Mexico has imposed tariffs as high as 50 per cent on imports from India and several other Asian nations lacking trade agreements with Mexico City.

This decision follows the United States' lead and comes amid intense pressure from Washington on Mexican President Claudia Sheinbaum's administration to reduce business ties with China.

Local business groups have opposed the move, cautioning that it will drive up costs for consumers and industries.

The new duties target a wide array of products, including auto parts, light vehicles, toys, clothing, textiles, plastics, furniture, footwear, steel, household appliances, leather goods, aluminium, paper, trailers, glass, soaps, cardboard, motorcycles, perfumes, and cosmetics. Many categories face hikes of up to 35 per cent, but the automobile sector stands to suffer the most severe blow.

The new tariffs are expected to impact shipments worth $1 billion from major Indian car exporters, including Volkswagen and Hyundai.

India and Mexico, despite their vast geographical separation, have cultivated a sturdy trade relationship. Bilateral trade surged from $7.9 billion in 2019-20 to over $8.4 billion in 2023-24, as per figures from the Confederation of Indian Industry. India's exports to Mexico totalled $5.3 billion in the last fiscal year, with automobiles comprising nearly $1 billion of that volume.

The tariff escalation on cars—from 20 per cent to 50 per cent—threatens shipments worth $1 billion from key Indian exporters such as Volkswagen, Hyundai, Nissan, and Maruti Suzuki. Volkswagen's Indian arm, Skoda Auto Volkswagen, dominates with almost 50 per cent of India's car exports to Mexico. Hyundai follows with $200 million, Nissan at $140 million, and Suzuki at $120 million.

The Society of Indian Automobile Manufacturers (SIAM), representing these firms, pleaded with India's commerce ministry in November to urge Mexico to preserve the existing tariff structure. In a letter, SIAM highlighted the "direct impact" on exports and sought diplomatic intervention. It emphasised that Indian compact cars, typically under one-litre engines, are tailored for Mexico's market and pose no competition to its higher-end production for North America.

Mexico imports about two-thirds of its 1.5 million annual passenger vehicle sales, with Indian shipments accounting for just 6.7 per cent. Industry sources assured officials that these vehicles target local demand, not onward export to the US.

Nonetheless, the tariffs could compel Indian manufacturers to rethink strategies centred on Mexico, India's third-largest car export destination after South Africa and Saudi Arabia.

Exports play a crucial role for Indian carmakers in achieving economies of scale, maximising production, and offsetting sluggish domestic sales or thin margins. Piyush Arora, chief of Skoda Auto Volkswagen India, noted prior to the tariff approval that India serves as a robust export hub to over 40 countries, with Mexico prized for its growing demand and affinity for India-made models.

This development echoes a global surge in protectionism, including tariffs advocated by US President Donald Trump. It undermines Prime Minister Narendra Modi's push to position India as a cost-effective manufacturing alternative to China. Indian firms may now face disrupted supply chains and higher costs, prompting a strategic overhaul.

Mexico's motivations blend domestic protectionism with geopolitical pressures. Sheinbaum's government aims to bolster local industries and curb import reliance, even as critics warn of inflationary risks and supply chain disruptions in sectors like auto parts, plastics, chemicals, and textiles. The economy, already decelerating, could face further strain.

The tariff bill passed Mexico's lower house overwhelmingly—281 votes to 24, with 149 abstentions—amid claims of rushed deliberation. The Senate saw 35 abstentions, with senators decrying insufficient analysis of inflation impacts. Oscar Ocampo, director of economic development at the Mexican Institute for Competitiveness, attributed the policy shift largely to US influence.

Ocampo linked the move to impending USMCA free trade agreement reviews and Mexico's bids for tariff exemptions on its automotive, steel, and aluminium exports to the US. He criticised it as yielding to an erratic US President Trump, steering Mexico's trade policy astray. Mexico continues to grapple with existing US tariffs in these areas.

Uncertainty lingers over responses from affected carmakers, SIAM, and the Indian government. No immediate countermeasures have surfaced, but the hike may accelerate diversification of export markets or localisation efforts in Mexico. For India, this underscores vulnerabilities in trade-dependent sectors amid rising global barriers.

Longer term, the tariffs could erode India's competitive edge in affordable vehicles, spurring investments in alternative destinations or enhanced domestic focus. Yet, with Mexico's market dynamics shifting under US pressure, Indian exporters must navigate a landscape where protectionism increasingly trumps open trade.

Based On NDTV Report