Philadelphia/Mexico City: The White House on Thursday floated the idea of imposing a 20 percent tax on goods from Mexico to pay for a wall at the southern US border, sending the peso plummeting and deepening a crisis between the two neighbours.
Mexican President Enrique Pena Nieto announced on Twitter around midday on Thursday that he was scrapping a planned visit to meet with US President Donald Trump, who has repeatedly demanded that Mexico pays for a wall on the US border.
Later in the day, White House spokesman Sean Spicer sent the Mexican peso tumbling to its low for the day when he told reporters that Trump wanted a 20 percent tax on Mexican imports to pay for construction of the wall. Spicer gave few details, but his comments resembled an existing idea, known as a border adjustment tax, that the Republican-led US House of Representatives is considering as part of a broad tax overhaul.
The White House said later its proposal was in the early stages.
Asked if Trump favoured a border adjustment tax, White House Chief of Staff Reince Priebus said such a tax would be "one way" of paying for the border wall. "It's a buffet of options," he said.
The plan being weighed by House Republicans would exempt export revenues from taxation but impose a 20 percent tax on imported goods, a significant change from current US policy. Countries like Mexico would not pay such taxes directly. Companies would face the tax if they import products made there into the United States, potentially raising prices for American consumers.
The idea is unpopular with retailers and businesses that sell imported goods in the United States. It also has met opposition from some lawmakers worried about the impact on US consumers. Trump himself appeared to pan the idea in a Wall Street Journal interview last week, saying the House border adjustment provision was "too complicated."
Even after Trump's comments, congressional Republicans have continued to discuss the issue with White House officials in an effort to bring them on board with the idea.
Rift with Mexico
Trump, who visited Republican lawmakers at their policy retreat in Philadelphia, told them he would use tax reform legislation to pay for the border wall. "We're working on a tax reform bill that will reduce our trade deficits, increase American exports and will generate revenue from Mexico that will pay for the wall if we decide to go that route," he said.
Trump, who took office last week, views the wall, a major promise during his election campaign, as part of a package of measures to curb illegal immigration.
Mexico has long insisted it will not heed Trump's demands to pay for the construction project.
He signed an executive order for construction of the wall on Wednesday, just as a Mexican delegation led by Foreign Minister Luis Videgaray arrived at the White House for talks with Trump aides.
The executive order provoked outrage in Mexico. Videgaray's planned meeting with US Homeland Security Secretary John Kelly was cancelled, a department spokeswoman said. Pena Nieto had been under pressure to cancel the summit.
"We have informed the White House that I will not attend the working meeting planned for next Tuesday with @POTUS," he tweeted on Thursday. "Mexico reiterates its willingness to work with the United States to reach agreements that favour both nations."
Trump had tweeted earlier that it would be better for the Mexican leader not to come if Mexico would not pay for the wall. He said later the meeting was cancelled by mutual agreement.
Relations have been frayed since Trump launched his presidential campaign in 2015, characterising Mexican immigrants as murderers and rapists. His trade rhetoric has hit the Mexican economy, causing consumers to rein in spending and foreign businesses to wait on new investments, according to the International Monetary Fund.
Trump has vowed to renegotiate the North American Free Trade Agreement with Mexico and Canada and slap high tariffs on American companies that have moved jobs south of the border.
Mexico ships 80 percent of its exports to the United States, and about half of Mexico's foreign direct investment has come from its northern neighbour over the past two decades.
The United States runs a $58.8 billion trade deficit with Mexico, according to the latest US government figures. But Mexico is also the United States' second-largest export market.
Marcello Hinojosa, head of Mexican industry association Canacintra in the border city of Tijuana, said the border tax idea would only end up hurting US consumers.
"Trump is shooting himself in the foot with the 20 percent import hike. It's going to lead to a (price) increase for Americans," Hinojosa said, adding it would also hurt his waste-processing company because most of his clients are American plants.
Updated Date: Jan 27, 2017 08:16:54 IST