Prime Minister Modi in conversation with Mexican President Claudia Sheinbaum

India has entered discussions with Mexico after the latter announced a 50% tariff hike on imports from countries without free trade agreements, including India.

This move, effective from 1 January 2026, mirrors recent US actions and targets goods from nations such as China, South Korea, Thailand, and Indonesia.

An Indian official confirmed to PTI that New Delhi is actively seeking mutually beneficial resolutions while reserving the right to implement "appropriate measures" to protect its exporters.

Mexico's Senate approved the tariff regime earlier this week, aiming to shield domestic industries from what it describes as distortions caused by low-priced imports. The decision follows warnings from the Trump administration in the US regarding Chinese goods entering American markets via Mexico. Mexican authorities frame the tariffs as essential for preserving jobs and bolstering local manufacturing.

Indian exports to Mexico reached $8.9 billion in 2024, contrasting sharply with imports of $2.9 billion, highlighting a significant trade imbalance. Key sectors at risk include automobiles and auto components, machinery, electrical and electronics, organic chemicals, pharmaceuticals, textiles, and plastics. Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai warned that these "steep duties" could erode competitiveness and disrupt long-established supply chains.

The Indian Embassy in Mexico promptly raised concerns with the Ministry of Economy on 30 September 2025, requesting special concessions to exempt or mitigate impacts on Indian goods. India's Department of Commerce continues high-level engagements, including a recent meeting between Commerce Secretary Rajesh Agrawal and Mexico’s Vice Minister of Economy, Luis Rosendo. Follow-up technical discussions are anticipated shortly.

Both nations are advancing towards a free trade agreement (FTA), with terms of reference (ToR) for formal negotiations nearing finalisation. This potential pact could insulate Indian exporters from the tariffs, fostering a more stable bilateral trade environment. The official emphasised India's commitment to collaborative solutions aligned with global trade rules, valuing the partnership for mutual business and consumer benefits.

Mexico's tariff escalation stems partly from US pressure under the Trump administration, which highlighted vulnerabilities in North American supply chains to cheap Chinese imports routed through Mexico. By imposing duties on non-FTA partners, Mexico seeks to protect its manufacturing base, particularly in labour-intensive sectors. This aligns with broader efforts to correct trade imbalances and promote domestic employment amid global protectionist trends.

The tariffs' effects will hinge on several factors: the criticality of Indian goods in Mexican supply chains, exporters' ability to secure exemptions, and their capacity to pass costs to consumers.

While some sectors like pharmaceuticals may negotiate waivers due to essential supply roles, others such as textiles and plastics face steeper challenges. Sahai noted that years of supply chain investments now hang in the balance, potentially forcing Indian firms to seek alternative markets.

India maintains a dual-track approach: diplomatic dialogue for an FTA and readiness for countermeasures. "Appropriate measures" could include reciprocal tariffs on Mexican imports, though specifics remain undisclosed.

New Delhi's restraint underscores a preference for negotiation, drawing on precedents like its responses to US steel tariffs. The actual tariff burden's severity will determine escalation.

This development occurs amid rising global protectionism, with the US-Mexico-Canada Agreement (USMCA) influencing regional trade dynamics. For India, it tests its "Make in India" export ambitions, particularly in high-value sectors like autos and electronics. An India-Mexico FTA could open doors to Latin American markets, enhancing diversification from traditional partners like the US and EU.

Prospects for resolution appear promising given ongoing talks, with ToR finalisation as a key milestone. Successful FTA negotiations would not only neutralise tariffs but also boost bilateral trade, potentially doubling volumes in the medium term. Indian exporters are advised to monitor developments closely, explore diversification, and engage with FIEO for advocacy support.

Based On PTI Report