characteristics - a heavy debt load following a prolonged, low USA interest-rate driven borrowing binge in dollars - broadly shared throughout emerging markets.
Now at a new record low, Turkey's currency has lost more than 40% this year.
Turkish aluminum will now be taxed at 50% and steel at 20%, essentially pricing Turkish metals out of the USA markets.
The numbers have been sliding ever since President Erdogan's election victory in June, with concerns among foreign investors about his control of monetary policy as well as the birth of Turkey's new presidential republic.
An important emerging market, Turkey borders Iran, Iraq and Syria and has been mostly pro-Western for decades.
A USA court in May sentenced Mehmet Hakan Atilla, a Turkish citizen and banker at Turkey's state-controlled Halkbank (HALKB.IS), to 32 months in prison after he was convicted of taking part in a scheme to help Iran evade US sanctions.
The White House said Trump would use a section of US law that allows for tariffs on national security grounds to impose the increased duties.
"Over the years, Turkey rushed to America's help whenever necessary", he said, listing some of occasions the two countries acted together.
The US has refused to extradite Fethullah Gulen, who lives in Pennsylvania.
"We think that Turkey has a toxic combination of a weak external position (current account deficit), excessive private sector debt and a high level of foreign funding in the banking system".
But President Recep Tayyip Erdogan, who had remained unusually silent until the lira crisis deepened, urged his fellow countrymen to take matters into their own hands.
Turkey and the United States are now experiencing rocky relations following Washington's imposition of sanctions on Interior Minister Suleyman Soylu and Justice Minister Abdulhamit Gul for not releasing Brunson.
The lira, which has always been falling on worries about the government's influence over monetary policy and the USA tensions, plunged more than 18 percent at one point on Friday to a record low against the dollar. The president, who says a shadowy "interest rate lobby" and Western credit ratings agencies are attempting to bring down Turkey's economy, appealed to Turks' patriotism.
'This is a national, domestic battle. In response, the currency renewed its sell-off. That makes a loan in dollars that much more expensive to repay. Hard currency debt issued by Turkish banks suffered similar falls.
Presenting the government's new economic model, he said the next steps of rebalancing would entail lowering the current account deficit and improving trust.
Turkey's treasury and finance minister Berat Albayrak - who is Mr Erdogan's son-in-law - tried to ease investor concerns during a conference, saying the government would safeguard the independence of the central bank.