Mexico has decided to impose very high tariffs, going up to 50%, on several goods imported from India and other Asian countries that do not have a trade agreement with Mexico. This decision comes at a time when the Mexican government, led by President Claudia Sheinbaum, is facing strong pressure from the United States to reduce business ties with China. Many local businesses in Mexico are unhappy with the move, saying these higher tariffs will increase costs and make products more expensive.

The new tariffs apply to a wide range of products, including auto parts, small cars, toys, clothing, textiles, plastics, furniture, footwear, steel, appliances, leather goods, aluminum, paper, perfumes, cosmetics, motorcycles, soaps, trailers, cardboard and glass.

India-Mexico trade

India’s automobile exports are expected to be hit the hardest. According to a Reuters report, about $1 billion worth of cars shipped from India each year will be affected. Companies like Volkswagen, Hyundai, Nissan and Maruti Suzuki rely heavily on Mexico as an export market. The Society of Indian Automobile Manufacturers (SIAM) had even written to India’s commerce ministry, asking it to urge Mexico to keep the old tariff rates unchanged. They warned that the tariff hike would directly hurt India’s automobile exports.

Mexico is India’s third-largest car export market after South Africa and Saudi Arabia. Many Indian carmakers depend on exports to keep their factories running efficiently, achieve economies of scale and balance periods of slow domestic sales. With the new tariffs, these companies may now have to rethink their export strategies.

Volkswagen will be the most affected, as its India unit accounts for nearly half of all cars India sends to Mexico. Hyundai exported around $200 million worth of vehicles last year, Nissan $140 million, and Suzuki $120 million.

Carmakers also pointed out that most Indian cars sent to Mexico are compact models with engines under 1 litre, specially made for the Mexican market. They argued that India’s cars do not compete with Mexico’s high-end vehicles meant for North America.

Why Mexico is imposing tariffs

Mexico says the tariff hike is part of its plan to strengthen the domestic market and reduce reliance on imports. However, experts believe the real reason is pressure from the U.S. Mexico wants better terms under the USMCA trade agreement and hopes that imposing tariffs will help in negotiations.

Economists warn that this move could disrupt supply chains, raise inflation and hurt several sectors such as plastics, chemicals, textiles and auto parts. Many lawmakers in Mexico also felt the bill was rushed and needed more study.

Impact on India-Mexico trade

India and Mexico share a strong trade partnership. Their total trade grew from $7.9 billion in 2019-20 to over $8.4 billion in 2023-24, according to CII data. But now, with duties rising by up to 35% on several goods and car import duty jumping from 20% to 50%, the automobile industry is expected to face the biggest challenge.