Mexico's Parliament has approved a bill to impose higher tariffs on imports from India, China, Brazil, and other nations lacking free trade agreements (FTAs) with Mexico, a move that has spurred Indian exporters to push for a free trade agreement with the Latin American country. The tariffs, ranging from 5% to 50%, are set to take effect on January 1, 2026, and will apply to over 1,400 products across various sectors, including automobiles, auto parts, textiles, plastics, toys, furniture, footwear, aluminum, and glass.
The decision by Mexico's Congress, which was passed by the Senate on Wednesday after approval by the lower house, is intended to reduce dependence on Asian imports, particularly from China, and align Mexico's trade policy more closely with that of the United States. The Mexican government also expects the tariffs to generate an estimated $3.8 billion in annual revenue.
For India, the tariffs could significantly impact exports to Mexico, which totaled $8.03 billion in 2023, against imports of $2.54 billion. Key Indian exports to Mexico include automobiles and auto parts, pharmaceuticals, engineering goods, and chemical products. The automobile sector is expected to be particularly affected, with the import duty on cars rising from 20% to 50%. This change could impact nearly $1 billion worth of vehicle exports from major Indian manufacturers. Mexico is India's third-largest export market for passenger cars, after South Africa and Saudi Arabia.
The move has raised concerns among Indian exporters, who are already grappling with tariffs imposed by the United States. Industry bodies have urged the Indian government to engage with the Mexican government to seek relief from the duties. The Federation of Indian Export Organisations (FIEO) has emphasized the need for a trade deal with Mexico to mitigate the impact of the tariffs.
The tariffs are expected to impact India's auto component exports to Mexico, which include powertrain and driveline parts, precision forgings, chassis and brake systems, and key electrical and aftermarket products. Other sectors that could be affected include textiles, apparel, footwear, steel and chemicals.
Some analysts believe that Mexico's decision to impose tariffs is influenced by pressure from the United States to reduce imports from China. The tariffs also come ahead of the next review of the US-Mexico-Canada trade agreement (USMCA).
Despite the challenges posed by the tariffs, some companies, such as Skoda Auto Volkswagen, believe that their business activities will not be affected. However, other manufacturers may need to rethink their pricing strategies and supply chains to maintain competitiveness.
The Indian government is reportedly pushing to fast-track a bilateral Free Trade Agreement or at least a Partial Scope Agreement with Mexico, hoping to mitigate the damage before the tariffs take effect. The focus would be on including automobiles and steel in any such agreement.
