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Mexico Threatens To End NAFTA Talks If Trump Proposes Tariffs

Monday, February 27, 2017 9:04
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After months of tough talk from the Trump administration on NAFTA and border tariffs on goods imported from Mexico, among other issues, Mexico’s top trade negotiator, Economy Minister Ildefonso Guajardo, is now ratcheting up his own threats from south of the border.  Speaking to Bloomberg over the weekend, Guajardo said that Mexico will walk away from NAFTA if the U.S. insists on slapping duties or quotas on any products from Mexico.

“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.

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.

Of course, the increased rhetoric from Mexico comes after Trump has seemingly made a hobby of threatening border tariffs on auto imports since November 8th with tweets targeting pretty much every auto OEM from GM to Toyota.  Here is just one illustrative tweet storm from early December:

Guajardo warned that, despite Trump’s vow to drain the swamp, opening up NAFTA to new duties would bring lines of lobbyists (a.k.a. swamp dwellers) from every industry imaginable all looking for a competitive edge.

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.

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.”

Meanwhile, as we’ve noted before, whether it’s simply negotiating rhetoric or not, Mexico is also publicly playing up potential trade deals with other South American countries that could fill the void created if NAFTA falls apart.

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.

All of which should make for a very fun summer of 2017 complete 100’s of entertaining tweets and leaked phone call transcripts from the White House to Mexico.


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