U.S. President Donald Trump is threatening to use the renegotiation of NAFTA to squeeze Mexico to pay for his promised border wall – an explosive issue that could prove a deal-breaker.
"The Wall will be paid for, directly or indirectly, or through longer-term reimbursement, by Mexico, which has a ridiculous $71 billion dollar trade surplus with the U.S.," Mr. Trump wrote on Twitter Thursday morning, mere days before the next round of talks begin in Montreal. "The $20 billion dollar Wall is 'peanuts' compared to what Mexico makes from the U.S. NAFTA is a bad joke!"
According to the United States' own calculations, Mexico's trade surplus was actually $55.6-billion (U.S.) in 2016, the latest year for which numbers are available.
Mr. Trump's outburst appeared to be an upbraiding of his own Chief of Staff, John Kelly, who the previous day soft-pedalled Mr. Trump's long-held promise to force Mexico to pay. "In one way or another, it's possible that we could get the revenue from Mexico but not directly from their government," Mr. Kelly told Fox News.
Mr. Kelly also said the President had tempered his expectations for the wall and now realized it was not physically possible to build the structure across the entire border. Mr. Trump shot back on Twitter: "The Wall is the Wall, it has never changed or evolved from the first day I conceived of it."
Mexico swiftly reiterated its long-standing refusal to pay and insisted the matter be kept out of NAFTA talks.
"Our Minister of Foreign Affairs has been very clear and consistent regarding this issue: that Mexico will not pay for a wall," Mexican Finance Minister Jose Antonio Gonzalez Anaya said in Toronto after meeting with his Canadian counterpart, Bill Morneau, and executives from Canada's mining and banking sectors. "It's not a negotiating stance for Mexico. It's an issue of national sovereignty."
Mr. Gonzalez said he had not been told if the United States has raised the issue at the negotiating table.
Agreeing to Mr. Trump's demand would be political suicide in Mexico, where the governing Institutional Revolutionary Party is fighting an uphill battle to hold on to power, with elections scheduled for July. Mr. Trump, who regularly portrayed Mexicans as criminals during his presidential campaign, is deeply reviled there.
But whether his Twitter bluster will actually translate into a U.S. negotiating position is unclear. One source with knowledge of the talks said he was unaware of U.S. negotiators ever raising the wall issue at the bargaining table. A spokeswoman for U.S. trade czar Robert Lighthizer did not respond to a request for comment.
Robert Holleyman, a former high-ranking trade official in the Obama administration, said Mr. Trump's Thursday pronouncements looked more like rhetorical spin than a negotiating demand. He said Mr. Trump seems to be arguing that a reduction in the U.S. trade deficit with Mexico could count as "payment" for the wall by Mexico, allowing him to fulfill his campaign pledge.
"I don't think this is about paying for the wall directly," Mr. Holleyman said. "His attitude is that eliminating that deficit will mean the wall will be paid for."
Mr. Trump's view that the trade deficit – the gap between how much the country imports and exports – shows the U.S. is "losing" at trade is not shared by most experts. And Mr. Holleyman said that if Mr. Trump were to succeed in erasing the deficit by erecting barriers to Mexican goods entering the U.S. market, it would certainly not help the U.S. economy or result in more funds to build the wall. Rather, it would simply raise prices.
"It will be U.S. consumers and taxpayers paying for it. Mexico may have economic losses and fallouts, but they won't be sending that money to the U.S."
United States, Mexico and Canada are renegotiating NAFTA at the behest of Mr. Trump, who claims the other two countries have used the deal to "take advantage" of the United States.
Washington is already at loggerheads with Mexico City and Ottawa over a series of protectionist U.S. demands at the bargaining table, including that all cars and trucks made in Canada and Mexico contain at least 50-per-cent U.S. content. Canada and Mexico are planning to present compromise ideas in Montreal in hopes of breaking the deadlock.
Tying the border wall to the talks would create yet another impasse – and make it even harder for Mexico to agree to a deal.
Mr. Trump has offered mixed signals on NAFTA in recent days. In an interview with the Wall Street Journal last week, he said talks had "made a lot of headway." The President even suggested he would scrap the U.S.-imposed deadline of March to get a deal so talks could extend beyond the Mexican presidential election in July.
On Wednesday, however, he suggested that he still believed it would be a good idea to trigger the process of pulling out of NAFTA to crank up the pressure on the other two countries. He acknowledged the intense pressure he was under from the U.S. business community not to do this.
"We're renegotiating NAFTA now. We'll see what happens. I may terminate NAFTA," Mr. Trump said in an interview with Reuters. "A lot of people are going to be unhappy if I terminate NAFTA. A lot of people don't realize how good it would be to terminate NAFTA because the way you're going to make the best deal is to terminate NAFTA. But people would like to see me not do that."