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Mexico says “we’ll quit NAFTA if Trump makes unreasonable demands”

Mexico’s top trade negotiator said in an interview published on February 27 that he would walk away from the table if US negotiators threatened 20% duties on cars.

“The moment that they say, ‘We’re going to put a 20 percent tariff on cars,’ I get up from the table,” said Mexican Economy Minister Ildefonso Guajardo . “Bye-bye.” He added that scrapping NAFTA “wouldn’t be an absolute crisis”.

Without NAFTA, he claimed, trade between Mexico and the U.S. would be ruled by World Trade Organization rules 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”. Mexico’s competitiveness would in any case be improved by then falling peso: currently 8% cheaper against the dollar than a  year ago, and nearly 35% lower than in 2013.

White House spokesman Sean Spicer threatened  in January to impose a 20% duty on goods from Mexico after the country’s President Enrique Pena Nieto cancelled a trip to Washington following Trump’s repeated assertions about charging Mexico the cost of building the wall. Though Trump has issued a Presidential proclamation calling for the wall to be built, no realistic proposal has emerged for paying for it, and no Congressional approval sought for funds.

Guajardo emphasized that Mexico was not looking to scrap Nafta. His threatened refusal even to discuss the level of tariffs President Donald Trump has boasted about, does, however, put pressure on US negotiators, practically daring them to pull out of the deal, seriously damaging many US businesses.

Trump insists NAFTA is unfair and responsible for a “massive” imbalance favouring Mexico. In  2016, the US bought $296 billion worth of goods from Mexico and exported $230 billion. That $66 billion net benefit to Mexico represents 6% of Mexico’s GDP, but 0.08% of America’s.

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, said one reason Mexico will not consider substantial new NAFTA duties is 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.”

He sees a real alternative in deeper relations with Brazil, Argentina, the EU and possibly in re-launching a TPP without the US.

But Guajardo was optimistic the U.S., Mexico and Canada could come to terms on changes to 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.

Among  options for improving and updating NAFTA would be to add digital commerce, telecommunications and aspects of the energy industry not included when the deal was first negotiated. He also suggested that the requirements for the amount of North American content that goes into products that trade duty free could also be strengthened.

Mexican officials have said they expect official talks to start in June. Guajardo said he wants talks finished early in 2018. Otherwise, “we’d be irresponsibly injecting uncertainty after uncertainty because of the US mid-term election and the [July 2018] presidential election in Mexico.”