Why is Mexico raising tariffs on Indian goods? How big will the impact be?

Mexico is getting ready to implement a sweeping enhance in import duties on hundreds of merchandise sourced from nations with which it doesn’t have a proper commerce settlement (FTA) — a transfer that can hit Indian exporters in a spread of sectors, notably vehicles but additionally auto elements, engineering items, chemical substances, metal, equipment, and consumer-oriented manufacturing.

The tariff overhaul, endorsed below
President Claudia Sheinbaum’s administration and cleared by each chambers of the Mexican Congress, marks one of the vital intensive trade-policy recalibrations by Mexico in years, reported Reuters.

The brand new duties,
which can attain ranges as excessive as 50 per cent, are scheduled to take impact on January 1, 2026. For India — now a major business companion for Mexico in Latin America — the measures introduce appreciable uncertainty at a time when bilateral commerce has been increasing steadily.

What makes the change particularly consequential is the dimensions of India’s publicity: vehicles alone accounted for practically $1 billion of the $5.3 billion in items India despatched to Mexico final fiscal 12 months.

However the implications go effectively past automobiles. Greater than 1,400 tariff traces shall be affected, protecting an array of products wherein India is a key provider to Mexican industries.

What’s altering in Mexico’s new tariff regime and why

Mexico, lengthy considered one of the vital open economies in Latin America, has chosen to undertake greater import duties on a variety of products coming into the nation from markets with out commerce agreements.

Nations affected embody India, China, South Korea, Thailand, and Indonesia.

The tariff bundle raises import duties for a whole lot of product classes. Though many items will see will increase of as much as 35 per cent, a number of sectors — vehicles specifically — will face the utmost 50 per cent levy.

The goal, based on authorities officers and supporting lawmakers, is to fortify home manufacturing, shield native employment, and regulate to aggressive pressures from lower-cost imports, which Mexican producers argue have undermined their skill to compete.

The coverage additionally comes at a time when the US, Mexico’s largest financial companion, has elevated efforts to
scale back China’s footprint in North American provide chains.

The US has inspired nations within the area to restrict reliance on Chinese language inputs, particularly forward of the upcoming evaluation of the United States-Mexico-Canada Settlement (USMCA).

Mexico’s tariffs notably resemble current US commerce actions, together with heightened levies introduced earlier within the 12 months by the Trump administration on imports from India and a number of other different Asian nations.

Though Sheinbaum acknowledged that the most recent duties weren’t designed in response to calls for from Washington, the construction of the tariff changes displays similarities with American approaches.

A separate evaluation cited by Bloomberg famous that the configuration of those tariffs intently aligns with US efforts to curb the entry of Chinese language items into North American networks.

Mexico’s finance ministry estimates that the brand new duties will generate near 52 billion pesos (about Rs.19,000 crore) in further income for the subsequent fiscal 12 months.

One other projection, referenced in a Reuters evaluation, indicated that the tariff bundle may yield $3.76 billion in fiscal beneficial properties, serving to to alleviate Mexico’s budgetary pressures.

Senior policymakers argue that the brand new tariff construction is required to make sure that Mexican producers stay viable within the face of aggressive competitors from Asian suppliers.

How auto sector will bear the brunt

Among the many industries most uncovered to the brand new tariff framework is India’s car sector, which has cultivated Mexico as one among its most vital locations for compact automobiles produced in India.

The import responsibility on automobiles from India will enhance from 20 per cent to 50 per cent — a drastic change with the potential to change export methods for producers akin to Volkswagen, Hyundai, Nissan, and Maruti Suzuki, all of which provide important volumes to Mexico.

Trade information and customs data present the depth of this dependence. India exported roughly $1 billion value of automobiles to Mexico within the final fiscal 12 months.

This contains shipments value $200 million by Hyundai, $140 million by Nissan, and $120 million by Suzuki.

India-made Skoda and Volkswagen automobiles represent practically half of all Indian automotive exports to Mexico, highlighting how central this market has turn out to be for these producers.

Forward of the tariff choice, the Society of Indian Car Producers (SIAM) wrote to India’s Ministry of Commerce urging authorities intervention to attempt to protect present tariff ranges for Indian automobiles.

Within the letter, SIAM warned, “The proposed tariff hike is predicted to have a direct impression on Indian car exports to Mexico…we search Authorities of India’s help to kindly have interaction with the Mexican authorities.”

The business group additionally famous that India’s automobiles don’t compete immediately with the high-end fashions that Mexico produces for the North American market, stating, “Indian-origin automobiles aren’t a risk to Mexican native business as Indian automobiles don’t cater to high-end segments manufactured by Mexico for serving the North American market.”

Producers instructed officers in India that the majority of automobiles exported to Mexico are compact fashions with engines under one litre, tailor-made particularly to Mexican wants. They emphasised that these automobiles don’t function re-exports to US markets.

Earlier than the tariff modifications had been enacted, Piyush Arora, managing director of Skoda Auto Volkswagen India, highlighted Mexico’s strategic worth, telling Reuters, “Mexico has persistently been one among our vital export markets, given the rising demand there and the traction of our India-made fashions.”

The tariff spike now forces firms to re-evaluate manufacturing and export schedules. For a lot of automakers in India, exports assist keep plant utilisation, guarantee economies of scale and offset home market fluctuations.

The brand new Mexican regime might compel them to rethink these long-standing enterprise methods.

How non-automotive sectors might be hit

Whereas the auto business faces probably the most speedy disruption, a number of different Indian sectors are prone to expertise elevated prices and lowered competitiveness as a result of greater duties.

Gadgets akin to plastics, textiles, metal merchandise, equipment, and auto components will see hikes of as much as 35 per cent.

Exports of equipment, mechanical home equipment, and engineering tools — over half a billion {dollars} in commerce final 12 months — might even see greater landed prices, making Indian tools much less price-competitive in Mexican markets.

With greater than $500 million in digital exports yearly, this phase contains elements typically utilized in Mexican meeting operations. Greater tariffs may scale back margins for Indian companies that provide intermediate items to producers in Mexico.

Chemical substances, plastics and ceramic merchandise account for a whole lot of tens of millions of {dollars} in Indian exports. Every is included within the class of products going through responsibility will increase of as much as 35%.

India exported $236 million value of iron and metal, and over $300 million value of aluminium merchandise to Mexico throughout the latest 12 months. Many Mexican industries — together with development and automotive components manufacturing — depend on these imports.

Textiles and shopper items sectors had been particularly flagged by Mexican import-dependent producers, who warned that greater duties on sourcing from India and different Asian economies would probably drive up costs for customers and lift inflationary pressures.

How Indian commerce with Mexico has advanced

Regardless of being separated geographically by half the globe, India and Mexico have developed a strong business relationship.

Over the previous 5 years, two-way commerce has climbed from $7.9 billion in 2019-20 to greater than $8.4 billion in 2023-24, based on information from the Confederation of Indian Trade (CII).

India’s exports to Mexico rose from $3.6 billion to $5.3 billion throughout this era, marking a compound annual progress price of 10.1 per cent.

In the meantime, imports from Mexico into India have declined, pushing India’s commerce stability into surplus. A deficit of $0.7 billion in 2019-20 shifted to a surplus of $2.2 billion in 2023-24.

India’s high exports to Mexico (2023-24):

• Autos (excluding rail): $1,697 million

• Equipment and mechanical home equipment: $521 million

• Electrical equipment and tools: $509 million

• Natural chemical substances: $337 million

• Aluminium merchandise: $302 million

• Iron and metal: $236 million

• Pharmaceutical merchandise: $212 million

• Articles of iron or metal: $176 million

• Ceramic items: $142 million

• Plastics: $118 million

Indian companies have additionally invested extensively in Mexico. Greater than 200 Indian companies — spanning IT providers, pharmaceutical manufacturing, automotive manufacturing, and engineering — function within the nation, with complete cumulative investments reaching round $4 billion as of March 2024.

In the wrong way, Mexican firms have invested about $331 million in India between April 2000 and June 2024. Notable Mexican companies with a presence within the Indian market embody Cinepolis, Softtek and Metalsa.

Given this important financial integration, the tariff hikes will affect excess of car exports. Industries depending on Mexico as a base for continental or regional market entry should reassess price constructions, provide chains and long-term planning.

How Mexico is shifting in the direction of protectionism 

The coverage represents a notable deviation from the nation’s earlier dedication to unfettered commerce. For many years, Mexico positioned itself as a producing hub deeply built-in into North American provide chains.

Its financial mannequin relied on importing industrial inputs from Asia and exporting completed items to the US and Canada.

However home producers, particularly within the automotive sector, have raised alarms over China’s speedy enlargement within the Mexican market.

Chinese language firms now maintain roughly 20 per cent of Mexico’s car market — a notable leap from minimal presence six years in the past. Native auto teams, involved in regards to the tempo of this progress, strongly supported the tariff will increase as a method of preserving competitiveness.

However inside Mexico, PAN [National Action Party] Senator Mario Vázquez criticised the coverage, arguing that greater duties successfully impose a monetary burden on customers. He acknowledged that the tariff bundle “acts as a tax on customers” and questioned how the extra cash can be spent.

In distinction, Emmanuel Reyes from the ruling Morena social gathering defended the invoice, asserting that the tariff overhaul would “strengthen Mexican merchandise in world provide chains and shield jobs in precedence sectors.”

Although the ultimate model of the tariff schedule softened earlier proposals that sought steep duties throughout practically all affected classes, the accepted construction nonetheless delivers one of the vital substantial trade-policy shifts Mexico has undertaken in years.

The laws additionally grants expanded authority to the Ministry of Financial system to
modify tariffs on non-FTA nations with out requiring new legislative steps.

This might result in frequent changes within the coming months, notably as North American companions tighten scrutiny on Chinese language supply-chain rerouting.

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With inputs from companies