WASHINGTON (Reuters) - Mexican officials met with their U.S. counterparts for talks in Washington on Wednesday aimed at reaching a deal to stave off the imposition of U.S. tariffs on Mexican goods next week, even as their government prepared to retaliate if duties go ahead.

Frustrated by the lack of progress on a signature issue from his 2016 election campaign, U.S. President Donald Trump unexpectedly told Mexico last week to take a harder line on curbing illegal immigration or face 5% tariffs on all its exports to the United States starting on Monday, rising to as much as 25% later in the year.

If the tariffs go ahead, the United States would be in a serious dispute with two of its three top trading partners. U.S. relations with China have worsened in the past month as Washington and Beijing have imposed additional tariffs on each others’ imports.

Mexico wants to stop a trade war that analysts believe might tip its economy into a recession and Mexican President Andres Manuel Lopez Obrador has said he is optimistic that the talks in Washington could lead to an agreement.

But his administration is preparing for a no-deal outcome, too.

Lopez Obrador has an official list of U.S. products that could be subject to retaliatory tariffs if the duties take effect, officials said in Mexico City.

The list is principally tailored towards products from agricultural and industrial states regarded as Trump’s electoral base, according to one of the sources.

U.S. Vice President Mike Pence was chairing the meeting on Wednesday afternoon with Secretary of State Mike Pompeo and Mexican Foreign Minister Marcelo Ebrard to try to broker an agreement. “We have a crisis on our Southern Border. POTUS has made clear that Mexico must do more,” Pence tweeted before the meeting.

U.S. border officers apprehended more than 132,000 people crossing from Mexico in May, the Trump administration said on Wednesday, the highest monthly total in more than a decade and reaching what officials said were “crisis” levels. Many are Central American families seeking asylum.

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It was unclear what Mexico would offer to solve the dispute. An industry source who has met with the Mexican delegation said that ideas being floated include more border controls and joint security exercises on Mexico’s southern border with Guatemala, which Central American migrants pass through on their way to the United States.

The leftist administration of Lopez Obrador will make demands of its own, Mexican government sources said. It wants more economic aid and development for Central America to attack the root of migration, the sources said.

With the clock ticking towards U.S. elections in 2020, Trump is facing resistance within his own Republican Party over the threatened tariffs. Many lawmakers are concerned about the potential impact on cross-border trade and on U.S. businesses and consumers.

John Thune of South Dakota, the No. 2 Senate Republican, told reporters: “We have conveyed our concerns to the administration. There are a good number of Republican senators who have expressed both publicly and privately to the White House their concerns about this.”

White House trade adviser Peter Navarro told CNN the tariffs might not be needed because the threat alone was enough to “have the Mexicans’ attention.”

During a visit to Ireland, Trump said Mexico could still stop the tariffs being imposed. “Mexico can stop it. They have to stop it, otherwise we just won’t be able to do business,” he said. “I think they want to make a deal, and they sent their top people to try and do it.”

DEAL TALK

Mexican officials will offer a “long list of things” in Wednesday’s talks to avoid the duties, said Chuck Grassley, Republican chairman of the U.S. Senate Finance Committee. Grassley said a deal could be announced on Thursday night.

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Grassley represents the farming state of Iowa, which exports pork and other agriculture products to Mexico and might be hit by Mexican retaliation in a prolonged trade dispute.

The proposed tariffs have also been criticized by the U.S. Chamber of Commerce and industry groups due to concerns about increased costs for U.S. businesses and consumers of imported Mexican goods from cars and auto parts to beer and fruit.

Migration at the southern border is still lower than at other peak periods since the 1970s. U.S. authorities have said they are overwhelmed not so much by the number of migrants but by a shift in the type of person turning up at the border.

Increasing numbers of Central American families and unaccompanied minors seeking asylum after fleeing criminal violence in their home countries have been turning themselves in to U.S. border agents, who have long been geared up to catch mainly single, adult Mexicans trying to cross clandestinely.

“Our nation is experiencing an unprecedented border security and humanitarian crisis on the southwest border, both at and between our ports of entry,” Randy Howe, the executive director for operations, Office of Field Operations at U.S. Customs and Border Protection (CBP), told reporters on a call.

Howe said that on Tuesday alone, CBP apprehended more than 4,100 people and had 19,293 people in custody. “We are bursting at the seams. It is unsustainable,” Howe said.