Mexico hits India with tariffs in bid to align with US pressure on China

Mexico’s approval of sweeping tariff hikes on imports from countries without a Free Trade Agreement (FTA) marks one of the most consequential shifts in its trade posture in decades, placing India among the hardest-hit economies and signalling a broader geopolitical realignment.

Beginning on 1 January 2026, Mexico will impose tariffs ranging from 5 to 50 per cent across more than 1,460 product categories. While the new regime affects all non-FTA countries, its impact is particularly acute for India, China, South Korea, Thailand, Indonesia, Brazil, South Africa and the UAE.

While China will be the most affected exporter, India, Mexico’s ninth-largest trading partner, also stands to lose substantial market share across key industrial sectors.

The legislative package, introduced in September by President Claudia Sheinbaum and approved by both chambers of Congress, is anchored in a political, economic and strategic calculation that extends well beyond Mexico’s borders.

Mexico News Daily reported that the tariff overhaul spans major sectors such as automobiles, auto components, plastics, toys, textiles, furniture, clothing, aluminium and glass. The government expects the higher duties to yield roughly USD 3.8 billion a year in additional revenue, while reducing reliance on Asian imports.

According to Mexican diplomat Horacio Saavedra as quoted by La Silla Rota, the tariff measure amounts to “an alignment with US trade policy” and responds to “shared concern” in Mexico and the United States about practices that have undermined domestic industries, particularly in textiles, clothing and certain manufacturing segments.

Behind the policy lies a clear effort to contain the influx of cheap Chinese goods. China’s trade surplus with Mexico exceeds USD 100 billion, and local manufacturers have long argued that they cannot compete with subsidised Chinese products. The challenge has deepened with the rise of Chinese firms establishing nominal operations in Mexico to re-export into the United States, a practice Washington has taken increasing aim at.

With the US–Mexico–Canada Agreement due for review in 2026, both the earlier Biden administration and the current Trump administration have pressed Mexico to tighten its trade regime. By raising tariffs on non-FTA countries, Mexico signals its willingness to align with growing US scepticism of Chinese supply chains and to pre-emptively avoid punitive American tariffs.

Domestic politics have also played a role. President Sheinbaum and the ruling Morena party have framed the tariff overhaul as a defence of Mexican workers and industries under pressure from cheaper imports. The expected fiscal windfall of 70 billion pesos provides an additional incentive, especially as Mexico expands social spending commitments. The political narrative thus ties together populist industrial protection, geopolitical alignment with Washington and a pragmatic revenue-raising measure.

For India, however, the consequences are immediate and far-reaching. In 2023, India exported USD 8.9 billion worth of goods to Mexico, including automobiles, auto parts, pharmaceuticals, engineering goods and chemicals. These exports will now be subject to steep duties.

Passenger vehicles — India’s third-largest export category to Mexico after South Africa and Saudi Arabia — currently account for USD 800 million to USD 1 billion annually. From 2026, these will face a 50 per cent duty, up from the existing 20 per cent, likely rendering them unviable without local assembly. Auto components worth USD 600–700 million will confront tariffs between 25 per cent and 50 per cent, while iron and steel exports of nearly USD 900 million will face duties of 35–40 per cent.

Many Indian manufacturers, including Tata Steel, may find their Mexican business severely curtailed. Textiles, footwear and apparel exports valued at roughly USD 500–600 million will now attract tariffs of 30–35 per cent, which may push mass-market Indian products out of reach for Mexican consumers. Organic chemicals and pharmaceuticals, worth around USD 400 million, will see a more moderate increase of 15–30 per cent, and some generic drug exports may remain competitive.

Overall, trade economists estimate that India’s exports to Mexico in affected categories could decline by 25–40 per cent. The Indian industry had lobbied the Mexican Senate in late 2025 seeking exemptions or transitional arrangements, but these efforts failed. New Delhi has since elevated the issue diplomatically, pushing for a bilateral FTA or at least a narrower Partial Scope Agreement covering automobiles and steel, in hopes of securing relief before the duties are implemented.

The geopolitical dimension is equally significant. Mexico’s tariff shift aligns it more closely with US efforts to decouple from China, even as the broader North American manufacturing ecosystem continues to reconfigure around “nearshoring” trends.

For the United States, Mexico’s move strengthens regional trade enforcement. For Mexico, it signals cooperation ahead of difficult USMCA negotiations. But for countries like India, which have been expanding their Latin American footprint, the decision constrains access at a time when global supply chains are being re-drawn.

The tariff overhaul also reshapes the balance between winners and losers. Mexican steel, textile and auto-parts producers are poised to benefit in the near term, and the federal budget gains a significant new revenue stream. The US, too, secures a more closely aligned partner on trade.

On the losing side are exporters from India, China, South Korea, Taiwan and Thailand. Mexican consumers will face higher prices for imported goods, while domestic industries reliant on Asian inputs may experience higher production costs, potentially passing these on to the domestic market.

Unless India accelerates trade negotiations or promotes localisation through manufacturing operations inside Mexico, it risks ceding crucial market share.