US President Donald Trump will use a new 20 percent tax on all imports from Mexico to pay for a wall on the southern US border, says the White House.
The Mexican president today scrapped plans to meet Mr Trump next week after the US president tweeted Mexico should cancel the meeting if it would not pay for his proposed border wall.
Speaking after the cancellation, White House spokesman Sean Spicer told reporters the new tax would be used to pay for the wall.
No details were available on how the tax would work, but Mr Spicer said Mr Trump wanted it to be part of a tax reform package that the US Congress was contemplating.
Mr Trump yesterday authorised a "large physical barrier" on the country's 3200km-long southern border.
He said construction would start within months and Mexico would pay back to the United States "100 percent" of the costs.
But president Enrique Pena Nieto condemned Mr Trump's order and said Mexico would not contribute any money.
Mr Trump then tweeted: "If Mexico is unwilling to pay for the badly needed wall, then it would be better to cancel the upcoming meeting."
Mr Pena Nieto said this morning that the meeting - scheduled to happen next week - would not go ahead.
"This morning we informed the White House that I will not attend the work meeting planned for next Tuesday with the POTUS," Mr Pena Nieto said on Twitter, referring to Trump.
"Mexico reiterates its willingness to work with the United States to reach accords that favour both nations."
Mexico not treating the US 'fairly' - Trump
Mr Trump later presented the scrapped plan as a mutual agreement. Addressing Republican members of Congress at a meeting in Philadelphia, he said he and Mr Pena Nieto had agreed to cancel the meeting, adding it would be fruitless if Mexico did not treat the United States "fairly".
"I've said many times that the American people will not pay for the wall," Mr Trump told the gathering. "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."
The White House left open the door for a possible rapprochement: White House spokesman Sean Spicer said the US was keeping open lines of communication with Mexico and looking to reschedule the meeting, which had been planned for Tuesday.
Mr Trump 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 pay for such a project.
Mr Trump, who took office last Friday, 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 aimed at healing ties.
The timing of that, and Mr Trump's reiterated call for Mexico to foot the bill, caused outrage in Mexico, with prominent politicians and many on social media seeing at as a deliberate snub to the government's efforts to engage with Mr Trump, who has for months used Mexico as a political punching bag.
Relations have been frayed since Mr Trump launched his campaign in 2015, characterising Mexican migrants as "murderers and rapists" and pledging to build a wall that he said Mexico would pay for.
Trade ties are in the balance after Mr Trump vowed to renegotiate the North American Free Trade Agreement and slap high tariffs on American companies that have moved jobs south of the border.
Mexico's peso, which has fallen sharply against the US dollar in the face of Trump's stances on trade and immigration, extended losses to 1 percent after Mr Pena Nieto fired off his tweet, before paring losses.
Leaders of the Republican-controlled US Congress said on Thursday they planned to move ahead on funding the border wall, which they projected would cost between US$12 billion and US$15 billion.
"So we intend to address the wall issue ourselves and the president can deal with his relations with other countries," Senate Majority Leader Mitch McConnell said at a news conference at the Republican retreat in Philadelphia.
House of Representatives Speaker Paul Ryan, asked if lawmakers were worried about the US relationship with Mexico, said, "I think we'll be fine."
Mr Trump ruffled feathers with Mexico from the start of the presidential campaign that led to his election victory on 8 November.
Former foreign minister Jorge Castaneda said the Mexican government should have cancelled the planned summit earlier in the week, when it became clear that Mr Trump was going to go ahead with measures to build the wall and clamp down on immigration.
"There is an atmosphere of crisis in the United States and it is going to last a long time. We are going to have to get used to living like this," he said on Mexican radio.