WASHINGTON - US-Mexican relations were rocked Thursday as Donald Trump's administration suggested taxing imports from the southern neighbor to fund a border wall and Mexico's president scrapped a meeting with the US leader.

Trump had been scheduled to receive Pena Nieto at the White House on Tuesday, for their first meeting since the inauguration.

Instead, the Republican president is managing a foreign policy spat with a normally friendly nation and key trade partner during his first week in office.

The escalating war of words over who would pay for the proposed border wall -- a central pledge made by Trump during his successful presidential campaign -- hit the breaking point on Thursday.

"If Mexico is unwilling to pay for the badly needed wall, then it would be better to cancel the upcoming meeting," Trump said on Twitter in the morning.

Pena Nieto, who had good relations with former US president Barack Obama, didn't take long to rise to the challenge.

"We informed the White House this morning that I will not attend the working meeting scheduled for next Tuesday" with Trump in Washington, the Mexican leader responded on Twitter.

"Mexico reiterates its willingness to work with the United States to reach agreements in both nations' interests."

Hours later, Trump told Republican lawmakers at a retreat in Philadelphia that the cancellation was by mutual agreement.

"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. I have no choice," he said.

White House spokesman Sean Spicer said the "lines of communications" would remain open and Washington hoped to "schedule something in the future."

- Big price tag -

But in a move that is sure to increase tensions, Spicer later said that Trump could fund the wall's construction by slapping a 20 percent tax on goods from Mexico.

"By doing that, we can do $10 billion a year and easily pay for the wall just through that mechanism alone," he said.

Spicer did not say whether the tax would violate the terms of the North American Free Trade Agreement (NAFTA), which Trump's administration wants to renegotiate with Canada and Mexico.

Trump signed an order Wednesday for work to begin on building a wall along the 2,000-mile (3,200-kilometer) border.

But the US leader has struggled to articulate how the wall will be paid for, though he has suggested recently that the United States would fund it first and Mexico would reimburse the cost later.

During the campaign, Trump threatened to tap into remittances that Mexican migrants send home, which last year amounted to $25 billion.

Trump has also ordered officials to scour US government departments and agencies in search of "direct and indirect" aid or assistance to the Mexican government and report back within 30 days.

Republican leaders announced Thursday they would try to carve out $12-15 billion worth of US taxpayers' money for the project.

Trump also ordered a survey of the border to be completed within 180 days.

Much of the land needed to build the wall would have to be seized from private citizens in Texas, the state of Texas or tribal authorities.

That could result in long court battles and hefty expropriation payments.

- Mexican leader lauded at home -

While Pena Nieto repeated late Wednesday that Mexico will never pay for the wall, he dithered on whether to travel to Washington despite pressure to do so from Mexican politicians.

After he decided to scrap the trip, the unpopular Mexican leader, whose approval rating is below 25 percent, was applauded by opposition leaders and other politicians.

"Bravo @EPN! Mexico deserves dignity and respect, we can't have dialogue when neither exists," former president Vicente Fox wrote on Twitter.

Around two in three Mexicans have a favorable opinion of the United States, according to Pew surveys, but anti-American and anti-Trump sentiment is not uncommon.

Pena Nieto saw his own approval rating slide late last year, after he hosted Trump -- then still a White House candidate -- in Mexico City.

- NAFTA a 'one-sided deal'? -

Trump also took to Twitter on Thursday to gripe about the trade gap between Mexico and the United States.

"The US has a 60 billion dollar trade deficit with Mexico. It has been a one-sided deal from the beginning of NAFTA with massive numbers of jobs and companies lost," he said.

That deficit for the trade in goods is slightly higher than the overall trade deficit -- including services -- of $49 billion in 2015.

The NAFTA renegotiation could provide one way for Trump to claim victory, through increased tariffs on Mexican goods or higher border transit costs.

But it could also risk retaliatory tariffs or blowback from US firms that export $267 billion a year south of the border.