Mexico Imposes up to 50% Tariff on Imports From India and China

Syllabus: GS3: Economy / International Trade

Context

• Mexico has approved tariffs of up to 50% on imports from non-FTA partners, including India, effective from April 1, 2026.

What is Trade Protectionism?

• Trade protectionism refers to policy measures, such as tariffs, quotas, import licensing, local content rules, aimed at shielding domestic industries from foreign competition.
• Drivers of the current wave of protectionism include:
  • Slowing global growth and supply-chain vulnerabilities.
  • Strategic reshoring by major economies like the U.S. and EU.
  • Geopolitical tensions and pressure to protect domestic jobs.
  • Concerns over dumping, subsidies, and unfair trade practices.

Background of Mexico’s Tariff Measure

• In 2024, Mexico imposed 5–50% tariffs on a range of items imported from countries without a Free Trade Agreement (FTA).
• The measure targeted imports from Asian countries such as India, China, and Thailand. Now Mexico’s Senate extended these tariffs to remain in force beyond April 2026.
• India currently does not have an FTA or PTA Preferential Trade Agreement (PTA) with Mexico, making it vulnerable to these duties.

Reasons Behind Mexico’s Tariff Decision

• Appeasing the United States under USMCA review: It is observed that Mexico’s extension of high tariffs on imports from non-FTA partners is aimed at placating the United States ahead of the upcoming review of the United States–Mexico–Canada Agreement (USMCA).
  • Ensuring alignment with U.S. strategic preferences is seen as important for Mexico’s trade stability under the trilateral pact.
  • The United States has been urging Latin American nations to limit their economic engagement with Asian economies, which it views as competitors in the region.
• Revenue generation: The tariff measures are also driven by Mexico’s need to raise an estimated $3.76 billion next year as part of efforts to narrow its fiscal deficit. Higher duties on imports present an immediate non-tax revenue source.

Impact on India’s Automotive Sector

• Erosion of Export Competitiveness: Indian firms, especially in the passenger car, motorcycle, and auto-component segments, face strong competition from countries that enjoy FTA-based zero-duty access.
  • Mexico is India’s third-largest car export market after South Africa and Saudi Arabia. It  accounts for about 10% of India’s total auto and auto part exports and 12% of motorcycle exports.
• Risk to India’s Growth Strategy: Automotive exports support, employment in MSME supplier networks, manufacturing under Make in India, foreign exchange earnings etc. and protectionism threatens these linkages.
• Supply Chain Disruptions: Protectionist barriers slow integration into global value chains (GVCs). Automotive components, where India is building scale, are sensitive to even small tariff changes.

Way Ahead

• Initiate Trade Negotiations: The Engineering Exports Promotion Council (EEPC) has urged the Government of India to begin FTA or PTA talks with Mexico.
  • EEPC warns that continued tariffs may erode India’s competitiveness and permanently reduce market share.
• Safeguard Auto Sector Competitiveness: Targeted support for affected exporters in automobiles, auto components, and engineering goods.
• Enhance Export Resilience: Promote quality upgrades, cost efficiency, and logistics improvements to absorb tariff shocks.
  • Explore local assembly or joint ventures in Mexico to bypass tariff barriers.

Brief on India- Mexico Relations – Political relations: Mexico was the first country in Latin America to establish diplomatic relations with Independent India in 1950. The year 2025 will mark the diamond jubilee (75 years) of bilateral diplomatic relations. – Bilateral Trade: With a trade of USD 10.58 billion, India was Mexico’s ninth largest trading partner in 2023. The bilateral trade in 2023 consisted of Indian imports of US$ 2.54 billion and exports of US$ 8.03 billion to Mexico. – Indian Community: The Indian community (PIOs/NRIs) in Mexico is small, numbering around 10,000 with about one fifth of them in Mexico City.

Source: TH