Donald Trump hasn’t even been sworn in as president yet and he’s already wreaking havoc in Mexico’s economy.
Ford said Tuesday it’s scrapping a $1.6 billion plant it had sought to build in Mexico. The automaker’s decision, together with Trump’s threat to slap tariffs on General Motors, is casting doubt on more than $20 billion in spending in a sector that’s become Mexico’s biggest source of foreign investment. The peso fell to a record low of 21.4782 per dollar on Wednesday.
Ford’s move, which follows a similar decision by United Technologies Corp.’s Carrier in November, makes it all the more important for Mexican President Enrique Pena Nieto to dissuade other foreign companies from following suit in the face of Trump’s wrath. Mexico’s northern neighbor buys 80 percent of the Latin American nation’s exports, and luring U.S. companies is a cornerstone of the government’s plans to modernize industries from construction to oil.
“A lot’s at stake, considering that since 1999 close to 46 percent of foreign direct-investment flows into Mexico originated in the U.S.,” said Alonso Cervera, chief Latin America economist for Credit Suisse Group. “Investors will likely be anxious to see which other companies may do the same.”
The damage caused by companies buckling under political pressure offers a preview of the ripples that could jolt Mexico’s economy should Trump also follow through with threats to tear up free-trade agreements and to build a border wall. Economists in Bloomberg surveys have already cut their median forecasts for GDP growth in 2017 to 1.7 percent from an estimate of 2.3 percent before Trump was elected.
Concern is rising that Detroit-based GM may be next to bow to pressure after it was called out by Trump in a tweet Tuesday. In later 2014, the carmaker pledged $5 billion in new investments in Mexico, but has made few public announcements on how it will spend its money as it chose to fly under Trump’s radar during the campaign.
GM was set to unveil an $800 million investment this year for its global small-car lineup that includes a factory retooling in San Luis Potosi, the same state as Ford’s canceled factory, according to two people with direct knowledge of the matter. The plant and another facility in Mexico were also scheduled to build the all-new Chevy Equinox sport-utility vehicle this year, according to the people. The production of the GMC Terrain vehicle production is also to be moved to Mexico, according to two people with knowledge of the matter.
GM spokesman Pat Morrissey declined comment.
After Ford’s decision, GM probably won’t publicize its projects anytime soon, said Ron Harbour, a partner at New York consulting company Oliver Wyman Group.
“I’m sure we’re not going to hear more announcements from the Big Three in Detroit,” he said. “They’re going to wait and see if Trump makes any changes to NAFTA.”
Toyota, which broke ground in November on a $1 billion plant in Guanajuato, has made no change in plans to build Corolla compacts there from 2019, spokeswoman Kelly Stefanich said. BMW’s construction of a 3 Series sedan plant in San Luis Potosm is “moving briskly along” in order to start production the same year, according to spokesman Kenn Sparks.
Nissan, which together with Daimler is investing $1 billion in a plant in Aguascalientes, said its business plans “remain unchanged,” according to spokesman Brian Brockman. The Mexican plant is scheduled to start producing cars this year.
Economy Minister Ildefonso Guajardo told Milenio TV Tuesday that “the best strategy is to analyse how modernizing NAFTA can strengthen competitiveness of our region, and realize that thanks to joint job creation we can be stronger in confronting other regions.”
That response to Ford’s decision and Trump’s pressure underplays the risk to Mexico’s economy, said former Foreign Minister Jorge Castaneda.
Mexico should make clear to its citizens “that we are in an emergency situation,” he said on El Financiero Bloomberg TV. “It’s not the first and it won’t be the last investment of this size that will be canceled.”
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