Trump proposes big export tax, triggering fight with Mexico

WASHINGTON -- President Donald Trump's determination to wall off America's border with Mexico triggered a diplomatic clash and fresh fight over trade Thursday, as the White House proposed a 20 percent tax on imports from the key U.S. ally, and Mexican President Enrique Pena Nieto abruptly scrapped next week's trip to Washington.

The swift fallout signaled a remarkable souring of relations between Washington and one of its most important international partners just days into the new administration.

The U.S. and Mexico conduct some $1.6 billion a day in cross-border trade and cooperate on everything from migration to anti-drug enforcement to major environmental issues.

At the heart of the dispute is Trump's insistence Mexico will pay for construction of the massive wall he has promised along the southern U.S. border.

Trump on Wednesday formally ordered construction of the wall.

The plan was a centerpiece of Trump's election campaign, though he never specified how Mexico would fund the project or how he would compel payments if Pena Nieto's government refused.

The two leaders had been scheduled to discuss the matter at the White House next week. But Pena Nieto took to Twitter on Thursday to say he had informed the White House he would not be coming.

In a speech in Philadelphia later Thursday, Trump cast the cancellation as a mutual decision.

"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," he said.

On the flight back to Washington, Trump's spokesman told reporters the president was considering the 20 percent import tax to foot the bill, the most specific proposal Trump ever has floated for how to cover a project estimated to cost between $12 billion and $15 billion.

"By doing that, we can do $10 billion a year and easily pay for the wall just through that mechanism alone," White House press secretary Sean Spicer said. "This is something that we've been in close contact with both houses in moving forward and creating a plan."

Spicer said Trump was looking at taxing imports on all countries the U.S. has trade deficits with, but he added, "Right now, we are focused on Mexico."

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 percent import tax was one idea in "a buffet of options" to pay for the border wall.

A 20 percent tariff would represent a huge tax increase on imports to the U.S., raising the likelihood of costs being passed on to consumers. Half of all non-agricultural goods enter the U.S. duty free, according to the office of the U.S. Trade Representative.

The other half face import tariffs averaging 2 percent.

Mexico is one of America's biggest trade partners, and the U.S. is the No. 1 buyer from that country, accounting for about 80 percent of Mexican exports.

A complete rupture in ties could be damaging to the U.S. economy and disastrous for Mexico's.

And major harm to Mexico's economy surely would spur more people to risk deportation, jail or even death to cross the border to the U.S., undercutting Trump's major goal of stopping illegal immigration.

To some congressional Republicans, Spicer's comments appeared to be a welcome embrace of border-adjustment tax, a core element of House Speaker Paul Ryan's tax-reform proposal.

As part of that proposal, a 20 percent corporate tax rate would apply to goods and services consumed in the U.S. but not applied to exports from America.

Earlier this month, Trump called that concept confusing.

And during the White House's clean-up efforts Thursday, Spicer wouldn't say whether Trump agreed with the border-adjustment tax being considered by the House GOP.

The new president previously has raised the prospect of slapping tariffs on imports but had not suggested it as a way to pay for the border wall.