Mexico warns U.S. of alternatives on trade, points to China

By Mitra Taj and Gabriel Stargardter

MEXICO CITY (Reuters) - Mexico sent a stark message to U.S. President Donald Trump on Thursday, saying an upcoming visit by Mexican officials to China showed Latin America's second largest economy had other places to export to if he tore up the NAFTA trade deal.

The North American Free Trade Agreement (NAFTA) underpins Mexico's economy, prompting the government to try and diversify away from the United States, which takes 80 percent of its exports.

Trump indicated in an interview with The Economist published on Thursday that he wanted to get the U.S.-Mexico trade deficit down to about zero. He wants to renegotiate NAFTA to get a better deal for U.S. companies and workers, and has threatened to end the agreement if he does not get his way.

"We will use (the China visit) geopolitically as strategic leverage" said Mexican Economy Minister Ildefonso Guajardo, answering questions on trade at the Mexico Business Forum. "It sends the signal that we have many alternatives."

Guajardo noted Mexico sends China a fraction of its total exports, and that the two major manufacturing nations tend to compete rather than complement one another on trade.

He also offered a rebuke to China on its trade policy.

"We all know that China is not a free trader, that's the reality," he said. But he added that Mexico has had success persuading China to ease trade barriers on some goods and expects it to continue to open up as its economy matures.

The trip to China would be in September, Guajardo said, but he did not provide details.

A Mexican diplomat in Beijing told Reuters he was referring to the China International Fair for Investment & Trade summit in Xiamen. "High-level contact is very frequent," said the diplomat, who was not authorized to comment.

Guajardo said he was also working on a "radical broadening" of preferred tariffs with Brazil and Argentina to lower the cost of importing grains from the South American nations while giving Mexico better access to their manufacturing markets.

That would make the "worst-case scenario" of the U.S. withdrawing from NAFTA less painful for Mexico and strengthen its negotiating hand, Guajardo said.

"If NAFTA disappears, I can export cars (to the United States) paying 2.5 percent tariffs. If they want to export yellow corn to me, I can raise tariffs to inaccessible levels," Guajardo said. "But to make that strategy credible, I have to broaden our agreements with Brazil and Argentina."

Representatives of Mexico's government and private sector are in Brazil this week to close new supply deals of corn, soy and rice, members of the delegation said Thursday.

Still, Mexico has found it hard to wean itself off trade with its northern neighbor. It has tried to deepen commercial links with China for years, but the scrapping of a Chinese high-speed train contract in 2014 soured relations.

The diplomat said Mexico was not sending top-level officials to "China's Belt and Road Initiative" meeting in Beijing this weekend. Bilateral meetings between senior Mexican officials and their Chinese counterparts were planned throughout the year.

Guajardo said that the U.S. trade deficit was not a measure of the strength of its economy or trade relationship. But he said it might be possible to shrink the U.S. deficit with Mexico if more North American products were made with materials from within the region without hurting competitiveness.

Erecting tariffs, however, was "out of the question," Guajardo said. "The precondition to negotiating NAFTA is that we can't go back to the past," he added.

(Reporting by Mitra Taj and Gabriel Stargardter; Editing by Alistair Bell, Richard Chang & Simon Cameron-Moore)