U.S. President Donald Trump's border wall is casting a shadow over the contentious NAFTA renegotiations following a combative telephone call that caused Mexico's President to cancel a planned visit to Washington.
Mr. Trump's continuing insistence that Mexico pay for a wall along its frontier with the United States is a major complication for the already difficult talks, whose seventh round opened Sunday at a luxury modernist hotel in Mexico City's tony Polanco neighbourhood.
And with a Mexican presidential election looming, the three sides must decide whether to risk continuing to negotiate in an increasingly volatile political climate or put discussions on hold until after the July 1 vote.
The resurfacing of the wall dispute also throws a wrench into the U.S.'s negotiating strategy, which recently had been to encourage Mexico's conciliatory approach to talks as a counterpoint to Canada's tougher posture.
The Feb. 20 call between Mr. Trump and his Mexican counterpart, Enrique Pena Nieto, was supposed to be a prelude to an in-person meeting in the U.S. capital next month. But, as first reported by the Washington Post Saturday, Mr. Trump "lost his temper" during the 50-minute conversation when Mr. Pena Nieto insisted the U.S. President back off his promise to make Mexico foot the bill for the wall.
Whether Mr. Trump will actually insist on Mexico writing the U.S. a cheque is an open question: He has suggested in recent weeks that, instead, he would simply claim a renegotiated NAFTA is so much better for the U.S. that it counts as "payment" for the wall.
But even such rhetorical spin would be too much for Mexico, where Mr. Trump is deeply reviled. One Pew Research poll last year showed 93 per cent of Mexicans had no confidence in the U.S. President, the highest rate of disapproval of any country in the world.
Mr. Pena Nieto's Institutional Revolutionary Party faces an uphill battle to hold on to power. Polls show its presidential candidate, Jose Antonio Meade, trailing leftist Andres Manuel Lopez Obrador and conservative Ricardo Anaya.
Two Canadian government sources said Sunday that Mr. Trump's spat with Mr. Pena Nieto would not immediately affect the negotiations, in which trade officials are focused on the technical details of the trade pact and not the broader political context.
But the President's intervention risks further inflaming Mexican public opinion, making it harder for the government to compromise for fear of triggering an electoral backlash.
"If the current government is not able to show that they're getting a good deal, it will hurt them at the polls," said Luz Maria de la Mora, a former Mexican trade official who was involved in the original NAFTA negotiations. "This will become an issue in the campaign: Candidates need to show that they're firm and will defend Mexico no matter what. It will be extremely difficult to get a deal done in the next few months."
One source in the U.S. business community said it was increasingly likely that the talks would be suspended within the next few weeks, and resume either after Mexico's presidential election or the U.S. midterms in November. A Canadian government source said it was too soon to say whether negotiations would be paused, and that Ottawa was pushing for progress in the current round. The U.S. imposed a March deadline to conclude the discussions, but hitting such a target seems unlikely.
The talks are at loggerheads over a series of protectionist demands from the Trump administration. Washington wants all autos made in Canada and Mexico to contain 50-per-cent U.S. content, tight restrictions on Canadian and Mexican companies bidding on U.S. government contracts, the abolition or gutting of the pact's dispute-resolution mechanisms and a sunset clause that would end NAFTA in five years unless all three countries agreed to extend it.
While Canadian officials have publicly blasted Mr. Trump's demands and launched a wide-ranging case against U.S. trade law at the World Trade Organization, Mexico has tried to play peacemaker, telling the U.S. it is willing to consider its proposals.
U.S. Trade Representative Robert Lighthizer has encouraged Mexico, speaking positively of its approach to talks, while deriding Canada. At the last negotiating round, in Montreal in January, he described Ottawa's WTO case as "spiteful" and rejected its proposed compromises on autos.
Ms. de la Mora, the Mexican former trade negotiator, said Mr. Trump's bluster has become so routine that officials can ignore it and keep working for an agreement. But in the end, she said, such political imperatives will determine whether a resolution is possible.
"It shows how normalized Trump's behaviour is that he always does this before a round of negotiations. The negotiators have learned how to deal with these statements and continue their work," she said. "But the final word will be President Trump's, if he can get a deal he can sell to his political base."