Ford has cancelled plans for a $1.6bn Mexican plant and vowed to make future electric and self-driving cars in Michigan, following threats from Donald Trump to impose punitive tariffs over its plans to shift manufacturing south of the US border.

The company said on Tuesday that “tax and regulatory reforms” proposed by the president-elect led to its decision to invest $700m in its factory in Flat Rock, Michigan, where it will create 700 new jobs and build a suite of new electric and hybrid vehicles, and to abandon its project in San Luis Potosi, Mexico.

The decision came after stinging criticism from Mr Trump on the campaign trail over Ford’s plans to move production of smaller cars to Mexico, and just hours after the president-elect threatened General Motors with a “big border tax” over its Mexican production. It also came the same day the property tycoon picked a longstanding protectionist to serve as US trade representative.