Mexico's top trade negotiator doubled down this week on threats to break off talks to rework the North American Free Trade Agreement, 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 Monday 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 essentially 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 1990s, when the pact was being written and implemented.
Without the agreement, 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," Guajardo said, but would be manageable.
That's if the U.S. remains in the WTO and abides by its rules. Guajardo said that it would be against American interests to leave the global trade regulating group, though the possibility can't be dismissed entirely.
"Economic logic tells us that it would really be the nuclear option for the U.S. to abandon the multilateral trading system," he said. "But I can't rule out something that would be a decision of a different government."
One thing that could help mitigate the impact of NAFTA's end 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 and some other goods have to contain a certain amount of content sourced in North America to get full trade agreement 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 tax 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.
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."
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 also is seeking to have Trans-Pacific Partnership members join the Pacific Alliance, which includes Chile, Colombia and Peru. Trans-Pacific Partnership 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.
Guajardo said appropriate ways to improve and update the trade agreement include adding digital commerce, telecommunications and aspects of the energy industry that weren't included when the deal was negotiated two decades ago. He also suggested that the requirements for the amount of North American content that goes into products that trade duty free also could be strengthened.
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 trade 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. midterm election and the presidential election in Mexico." Mexicans go to the polls to choose a president in July 2018, and the U.S. midterms are that November.
Information for this article was contributed by Carlos Manuel Rodríguez, Michael Mckee and Micha Rondeau of Bloomberg News.
Business on 03/03/2017
Print Headline: Mexico warns U.S. it will end NAFTA talks if tariff pushed