Donald Trump has triggered a diplomatic clash and a fresh fight over trade as the White House proposed a 20% tax on imports from Mexico and its president scrapped next week’s trip to Washington.
The swift fall-out signalled a remarkable souring of relations between Washington and one of its most important international partners just days into the new US president’s administration.
The US and Mexico conduct some $1.6bn cross-border trade a day, and co-operate on everything from migration to anti-drug enforcement to major environmental issues.
At the heart of the dispute is Mr Trump’s insistence that Mexico will pay for the massive wall he has promised along the southern US border.
The plan was a centrepiece of Mr Trump’s election campaign, though he never specified how Mexico would fund the project or how he would compel payments if Enrique Pena Nieto’s government refused.
The two leaders had been due to discuss the matter at the White House next week, but Mr Pena Nieto (pictured above) took to Twitter on Thursday to say he had informed the White House he would not be coming.
Mr Trump had tweeted that if Mexico intended to continue to refuse to pay for the wall, it would be better if the meeting did not happen.
In a speech in Philadelphia later, Mr Trump cast the cancellation as a mutual decision and said “unless Mexico is going to treat the United States fairly, with respect, such a meeting would be fruitless, and I want to go a different route. We have no choice”.
On the flight back to Washington, Mr Trump’s spokesman told reporters the president was considering the 20% import tax to foot the bill – the most specific proposal he has ever floated for how to cover a project estimated to cost $12bn-$15bn.
“By doing that, we can do $10bn a year and easily pay for the wall just through that mechanism alone,” Sean Spicer said. “This is something that we’ve been in close contact with both houses in moving forward and creating a plan.”
Mr Spicer said Mr Trump was looking at taxing imports on all countries the US had trade deficits with, but added: “Right now we are focused on Mexico.”
But the announcement sparked immediate confusion across Washington and the White House tried to backtrack.
During a hastily-arranged briefing in the West Wing, chief of staff Reince Priebus said a 20% import tax was one idea in “a buffet of options” to pay for the border wall.
A 20% tariff would represent a huge tax increase on imports to the US, raising the likelihood of costs being passed on to consumers.
Half of all non-agricultural goods enter the US duty free, according to the office of the US Trade Representative, and the other half face import tariffs averaging 2%.
Mexican foreign relations secretary Luis Videgaray said: “A tax on Mexican imports to the United States is not a way to make Mexico pay for the wall, but a way to make the North American consumer pay for it through more expensive avocados, washing machines, televisions.”
Mexico is one of America’s biggest trade partners and the US is the number one buyer from that country, accounting for about 80% of Mexican exports, and a complete rupture in ties could be damaging to the US economy and disastrous for Mexico’s.
Major harm to Mexico’s economy would surely encourage more people to risk deportation, jail or even death to somehow cross the border to the US – undercutting Mr Trump’s major goal of stopping illegal immigration.
House of Representatives Republicans and aides interpreted Mr Spicer’s comments on a 20% border tax as an endorsement of a key plank of their own tax plan, which speaker Paul Ryan has been working to sell to the president.
Their “border adjustability” approach would tax imports and exempt exports as a way of trying to help US exporters and raise revenue.
Earlier this month, Mr Trump called that concept confusing and during the White House’s clean-up efforts on Thursday, Mr Spicer would not say whether Mr Trump agreed with the border adjustment tax being considered.
The new president has previously raised the prospect of slapping tariffs on imports, but had not suggested it as a way to pay for the border wall.