Mexico warns U.S. of alternatives on trade, points to China
Mexico sent a stark message to U.S. President Donald Trump on Thursday, saying an upcoming visit by officials from Latin America's No. 2 economy to China made it clear it had many other export markets if he tore up the NAFTA trade deal.
The North American Free Trade Agreement (NAFTA) underpins Mexico's economy, prompting the government to try and diversify away from the United States, which takes 80 percent of its exports.
Mexico runs a sizeable trade deficit with China, the destination of about 10 percent of its exports.
Trump indicated, in an interview with The Economist published on Thursday, that he wanted to get the U.S.-Mexico trade deficit down to about zero.
He wants to renegotiate NAFTA to get a better deal for U.S. companies and workers, and has threatened to end the agreement if he does not get his way.
Talks are expected to start later this year.
"We will use (the China visit) geopolitically as strategic leverage" said Mexican Economy Minister Ildefonso Guajardo, answering questions on trade at the Mexico Business Forum.
"It sends the signal that we have many alternatives."
The minister said expanding bilateral commerce, not restricting it, was key to reducing the U.S.-Mexico trade deficit.
Guajardo said the trip to China would be in September but did not provide details.
A Mexican diplomat in Beijing told Reuters he was referring to the China International Fair for Investment & Trade summit in Xiamen.
"High-level contact is very frequent," said the diplomat, who was not authorized to speak publicly about the matter.
Guajardo said he was also working on a "radical broadening" of preferred tariffs with Brazil and Argentina to lower the cost of importing grains from the South American nations while giving Mexico better access to their manufacturing markets.
That would make the "worst-case scenario" of the U.S. withdrawing from NAFTA less painful for Mexico and strengthen its negotiating hand, Guajardo said.
"If NAFTA disappears, I can export cars (to the United States) paying 2.5 percent tariffs.
If they want to export yellow corn to me, I can raise tariffs to inaccessible levels," Guajardo said.
"But to make that strategy credible, I have to broaden our agreements with Brazil and Argentina."
A delegation of Mexican officials and businesses traveled to Brazil and Argentina this month to look at the prospect of buying grains there.
However, Mexico has found it hard to wean itself off trade with its natural partner to the north.
It has tried to deepen commercial links with China for years, but the scrapping of a Chinese high-speed train contract in 2014 soured relations.
Guajardo acknowledged that China and Mexico are both big exporters of manufacturing goods and tend to compete rather than complement one another on trade.
But China has become an increasingly important trade partner for Mexico because of its massive consumer market, he said, citing rising exports of avocado, Tequila and berries.
RAISING TARIFFS 'OUT OF THE QUESTION'
The diplomat said that Mexico was not sending top-level representatives to China's "One Belt, One Road" meeting in Beijing this weekend.
However, he added bilateral meetings between senior Mexican officials and their Chinese counterparts were planned throughout the year, saying China's Deputy Minister of Land and Resources was currently in Mexico.
Mexico and the United States would have to study whether more North American products could be made with materials from within the region without hurting competitiveness, Guajardo said.
But raising tariffs was "out of the question," he said. "The precondition to negotiating NAFTA is that we can't go back to the past.
If the United States were to withdraw from NAFTA, it would not necessarily mean the end of the trade deal.
Mexico and Canada could opt to make it the framework for their trade relationship, Guajardo said.