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WRAPUP 4-Mexico draws red line on asylum before talks on Trump's tariff threat

Alexandra Alper and Frank Jack Daniel

threat@ (Adds comments from Mexican economy, agriculture ministers)

WASHINGTON/MEXICO CITY, June 3 (Reuters) - Mexico said on Monday it would reject a U.S. idea to take in all Central American asylum seekers if it is raised at talks this week with the Trump administration, which has threatened to impose tariffs if Mexico does not crack down on illegal immigration.

President Donald Trump said last week he would impose a blanket tariff on Mexican imports on June 10 to try to pressure Mexico to tackle large flows of mostly Central American migrants passing through en route to the United States.

The threat roiled global markets, already being hit by a trade war between the United States and China. The price of oil fell on Monday as U.S. trade disputes with the two countries deepened concerns about weakening global crude demand.

Mexican Economy Minister Graciela Marquez said in a statement that the tariffs would affect all 50 U.S. states and harm value chains, consumers and trade-related jobs in both countries.

Mexican Foreign Minister Marcelo Ebrard said the country was committed to continuing to work to keep migrants from Central America from reaching the U.S. border.

He said, however, that a proposal favored by some U.S. officials to designate Mexico a "safe third country," which would force Central Americans seeking asylum in the United States to apply for it instead in Mexico, was not an option.

"An agreement about a safe third country would not be acceptable for Mexico," Ebrard told reporters in Washington. "They have not yet proposed it to me. But it would not be acceptable and they know it."

Ebrard will meet U.S. Secretary of State Mike Pompeo during the talks, which will also involve other senior officials.

The negotiations in Washington will be closely watched by financial markets concerned that import tariffs would ultimately hit the U.S. economy by adding to the cost of a wide range of goods in the United States, from Mexican-made cars and auto parts to televisions, beer and food.

Mexican Agriculture Minister Victor Villalobos said in a statement the proposed tariffs would cause economic damage to the agriculture sector of $117 million a month in both countries. He did not specify at what level of tariffs that damage would occur.

Mexican trade officials said last week that they would retaliate if the tariffs were imposed, although they did not provide details on what the response would be.

U.S.-based Mexican-themed fast-food chain Chipotle Mexican Grill Inc estimated a $15 million hit from the proposed tariffs, and said it could cover that by raising its burrito prices by around 5 cents.

U.S. business groups have opposed the tariff plan and the U.S. Chamber of Commerce is looking at ways to challenge it, including legal options.

U.S. PRIORITIES?

In a possible sign of U.S. priorities in the talks, which are due to run through at least Wednesday, acting Homeland Security Secretary Kevin McAleenan said on Sunday that Mexico should deploy more personnel to stop migrants along a remote stretch of border with Guatemala.

McAleenan also said Mexico should bolster its own immigration screenings along that border, crack down on criminal networks transporting migrants and enable more migrants to wait in Mexico while they apply for asylum in the United States.

Since January, President Andres Manuel Lopez Obrador's government has ramped up detentions and deportations, but that has not been enough to stop the growing tide of families reaching the United States, mainly from Guatemala and Honduras. Many of them are trying to escape poverty and violent crime.

Trump and fellow Republicans say something needs to be done to stem the biggest migrant surge on the border in a decade.

U.S. officials say 80,000 people are being held in custody, and the more than 100,000 migrants who arrived in April are overwhelming Border Patrol officials.

In its biggest concession to Trump so far, Mexico agreed in December to receive some Central Americans seeking asylum in the United States to await the resolution of their cases.

So far, 8,835 people have been sent into Mexico under the program, commonly known as "Remain in Mexico."

The Mexican economy, which is heavily reliant on exports to the United States, shrank in the first quarter and would reel under U.S. levies that would start at 5% but could reach as high as 25% this year under Trump's plan.

Goldman Sachs economists gave a 70% chance of the tariffs on Mexican imports coming into effect at 5% on June 10.

As a proportion of Mexico's total U.S. exports in 2018 - $347 billion, according to U.S. data - a 5% tariff implies costs of roughly $1 billion between June 10 and 30.

U.S. stock index futures fell on Monday as the multi-front trade war made investors increasingly risk averse and fueled worries of a recession. The market then went into the red after regulatory fears sent shares of internet giants Alphabet Inc , Facebook Inc and Amazon.com Inc sharply lower.

Trump, who has embraced protectionism as part of an "America First" agenda aimed at reshaping global trade, said in a tweet last Thursday that he would ratchet up tariffs on Mexico "until the Illegal Immigration problem is remedied."

During a visit to Britain on Monday, Trump returned to the subject on Twitter.

"As a sign of good faith, Mexico should immediately stop the flow of people and drugs through their country and to our Southern Border. They can do it if they want!" he wrote.

Mexican officials in Washington warned on Monday that the tariffs could backfire, fanning further migration by hammering regional economies.

"Tariffs, along with the decision to cancel aid programs to the northern Central American countries, could have a counterproductive effect and would not reduce migration flows," Mexico's ambassador to the United States, Martha Barcena, told a news conference.

Approval of a deal to revamp the North American Free Trade Agreement among Mexico, the United States and Canada could be hampered by the latest dispute over immigration, said Jesus Seade, Mexico's deputy foreign minister for North America.

Goldman Sachs economists cut their chances that the new USMCA trade agreement - which must be passed by the three countries - will be ratified this year to 35% from 60%.

(Reporting by Alexandra Alper and Frank Jack Daniel; Additional reporting by Dave Graham in Mexico City and Makini Brice and Susan Heavey in Washington; Editing by Frank Jack Daniel, Alistair Bell and Peter Cooney)