Mexico Warns U.S. It'll Cut Off NAFTA Talks If Tariffs Proposed

February 27, 2017 10:40 AM

Mexico’s top trade negotiator doubled down on threats to break off talks to rework NAFTA, saying his country will walk away if the U.S. insists on slapping duties or quotas on any products from south of the border.

“The moment that they say, ‘We’re going to put a 20 percent tariff on cars,’ I get up from the table,” Mexican Economy Minister Ildefonso Guajardo said in an interview. “Bye-bye.”

This doesn’t mean, Guajardo emphasized, that Mexico would be looking to scrap NAFTA. But by saying it refuses to even discuss the kind of tariffs President Donald Trump has long trumpeted, the country is ratcheting up the pressure on U.S. negotiators and effectively daring them to pull out of the 23-year-old pact.

Trump has lambasted the accord -- which also includes Canada -- as unfair and responsible for a “massive” imbalance favoring Mexico. It last year shipped $294 billion worth of goods north while the U.S. sent $231 billion south.

Mexican officials have said they expect official talks to start in June. And if they fail? “It wouldn’t be an absolute crisis,” said Guajardo, who headed the Nafta office of the Mexican embassy in the U.S. in the early 90s, when the pact was being written and implemented.

Tariff Talk

Without Nafta, trade between Mexico and the U.S. would be ruled by World Trade Organization strictures limiting tariffs either country can impose on the other, with the average for Mexico at around 3 percent, according to the Mexico City-based political-risk advisory firm Empra. That “would take away some of our margin of competitiveness,” the minister said, but would be manageable.

One thing that could help mitigate the impact is the tumble in the peso. It’s plunged 25 percent against the dollar in the past two years, swelling profit margins for exporters.

As things stand now, most products go back and forth duty free; automobiles, televisions sets and some other goods have to contain a certain amount of content sourced in North America to get full NAFTA benefits. But there’s been a lot of talk in Washington about taxing imports.

White House spokesman Sean Spicer in January floated the idea of a 20 percent levy on goods from Mexico to pay for a border wall. That trial balloon went up after Mexican President Enrique Pena Nieto canceled a trip to the American capital in response to Trump’s repeating a campaign pledge about charging Mexico for the cost of building the wall.

Pandora’s Box

Some Republicans in Congress have called for what they refer to as a border-adjustment tax, affecting all countries, to help finance cuts in the corporate income tax. During the campaign, Trump was a fan of a 35 percent tax on auto imports from Mexico.

Guajardo said part of the reason his country is unwilling to consider any new Nafta duties is because of a possible domino effect. “Opening the door to tariffs is very dangerous, because it’s like opening Pandora’s box -- the lines of people asking for protectionism in Washington would reach to Maryland, and in Mexico City they’d reach to Puebla.”

The border-adjustment tax, he said, is something that’s squarely a domestic fiscal matter for the U.S. He also said it would be complicated to implement, and would no doubt result in mirror changes from other nations that would aim to level the playing field. Washington’s going that route “would require a crazy amount of control on the origin of merchandise and inputs.”

TPP Invite

The U.S. is by far Mexico’s biggest single trading partner. But Mexico has pacts with more than 40 other countries, and has been accelerating free-trade talks with Brazil and Argentina after changes in those nations’ governments have them looking more favorably on open markets.

In Brazil in particular, Mexico sees what Guajardo called “very, very high potential” in areas including automobiles. “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,” said the minister, who has overseen negotiations for the Trans-Pacific Partnership and is working to update the country’s free-trade agreement with the European Union.

Mexico is also seeking to have TPP members join the Pacific Alliance, which includes Chile, Peru and Colombia. TPP nations have been invited to participate in the Latin American group’s meeting in March, Guajardo said. In one of his first acts as president, Trump pulled the U.S. out of the Pacific trade deal, designed to knit together almost 40 percent of the global economy.

For all his tough talk, Guajardo was optimistic the U.S., Mexico and Canada could come to terms on revamping Nafta. “I think there is a way to find a very good agreement that will be a win-win for the three countries,” he said.

And while Trump has called NAFTA the worst trade deal ever, Treasury Secretary Steven Mnuchin said last week that he’s not worried about trade relations with Mexico and also sees a “win-win” result that can come out of Nafta talks.

Guajardo said he wants talks to wrap up early in 2018. Otherwise, “we’d be irresponsibly injecting uncertainty after uncertainty because of the U.S. mid-term election and the presidential election in Mexico.” Mexicans go to the polls to choose a president in July 2018, and the U.S. mid-terms are that November.

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Spell Check

Senior PA Dairy Farmer
Westfield, PA
3/14/2017 05:32 PM

  DAWG, I am old enough to remember what it was like being paid “parity” prices back in the day when US farm policy ensured American farmers received FAIR prices so they could actually pay their bills to stay in business. Farms were typically smaller, more easily passed onto the next generation, worked by the farmer and his own family, sometimes, if needed, with “labor” from the local neighborhood. Parity pricing enabled farmers to circulate the money needed to sustain strong, stable, diversified rural economies, all across this once great nation. Now all things “ag” are “global,” with the constant federal government-Ag/Dairy “Industry” mantra heralding “world” prices, way below what is a realistic US “cost of production” for American farm products. Thanks to transnational Big Ag/Big Dairy’s cozy relationships with all the bi-partisan politicians who dwell in the “swamp inside the beltway,” US farmers are relentlessly being driven into financial ruin by “Free Trade” 5-year “Farm” Bills, propped up by the ubiquitous federal “safety nets” that are glaring proof “cost of production” for US farmers is not a priority for anyone in DC. Parity prices aren’t published because the “special interest” speculators benefiting from low-balling US farm commodity prices hope we will forget that parity pricing helped strengthen America by providing fair prices for our nation’s farmers. National policy that abuses farmers is sure to abuse consumers, too.

Senior PA Dairy Farmer
Westfield, PA
3/1/2017 09:08 AM

  "Free Trade" has been bad for farmers, NAFTA included. Not good for Mexican farmers either, displacing many of them from their own farms. Why would American farmers want to be subject to “deals” secretly drafted by bi-partisan POLITICIANS, who continue to sell us out to globalized Big Money special interests? Who are these House and Senate Ag Committee Big Shots, who keep pumping out anti-farmer “Farm” Bills that relentlessly push farmers farther down the bottomless pit of devalued farm commodities towards bankruptcy since US farmer “cost of production” is a forbidden concept inside the Beltway! “Establishment” politicians prefer preposterous “safety net” schemes like “Milk Margin Insurance” (MPP)! It is easy to see that US farmers would not need any “safety nets” if federal elected officials would stop throwing us off the economic cliff! Some "organizations" that profess to "speak" for farmers are still, once again, peddling snake-oil trade "agreements" as the panacea for low prices for US farm commodities. Ross Perot’s "sucking sound" is roaring over rural America right now! Thus the rural votes for Trump! Conaway himself has indicated that farmers face the worst financial crisis since the “Great Depression.” So much for any farmers “benefiting” from “Free Trade.” Our own government executed and “agreed” to all of the deleterious ag/dairy/trade policies that have destroyed America’s once flourishing and prosperous rural communities. All in the name of “Free Trade’s” WORLD prices! I cannot understand how any farmers could still believe the pro-“Free Trade” hype. If US farmers cannot cover their US costs at the farm, moving more devalued farm commodities into the “global” market will not pay the bills “down on the farm.” American farmers need to cover US “cost of production” FIRST before any products leave the farm! Hopefully, Mr. Trump understands that basic economic fact if he intends to deliver on his commitment to “Make America Great Again!”

nebraska city, NE
3/5/2017 08:18 AM

  JT. I will help you out. We do not import enough "groceries" from mexico for it to be an issue. See, there is this thing called leverage. They need our "stuff" more than we need their "stuff". As such we can tough it out (tariffs) better than then can and as such they don't have the leverage to force us to do much of anything. See. Need a better example. Your crawling across a dessert with a bagel in your backpack but no water. I have water and bagels, but would kinda like another bagel, but don't really "need" the second bagel. We meet. Who do you think in this situation has the leverage on pricing. Sorry for the simplistic example, but from your comment, I thought I should put this in terms you could understand.


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