Mexico’s recent legislative approval of enhanced tariffs (5–50%) on imports from countries without a Free Trade Agreement (FTA), including India and the main target China, is set to reshape trade flows and potentially escalate consumer costs.
Key Takeaways from the Decision
- Tariff Scope and Scale: The new duties, affecting over 1,400 products, take effect in 2026. Tariffs range from 5% to 50%, with Chinese cars facing the steepest 50% duty.
- Target: China and Non-FTA Nations: While the measure affects countries like India and South Korea, it is widely viewed as a proxy for US pressure on Mexico to curb the flow of Chinese goods ahead of the 2026 review of the US-Mexico trade agreement. Mexico’s finance ministry estimates the tariffs will raise nearly 52 billion pesos ($2.8 billion) in revenue.
- India’s Impact: India, which exported $5.7 billion worth of goods to Mexico in 2024-25 (only 1.3% of its total exports), is a secondary casualty. However, in absolute terms, specific sectors are significantly hurt:
- Automobiles: Passenger car exports, a major sector (worth $800 million to $1 billion annually), face a massive jump from 20% to a 50% tariff. This could lead to a 25–40% decline in affected export categories.
- Other Sectors: Iron and steel face 35–40%, auto components 25–50%, and textiles/apparel/footwear 30–35%.
- Industry Response: The Society of Indian Automobile Manufacturers (SIAM) had urged the Indian government to press Mexico for a “status quo” on tariffs, arguing that Indian compact cars pose no threat to local Mexican industry.
- India’s Diplomatic Push: India is currently working to fast-track a bilateral FTA or at least a partial pact covering automobiles and steel to mitigate the damage.
US-India Tariff Talks Continue
On the US front, Indian PM Narendra Modi held a “warm and engaging” phone call with US President Donald Trump, reviewing bilateral progress. This comes amidst ongoing trade negotiations that hit turbulence earlier this year, particularly over India’s market access for US farm products and its continued oil trade with Russia, which has led Trump to impose tariffs of up to 50% on certain Indian imports.