Made in Mexico Trump's Shadow Over BMW Plant

Automaker BMW is building a new factory in Mexico to supply luxury cars to the United States. Donald Trump’s plans of a border tax, however, pose a risk to German investments in Central America.
Quelle: Pressebild
The profitability of BMW's Mexcian plant, scheduled to open production in 2019, is at risk because of Donald Trump.
(Source: Pressebild)

In July 2016, the blue Mexican sky shone down upon the BMW executives in San Luis Potosí, a city of 700,000 people less than 500 miles from the U.S. border.

Oliver Zipse, head of production at the luxury German carmaker, proudly broke the ground for the first BMW plant in Mexico.

The plant, costing around $1 billion, will set standards with electricity generated by solar panels, and water consumption at record lows. Assembly workers there will only make a few cents more than their colleagues in China, adding to the appeal.

From 2019 on, the plant will produce BMW 3 Series autos for the U.S., which is part of of the North American Free Trade Agreement together with Mexico and Canda. Thanks to the tariff-free moving of goods between the three countries, Mr. Zipse called the factory “a milestone for BMW’s future growth.”

Then Donald Trump won the presidential election.

Automakers were planning to invest a total of $11.6 billion in Central America by 2020. That was before Mr. Trump won the presidential election.

The real estate mogul’s victory at the polls is now threatening BMW’s Mexican milestone. On the campaign trail, Mr. Trump called the NAFTA free-trade agreement “the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country” and blamed it for the demise of industrial manufacturing in the United States.

He promised import duties of 35 percent on goods from low-cost Mexico once he assumes office. On Tuesday he threatened GM with a border tax for allegedly importing Chevy Cruz cars from Mexico. That same day, Ford had canceled plans to build a new factory in San Luis Potosí, the same city where BMW is building its plant.

If Mr. Trump goes through with a 35-percent import levy, the plan would render BMW’s new Central American plant uneconomical. The cars “hecho en México” would simply be too expensive for Americans.

The morning after the U.S. elections on November 8, Mr. Zipse’s boss, BMW's chief executive Harald Krüger, already called upon the future president to change his mind, saying that “we need free trade.”

But whether Mr. Trump agrees is doubtful. From Brexit leader Nigel Farage in Britain to Marine Le Pen in France, populist politicians everywhere are attacking the neo-liberal doctrine that free trade is beneficial. And they are surprisingly successful with that approach.

These attacks make life for international corporations increasingly unpredictable and difficult. When the people’s feelings count more than economic facts and opinions change from day to day, investment decisions abroad turn into a gamble.

Mexico was counting on export to the United States. The country was on its way to take over the title of third-largest car producer worldwide from Germany. Audi has just opened a plant; a Daimler factory is supposed to start production next year.

Automakers were planning to invest a total of €11 billion ($11.6 billion) in Central America by 2020. That was before Mr. Trump won the presidential election.

Now, these companies are pondering whether building factories would still be worthwhile even if NAFTA falls. They are checking whether cars made cheaply in Mexico can be exported to Europe and Asia too.

Many initially hoped that Mr. Trump had hyperbolized his opposition to free trade during the campaign and would dial it back after the election. But now it looks like he might mean business.

BMW, Daimler and VW are noticeably quiet when it comes to commenting on the topic. They want to avoid getting on the wrong side of the president-elect, who has already vented his discontent with U.S. corporations like airplane maker Boeing and defense giant Lockheed Martin through Twitter.

Speaking on the condition of anonymity, a source at BMW said: “Before Donald Trump is even in office, let alone anything is decided on NAFTA, we won’t comment on the topic.”


A version of this article was first published in WirtschaftsWoche. To contact the author: [email protected]