Business First Look

Mexico threatens to end NAFTA talks if US proposes tariffs

In an interview with Bloomberg, Mexico's economy minister warned that his country will break off NAFTA negotiations if the United States proposes tariffs on goods imported from Mexico. 

Trucks wait in the line for border customs control to cross into the United States at the World Trade Bridge in Nuevo Laredo, Mexico in November 2016.
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Threatened by President Trump’s proposed 30 percent border tax, Mexico said it is not afraid of a tough negotiation.

Mexico’s economy minister, Ildefonso Guajardo, on Monday warned against the suggested border tariffs on products from Mexico by the US government, saying his country would break off negotiations on the North American Free Trade Agreement, or NAFTA, if that were to happen. The remarks, hinting at a rough path ahead, highlight the possible diplomatic and economic ramifications of the proposal Mr. Trump has long urged.

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

NAFTA, the 1994 trade deal that eliminated most tariffs on products traded among Canada, the United States, and Mexico, was a controversial topic in the 2016 US presidential election, as Trump repeatedly criticized the pact for causing job losses in the United States, calling the pact “a disaster.” Since his inauguration, Trump and his administration have vowed to scuttle NAFTA if they cannot “tweak” the agreement to benefit US interests.

Yet, Guajardo’s remarks on Monday underscore Mexico’s hard-line stance on pulling out of NAFTA – despite the enormous boost the pact has given the Mexican economy – rather than accepting new, less advantageous terms, as The Christian Science Monitor reported on Jan. 26.

As the sole developing country in the pact, NAFTA has likely accelerated and locked in the trade liberalization in Mexico, according to a Congressional Research Service report last Wednesday. With the implementation of the pact, Mexico has seen its farm exports to the United States triple and hundreds of thousands of auto manufacturing jobs created throughout the years, according to the Council on Foreign Relations.

“There could be no other option, Guajardo said in a TV interview in January. “Go for something that is less than what we already have? It would not make sense to stay.”

Yet, the trade is no one-way street. Considering that US exports to Mexico have increased three and a half times since NAFTA came into force, experts have warned that Trump won’t get all he wants in the upcoming negotiations. US Chamber of Commerce said in December an estimated 6 million US jobs rely on trade with Mexico, as 40 percent of all Mexican imports come from America.

“[Trump] will be faced with the choice of walking away and doing something drastic, or essentially folding but declaring victory,” William Reinsch, a distinguished fellow at the Stimson Center and former president of the National Foreign Trade Council, told the Monitor in January.

If Mexico does pull out of the agreement, the trade between Mexico and the United States will be subject to the strictures set by the World Trade Organization, which limits possible tariffs on Mexican goods at an average of around 3 percent, according to Mexican think tank Emerging Markets Political Risk Analysis (EMPRA). That rate “would take away some of our margin of competitiveness,” but would be manageable, the minister said.

But as Mexican officials expect the new round of talks to start in June, Guajardo is still optimistic about the prospect.

“I think there is a way to find a very good agreement that will be a win-win for the three countries,” he told Bloomberg.

This report includes material from the Reuters.