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Mexico Warns Trump to Cut Tariff Talk or NAFTA Redo is Done

Mexico's economy minister says he'll walk if a tariff is mentioned.

by on Feb.27, 2017

Mexican Pres. Enrique Pena Nieto and members of his government are readying for talks to re-open NAFTA.

President Donald Trump may be hurtling toward “put up or shut up” time as Mexican trade officials say they will end talks to renegotiate NAFTA if Trump follows through on his plan to apply a punitive tariff to vehicles coming from Mexico.

Mexican Economy Minister Ildefonso Guajardo has said the move would be a deal break and in an interview with Bloomberg, her reiterated his intention to end negotiations over the matter.

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“The moment that they say, ‘We’re going to put a 20% tariff on cars,’ I get up from the table,” he told Bloomberg. “Bye-bye.”

Guajardo also said that the country would not be looking to get rid of NAFTA altogether, but by reaffirming his commitment to the no-tariff position, he’s putting high-profile pressure on the Trump administration over the matter.

The tariff was a central part of Trump’s campaign rhetoric during the election season – he proposed 35% – and he’s stuck to it in the time since his surprising victory of Hillary Clinton last fall. However, it’s also the second time Mexico has told Trump that the country wouldn’t be abiding by his wishes.

Trump said planned to finish building a wall between the U.S. and Mexico to prevent illegal immigrants from entering the U.S. He also repeatedly said Mexico would pay for it. However, Mexico’s president, Enrique Peña Nieto, cancelled a meeting with Trump in January and took the opportunity repeat his position on Mexico paying for the proposed wall.

President Trump's proposed tax on goods coming into the U.S., particularly cars and trucks, may force Mexico to leave the negotiation table.

(GOP flustered by Trump administration on trade issues. Click Here to find out why.)

“Mexico does not believe in walls. I’ve said time again; Mexico will not pay for any wall,” the Mexican president said in a video statement posted to Twitter.

Trump has been chomping at the bit to revisit the trade agreement between the U.S., Canada and Mexico. He’s levied much of his criticism of the deal at Mexico. He tweeted in January that the was unfair to the U.S., citing the $60 billion difference between the two countries: Mexico shipped $294 billion worth of goods north in 2016 while the U.S. sent $231 billion south.

If the two sides cannot get together on a new, more U.S.-friendly version of NAFTA, there is a fallback proviso.

“It wouldn’t be an absolute crisis,” said Guajardo, who was involved in the original assemblage of NAFTA in the early ’90s.

(To see more about Trump’s proposed import tax, Click Here.)

The two sides would be subject to World Trade Organization rules, reported Automotive News, which limit tariffs nations can place on goods from other countries to about 3%, according to the Mexico City-based political-risk advisory firm Empra.

However, the harder Trump pushes on Mexico the more he may be hindering his own cause. The peso has been sliding, which makes the cost of exporting lower. If he gets his way, in theory, the move could cause the peso to decline enough that the 20% tariff wouldn’t be enough to discourage exports from Mexico to the U.S.

Even though the U.S. is Mexico’s largest trading partner, it also has free-trade agreements with many other countries, in short, the U.S. isn’t the only game in town. Mexico has more agreements than any other country in the world and has escalated talks with Brazil and Argentina in light of the difficult time it is having with the U.S.

Guajardo is quick to note that Brazil has “very, very high potential” in areas including automobiles.

(Trump threatens Canada, Mexico, with new border tariffs. Click Here for the story.)

“I’m not going to negotiate with Brazil for its pretty face. I’m going to negotiate with Brazil because they’re going to open their car-manufacturing market,” he said.

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