Mexico is preparing to enforce a sweeping increase in import duties on thousands of products sourced from nations with which it does not have a formal trade agreement (FTA) — a move that will hit Indian exporters in a range of sectors, notably automobiles but also auto components, engineering goods, chemicals, steel, machinery, and consumer-oriented manufacturing.
The tariff overhaul, endorsed under
President Claudia Sheinbaum’s administration and cleared by both chambers of the Mexican Congress, marks one of the most extensive trade-policy recalibrations by Mexico in years, reported Reuters.
The new duties,
which will reach levels as high as 50 per cent, are scheduled to take effect on January 1, 2026. For India — now a significant commercial partner for Mexico in Latin America — the measures introduce considerable uncertainty at a time when bilateral trade has been expanding steadily.
What makes the change especially consequential is the scale of India’s exposure: automobiles alone accounted for nearly $1 billion of the $5.3 billion in goods India sent to Mexico last fiscal year.
But the implications go well beyond vehicles. More than 1,400 tariff lines will be affected, covering an array of goods in which India is a key supplier to Mexican industries.
What is changing in Mexico’s new tariff regime and why
Mexico, long regarded as one of the most open economies in Latin America, has chosen to adopt higher import duties on a wide range of goods entering the country from markets without trade agreements.
Countries affected include India, China, South Korea, Thailand, and Indonesia.
The tariff package raises import duties for hundreds of product categories. Although many goods will see increases of up to 35 per cent, several sectors — automobiles in particular — will face the maximum 50 per cent levy.
The aim, according to government officials and supporting lawmakers, is to fortify domestic manufacturing, protect local employment, and adjust to competitive pressures from lower-cost imports, which Mexican producers argue have undermined their ability to compete.
The policy also comes at a time when the United States, Mexico’s largest economic partner, has increased efforts to
reduce China’s footprint in North American supply chains.
The US has encouraged countries in the region to limit reliance on Chinese inputs, especially ahead of the upcoming review of the United States-Mexico-Canada Agreement (USMCA).
Mexico’s tariffs notably resemble recent US trade actions, including heightened levies announced earlier in the year by the Trump administration on imports from India and several other Asian countries.
Although Sheinbaum stated that the latest duties were not designed in response to demands from Washington, the structure of the tariff adjustments reflects similarities with American approaches.
A separate analysis cited by Bloomberg noted that the configuration of these tariffs closely aligns with US efforts to curb the entry of Chinese goods into North American networks.
Mexico’s finance ministry estimates that the new duties will generate close to 52 billion pesos (about Rs.19,000 crore) in additional revenue for the next fiscal year.
Another projection, referenced in a Reuters analysis, indicated that the tariff package could yield $3.76 billion in fiscal gains, helping to alleviate Mexico’s budgetary pressures.
Senior policymakers argue that the new tariff structure is needed to ensure that Mexican manufacturers remain viable in the face of aggressive competition from Asian suppliers.
How auto sector will bear the brunt
Among the industries most exposed to the new tariff framework is India’s automobile sector, which has cultivated Mexico as one of its most important destinations for compact cars produced in India.
The import duty on vehicles from India will increase from 20 per cent to 50 per cent — a drastic change with the potential to alter export strategies for manufacturers such as Volkswagen, Hyundai, Nissan, and Maruti Suzuki, all of which supply significant volumes to Mexico.
Industry data and customs records show the depth of this dependence. India exported roughly $1 billion worth of vehicles to Mexico in the last fiscal year.
This includes shipments worth $200 million by Hyundai, $140 million by Nissan, and $120 million by Suzuki.
India-made Skoda and Volkswagen vehicles constitute nearly half of all Indian car exports to Mexico, highlighting how central this market has become for these manufacturers.
Ahead of the tariff decision, the Society of Indian Automobile Manufacturers (SIAM) wrote to India’s Ministry of Commerce urging government intervention to try and preserve current tariff levels for Indian vehicles.
In the letter, SIAM warned, “The proposed tariff hike is expected to have a direct impact on Indian automobile exports to Mexico…we seek Government of India’s support to kindly engage with the Mexican government.”
The industry group also noted that India’s vehicles do not compete directly with the high-end models that Mexico produces for the North American market, stating, “Indian-origin vehicles are not a threat to Mexican local industry as Indian vehicles do not cater to high-end segments manufactured by Mexico for serving the North American market.”
Manufacturers told officials in India that the bulk of vehicles exported to Mexico are compact models with engines below one litre, tailored specifically to Mexican needs. They emphasised that these vehicles do not serve as re-exports to US markets.
Before the tariff changes were enacted, Piyush Arora, managing director of Skoda Auto Volkswagen India, highlighted Mexico’s strategic value, telling Reuters, “Mexico has consistently been one of our important export markets, given the rising demand there and the traction of our India-made models.”
The tariff spike now forces companies to re-evaluate production and export schedules. For many automakers in India, exports help maintain plant utilisation, ensure economies of scale and offset domestic market fluctuations.
The new Mexican regime may compel them to reconsider these long-standing business strategies.
How non-automotive sectors could be hit
While the automobile industry faces the most immediate disruption, several other Indian sectors are likely to experience increased costs and reduced competitiveness due to higher duties.
Items such as plastics, textiles, steel products, machinery, and auto parts will see hikes of up to 35 per cent.
Exports of machinery, mechanical appliances, and engineering equipment — over half a billion dollars in trade last year — may see higher landed costs, making Indian equipment less price-competitive in Mexican markets.
With more than $500 million in electronic exports annually, this segment includes components often used in Mexican assembly operations. Higher tariffs could reduce margins for Indian firms that supply intermediate goods to manufacturers in Mexico.
Chemicals, plastics and ceramic products account for hundreds of millions of dollars in Indian exports. Each is included in the category of goods facing duty increases of up to 35%.
India exported $236 million worth of iron and steel, and over $300 million worth of aluminium products to Mexico during the most recent year. Many Mexican industries — including construction and automotive parts manufacturing — rely on these imports.
Textiles and consumer goods sectors were specifically flagged by Mexican import-dependent manufacturers, who warned that higher duties on sourcing from India and other Asian economies would likely drive up prices for consumers and raise inflationary pressures.
How Indian trade with Mexico has evolved
Despite being separated geographically by half the globe, India and Mexico have developed a robust commercial relationship.
Over the past five years, two-way trade has climbed from $7.9 billion in 2019-20 to more than $8.4 billion in 2023-24, according to data from the Confederation of Indian Industry (CII).
India’s exports to Mexico rose from $3.6 billion to $5.3 billion during this period, marking a compound annual growth rate of 10.1 per cent.
Meanwhile, imports from Mexico into India have declined, pushing India’s trade balance into surplus. A deficit of $0.7 billion in 2019-20 shifted to a surplus of $2.2 billion in 2023-24.
India’s top exports to Mexico (2023-24):
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Vehicles (excluding rail): $1,697 million
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Machinery and mechanical appliances: $521 million
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Electrical machinery and equipment: $509 million
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Organic chemicals: $337 million
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Aluminium products: $302 million
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Iron and steel: $236 million
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Pharmaceutical products: $212 million
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Articles of iron or steel: $176 million
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Ceramic goods: $142 million
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Plastics: $118 million
Indian businesses have also invested extensively in Mexico. More than 200 Indian firms — spanning IT services, pharmaceutical production, automotive manufacturing, and engineering — operate in the country, with total cumulative investments reaching around $4 billion as of March 2024.
In the opposite direction, Mexican companies have invested about $331 million in India between April 2000 and June 2024. Notable Mexican firms with a presence in the Indian market include Cinepolis, Softtek and Metalsa.
Given this significant economic integration, the tariff hikes will influence far more than vehicle exports. Industries dependent on Mexico as a base for continental or regional market access will have to reassess cost structures, supply chains and long-term planning.
How Mexico is shifting towards protectionism
The policy represents a notable deviation from the country’s earlier commitment to unfettered trade. For decades, Mexico positioned itself as a manufacturing hub deeply integrated into North American supply chains.
Its economic model relied on importing industrial inputs from Asia and exporting finished goods to the US and Canada.
But domestic manufacturers, especially in the automotive sector, have raised alarms over China’s rapid expansion in the Mexican market.
Chinese companies now hold approximately 20 per cent of Mexico’s automobile market — a notable jump from minimal presence six years ago. Local auto groups, concerned about the pace of this growth, strongly supported the tariff increases as a means of preserving competitiveness.
But within Mexico, PAN [National Action Party] Senator Mario Vázquez criticised the policy, arguing that higher duties effectively impose a financial burden on consumers. He stated that the tariff package “acts as a tax on consumers” and questioned how the additional money would be spent.
In contrast, Emmanuel Reyes from the ruling Morena party defended the bill, asserting that the tariff overhaul would “strengthen Mexican products in global supply chains and protect jobs in priority sectors.”
Even though the final version of the tariff schedule softened earlier proposals that sought steep duties across nearly all affected categories, the approved structure still delivers one of the most substantial trade-policy shifts Mexico has undertaken in years.
The legislation also grants expanded authority to the Ministry of Economy to
modify tariffs on non-FTA countries without requiring new legislative steps.
This could lead to frequent adjustments in the coming months, particularly as North American partners tighten scrutiny on Chinese supply-chain rerouting.
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With inputs from agencies
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