If U.S. Proposes Tariffs, Mexico Threatens to Cut Off Nafta Talks

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

“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.”

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

Due to a “massive” imbalance favoring Mexico, Trump has lambasted the accord — which also includes Canada — as unfair and responsible. While the U.S. sent $231 billion to Mexico, it last year shipped $294 billion worth of goods to the U.S.

But what if Nafta renegotiation talks 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.

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

The tumble in the peso is one thing that could help mitigate the impact. Swelling profit margins for exporters, it’s plunged 25 percent against the dollar in the past two years.

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

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

Because of a possible domino effect is part of the reason his country is unwilling to consider any new Nafta duties, Guajardo said. “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.”

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

He wants Nafta talks to wrap up early in 2018, Guajardo said. Bottom of Form

Otherwise, “we’d be irresponsibly injecting uncertainty after uncertainty because of the U.S. mid-term election and the presidential election in Mexico.”

(Adapted from Bloomberg)

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