Imports from India and a number of other Asian countries without trade agreements with Mexico City are subject to levies as high as 50%.
The administration of Mexican President Claudia Sheinbaum is under tremendous pressure from Washington to cut business connections with China, and this move follows the example set by the United States.
Local business associations have criticized the action, warning that it will increase expenses for businesses and consumers.
Auto parts, light vehicles, toys, textiles, plastics, furniture, footwear, steel, household appliances, leather goods, aluminum, paper, trailers, glass, soaps, cardboard, motorbikes, fragrances, and cosmetics are just a few of the many things that are targeted by the new duties. Hikes of up to 35% are expected in many sectors, but the automotive industry is most likely to be negatively impacted.
Shipments of $1 billion from significant Indian automakers, including as Volkswagen and Hyundai, are anticipated to be impacted by the increased levies.
Despite their great distance from one another, India and Mexico have developed a strong trading partnership. According to data from the Confederation of Indian Industry, bilateral trade increased from $7.9 billion in 2019–20 to above $8.4 billion in 2023–2024. Automobiles accounted for about $1 billion of India’s $5.3 billion in exports to Mexico during the most recent fiscal year.
The $1 billion in shipments from major Indian exporters including Volkswagen, Hyundai, Nissan, and Maruti Suzuki are at risk due to the increase in auto tariffs from 20% to 50%. Nearly half of India’s automobile exports to Mexico are made by Skoda Auto Volkswagen, Volkswagen’s Indian subsidiary. Suzuki comes in at $120 million, Nissan at $140 million, and Hyundai at $200 million.
In November, these companies were represented by the Society of Indian Automobile Manufacturers (SIAM), which begged India’s trade minister to persuade Mexico to maintain the current tariff system. SIAM emphasized the “direct impact” on exports and requested diplomatic assistance in a letter. It emphasized that its higher-end production for North America is not in competition with Indian compact cars, which are designed for the Mexican market and usually have engines under one liter.
About two-thirds of Mexico’s yearly sales of 1.5 million passenger cars are imported, with only 6.7% coming from India. Officials were reassured by industry sources that these cars are intended for local demand rather than shipment to the United States.
However, the tariffs may force Indian automakers to reconsider plans aimed at Mexico, which is the country’s third-largest automobile export market after Saudi Arabia and South Africa.
For Indian automakers, exports are essential to reaching economies of scale, optimizing production, and compensating for slow domestic sales or narrow profit margins. Prior to the tariff approval, Piyush Arora, chief of Skoda Auto Volkswagen India, pointed out that India is a strong export hub to more than 40 nations, with Mexico valued for its increasing demand and affection for models built in India.
This development is consistent with an increase in protectionism around the world, including tariffs supported by US President Donald Trump. It undercuts Prime Minister Narendra Modi’s efforts to present India as a more affordable manufacturing option than China. Indian businesses may now have to make a strategic change due to supply chain disruptions and increased expenses.
Mexico is motivated by a combination of geopolitical forces and domestic protectionism. Despite concerns about inflationary risks and supply chain disruptions in areas including auto parts, plastics, chemicals, and textiles, Sheinbaum’s administration seeks to support domestic businesses and reduce dependency on imports. The economy, which is already slowing down, can experience more hardship.
Despite accusations of hurried consideration, the tariff bill was easily approved by Mexico’s lower house, with 281 votes to 24 and 149 abstentions. 35 senators abstained from voting, criticizing the lack of adequate research on the effects of inflation. The Mexican Institute for Competitiveness’s director of economic development, Oscar Ocampo, ascribed the change in policy primarily to US influence.
Ocampo connected the action to upcoming assessments of the USMCA free trade deal and Mexico’s requests for tariff exemptions on its exports to the US of steel, aluminum, and automobiles. He accused it of misguiding Mexico’s trade policy by caving in to an unpredictable US President Trump. The current US tariffs in these areas continue to be a problem for Mexico.
Responses from SIAM, the Indian government, and the impacted automakers remain unclear. Although no apparent responses have emerged, the increase might hasten efforts to diversify export markets or localize in Mexico. This highlights trade-dependent sectors’ vulnerability for India in the face of growing international obstacles.
In the long run, the tariffs might make India less competitive in the market for reasonably priced automobiles, encouraging investments in other locations or a stronger domestic emphasis. However, Indian exporters have to deal with a situation where protectionism is rapidly taking precedence over free trade as Mexico’s market dynamics change due to pressure from the US.
