Trump sees ‘good chance’ of Mexico migration deal as clock ticks down to tariffs

WASHINGTON/MEXICO CITY (Reuters) – U.S. President Donald Trump said on Friday there was a “good chance” that the United States would be able to reach a deal with Mexico over migration, although his administration was still pushing ahead with a plan to slap import tariffs on its southern neighbor next week.

Trump has threatened to impose the levies on all Mexican imports, starting at 5% on June 10, if its government does not agree to do more to tackle an increase in mostly Central American migrants crossing Mexico to enter the United States. Apprehensions at the U.S.-Mexico border hit a decade high in May.

The two sides started a third day of talks in Washington on Friday to reach a deal.

“If we are able to make the deal with Mexico, & there is a good chance that we will, they will begin purchasing Farm & Agricultural products at very high levels, starting immediately,” Trump said in tweet. “If we are unable to make the deal, Mexico will begin paying Tariffs at the 5% level on Monday!”

Mexico’s peso, which has been battered by fears of a trade war with its biggest market, strengthened more than 0.5% against the dollar after the tweet.

Marc Short, chief of staff to U.S. Vice President Mike Pence, said earlier on Friday that the United States was moving ahead with a legal notification of the tariffs on Mexican goods. “You should anticipate that happening today,” he said at the White House.

Trump, who has railed against what he describes as a surge of migrants across the U.S.-Mexico border, has warned that the initial tariffs on Mexico will be incrementally increased each month up to 25% if a migration deal fails to materialize.

Mexico is scrambling to avoid such a scenario.

“It’s a good sign that talks have not broken down,” Mexican President Andres Manuel Lopez Obrador told reporters in Mexico City. “There is dialogue and an agreement can be reached. I’m optimistic we can achieve that.”

Lopez Obrador, however, said it was a mistake for the United States to link migration with trade.

Mexico has prepared a list of possible retaliatory tariffs targeting U.S. products from agricultural and industrial states regarded as Trump’s electoral base, a tactic China has also used with an eye toward the president’s 2020 re-election bid.

Such a move would leave the United States fighting trade wars with two of its three largest trading partners and further unnerve financial markets already nervous about a global economic slowdown.

The United States slapped up to 25% tariffs on $200 billion in Chinese imports last month, prompting Beijing to levy its own tariffs on a revised target list of $60 billion in American goods.

U.S. officials officially granted Chinese exporters two more weeks to get their products into the United States before the higher tariffs were applied, according to a U.S. government notice posted online on Friday.

Trump said on Thursday he would decide later this month whether to carry out his threat to hit Beijing with tariffs on an additional list of $300 billion in Chinese goods.

‘ECONOMIC EGOISM’

The looming U.S. tariffs have caused businesses in Mexico to scramble to get their products into the United States.

“It’s very chaotic. We might be able to put up with 5% for a little bit, 10% maybe,” said Guillermo Valencia, president of Valencia International, a customs broker in Nogales, Arizona. “There are very few businesses that can take a 25% increase in costs and stay alive.”

Economists say the trade disputes could damage key supply lines and pinch consumers at a time when the global economic expansion that followed the 2008 financial crisis has started to sour and the risk of recession has risen.

Trump’s tariff threat against Mexico also has cast a cloud over the United States-Mexico-Canada Agreement, a trade deal that was meant to replace the North American Free Trade Agreement. The three countries have not yet ratified USMCA.

Credit ratings agency Fitch downgraded Mexico’s sovereign debt rating on Wednesday, citing the trade tensions among other risks, while Moody’s lowered its outlook to negative.

Even the United States, one of the more solid performers on the economic stage, would not be immune to the downdraft.

The U.S. Labor Department reported on Friday that job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the American labor market.

Global equities rose on the prospect that central banks, including the U.S. Federal Reserve, would have to loosen monetary policy to offset the trade frictions and the threat of recession.

U.S. business groups are generally opposed to the tariffs, warning they will raise costs for companies and lead to higher prices for American consumers. Trump’s fellow Republicans also are not keen on the prospect of a two-front trade war.

But Trump is eager to show progress on his 2016 campaign pledges to take a hard line on immigration and rebalance global trade in favor of the United States as part of his “America First” agenda.

Trump’s protectionist approach has angered key U.S. trading partners and prompted rebukes from foreign leaders.

Speaking at an economic forum in St Petersburg, Russian President Vladimir Putin accused the United States on Friday of “unbridled economic egoism” and said Washington’s tactics would lead to trade wars and “maybe not just trade wars.”

Chinese President Xi Jinping, speaking at the same event, called on world powers to protect the global multilateral trade system.