Mexico faces tough Trump era after Ford scraps plant

Mexico City: Mexico got a potential taste of life under Donald Trump's incoming presidency after Ford abruptly canceled plans to build a new factory in the country.

The US automaker's decision was widely interpreted in Mexico as the result of Trump's repeated criticism of the $1.6 billion project in the northern state of San Luis Potosi.

"Obviously it's not good news for us," Economy Minister Ildefonso Guajardo told local radio on Tuesday.

While Ford took into account a drop in demand for small vehicles that would have been built at the plant, Guajardo said the company was also influenced "by its particular situation" with regards to Trump.

The President-elect, who succeeds Barack Obama on January 20, thanked Ford for cancelling the project and creating 700 new jobs in the United States instead.

"This is just the beginning - much more to follow," Trump tweeted.

Trump has lambasted US companies that ship jobs to Mexico for its low wages and threatened to impose a 35% import tariff on them.

The Republican billionaire has also vowed to renegotiate the North American Free Trade Agreement (NAFTA) with Mexico and Canada, or withdraw from the pact.

Trump's priority is to "fulfill his election promise to not allow jobs to leave the United States," said Juan Francisco Torres Landa, corporate lawyer at international law firm Hogan Lovells.

Raymundo Tenorio, director of the finance program at the Monterrey Institute of Technology, said Ford's decision could be an example of the protectionist era that Mexico faces under Trump.

"The Republican government and Donald Trump are willing to negotiate any sort of (tax) incentives so that companies remain in the United States," Tenorio said.

To lead bilateral talks with the new US administration, President Enrique Pena Nieto brought his former finance minister Luis Videgaray back to his government, naming him foreign minister on Wednesday.

Videgaray had resigned in disgrace in September after it was revealed that he had orchestrated Trump's much-criticized pre-election meeting with Pena Nieto in Mexico City.

After taking his new post, Videgaray told foreign ministry officials, without naming a country, that "the challenge is enormous, the threats are there, but the opportunities and our strengths are also enormous."

Decision 'hurts' Mexico

For Mexico, Ford's decision meant the loss of 2,800 direct jobs in San Luis Potosi, where the plant was supposed to begin operations in 2018.

Instead, Ford, which has produced cars in Mexico since 1925, will invest $700 million over the next four years to expand its Flat Rock Assembly Plant in Michigan to build electric and self-driving vehicles.

The Ford Focus that was to be produced in San Luis Potosi will be made at an existing plant in the northwestern Mexican city of Hermosillo.

Ford's move also means that Mexico is losing new tax revenue while a dozen auto-part companies are losing business in San Luis Potosi, Tenorio said, adding that 75% of those firms are from Asia, Europe and the United States.

"Ford's decision hurts Mexico, but also American consumers and its shareholders because the company will lose competitiveness," former president Felipe Calderon wrote on Twitter.

Calderon said that Ford, General Motors and Chrysler were "almost bankrupt" during the 2009 crisis but "their investments in Mexico saved them."

Before Ford made its announcement, Trump took GM tasks, threatening to impose import tariffs on the company's Mexican-made Chevy Cruze models.

GM responded that the vast majority of its Cruze cars sold in the US are made in Ohio, with just a small percentage imported from a plant across the southern border.

Mexico 'ready' for dialogue

Guajardo downplayed concerns that other automakers may follow Ford's lead, saying the company's case was isolated.

But the economy minister reiterated Mexico's willingness to sit down with the Trump administration and Canada to "modernize" NAFTA.

"We are ready to begin dialogue immediately," he said.

Torres Landa said he did not see "a devastating scenario" for Mexico because "the fundamental decisions of efficiency and competitiveness remain present, independently of what Mr. Trump is saying."