Why Mexico's 50 pc import duty to placate US hurts India's car exports
The tariffs are meant to block Asian re-routing under USMCA rules, signalling alignment with Washington while undercutting India’s exports
Mexican President Claudia Sheinbaum’s government on December 10 approved tariffs of up to 50 per cent on several Asian countries with whom Mexico does not have a Free Trade Agreement (FTA), including India.
In reality, these tariffs have been in place since April 2024. What has changed, however, is that the earlier tariffs were put in place by the Andrés Manuel López Obrador administration and were a temporary measure limited to 544 product lines from countries with whom Mexico did not share an FTA. It was set to expire in April 2026.
The new set of tariff legislation by the Mexican Congress, however, is set to transform this temporary measure, which was initially passed as an executive decree into a Congressional Law, whose ambit will now extend to 1,463 product lines.
Impact on India's car industry
This is to take effect from the January 1, 2026. The products which attract these tariffs are automobiles, auto-parts, motorcycles, iron and steel, aluminium, smartphones and electronics, textiles and apparel, footwear and leather goods, industrial machinery, and plastics and chemicals.
While most of the tariffs are capped at 35 per cent, automobiles face a hefty 50 per cent duty.
These developments have significant consequences for India’s industry. Particularly so because Mexico is India’s third-largest car export market. Manufacturers such as Maruti-Suzuki and Tata could find their vehicles uncompetitively priced overnight in the Mexican market.
Reason for tariffs
Why have these tariffs been implemented?
Primarily, this has to do with Mexico’s trade relations with the US — the two share an FTA. However, goods from Asia – particularly China – were shipped to Mexico, where minimal assembly was taking place, and then sold to the US after being branded 'Made in Mexico', exploiting the United States-Mexico-Canada Agreement (USMCA).
Also read: ‘Pax Silica’ minus India: Another US snub to India to gain wider market access?
To counter this, on February 1, the Trump administration imposed a blanket 25 per cent tariff on all Mexican imports. The tariffs extended by the Sheinbaum administration on December 10 are effectively a peace offering to Washington, as well as a signalling that Mexico is willing to cooperate to build a ‘Fortress North America’ against Asian industrial imports.
The Mexican government would also have in mind the USMCA joint review meeting slated for July 1, 2026. This would allow it to join the negotiations with a clean slate. By raising tariffs against non-FTA countries, a major American pain point over the flood of cheap Asian steel and electronic vehicles is addressed.
Pushing for local
Amidst the present protectionist trade climate, the Mexican government is also trying to protect its domestic jobs. These tariffs would force companies that presently source parts from India and China to purchase them from Mexican factories instead.
What would also weigh on the mind of the Mexican government is the present trade deficit with China, from which $14 is imported for every 1$ exported. The goal appears to be to promote local manufacturing to diminish that gap.
There is also the country’s national deficit to keep in mind. The tariffs that have been levied will generate $3.76 billion for the government, allowing it to fund its social programmes and infrastructural projects without raising taxes.
Balance of trade
The Indian government is aware of how this will effect exports, and that an FTA may take years to negotiate. Commerce Secretary Rajesh Agrawal has said talks are on for a Preferential Trade Agreement in its place.
Regarding the balance of trade between India and Mexico, the value of merchandise that crosses borders is $8.74 billion as of 2024, with exports consisting of $5.73 billion, imports $3.01 billion and a trade surplus of $2.72 billion.
Also read: Mexico slaps steep tariffs on Asian imports; India among countries hit
Indian industry will now have to, at least temporarily, find an alternative market for the share of its automotive and engineering goods that in the pre-tariff era found purchase in Mexico.
Not so glum for India
This is not necessarily a glum situation as India, on July 24, 2025, signed an FTA with the UK, which allows duty free export access for auto components, textiles and leather, and commodities that were hit by the Mexican tariffs. Also, last year, a deal was signed with European Free Trade Association countries such as Switzerland, Norway, Sweden and Lichtenstein. This opens a market for engineered goods and pharmaceuticals.
There is also the Comprehensive Economic Partnership Agreement between India and the UAE that can be utilised to re-route Mexica-bound products. Both the UAE and Saudi Arabia are seeing double-digit growth in the demand for electronics from India.
Alternative markets
For lower cost vehicles and motorcycles, Indian exporters are looking to African countries such as Egypt, Nigeria and South Africa. Egypt itself saw a growth of 27 per cent as a market for Indian exports as of 2025.
To the east, while there is significant competition from China, Indian exports of auto components found markets in Vietnam and Indonesia. Domestically, there has been a noted demand for SUVs and mid-sized cars, which can offset some of the production intended for Mexico. This market is projected to grow at 6-8 per cent in 2026.
