Mexico Raises Tariffs on Goods from India and China

Mexico Raises Tariffs on Goods from India and China

Why in News? 

Recently, Mexico’s Senate approved tariffs up to 50% on a wide range of imports from India and China. The decision will take effect on January 1, 2026, reflecting Mexico’s move to protect domestic industries while recalibrating its economic engagement with key Asian partners.

Highlights of Mexico’s Tariff Decision

• Mexico’s Senate approved a major tariff increase on imports from India, China, and other Asian economies on December 11, 2025. 
• The tariff bill was first introduced in the lower house of Mexico’s Congress and later the tariff decision was passed with 76 votes in favour, 5 against, and 35 abstentions in the Senate.
• The new tariff regime will come into force from January 1, 2026 and introduces duties ranging from 5% up to 50% on selected imported goods.
• Under the new policy, tariffs on a broad list of products will be applied at varying levels. While the maximum rate is 50%, most goods will face tariffs capped at around 35%. 
• The obligation covers more than 1,400 tariff lines, including automobiles, auto parts, textiles, plastics, steel, clothing, footwear, and household appliances.
• The new tariff regime applies primarily to countries without free trade agreements with Mexico. This list includes China, India, South Korea, Thailand, Indonesia, and several Southeast Asian nations. 
• These tariffs do not apply to countries that already have trade pacts with Mexico, such as the United States and many members of the United States–Mexico–Canada Agreement (USMCA).

Economic Rationale Behind Mexico’s Protectionist Shift

• For many years, sectors such as automobiles, textiles, steel, and plastics have faced competition from low-cost producers in countries like China, India, South Korea, and Thailand. By raising duties on imports that enter Mexico without preferential access, the Mexican government expects to make foreign goods less price-competitive compared with locally made products.
• The government wants to strengthen domestic manufacturing capacity. Mexico’s economy has experienced slow growth in recent years. Forecasts published by the Bank of Mexico in early 2025 projected GDP growth around 0.8 percent for 2025 and 1.65 percent for 2026, reflecting muted economic momentum. Higher tariffs are seen by the government as a tool to encourage domestic firms to expand production.
• The Mexican administration expects that higher duties on imported goods will increase government revenue significantly. Estimates indicate that the tariff adjustments could generate approximately US $3.76 billion (around 70 billion Mexican pesos) in 2026. This revenue is intended to help narrow Mexico’s fiscal deficit while providing funds that can be directed toward public investment.
• China maintained a substantial trade surplus with Mexico, with Chinese exports reaching roughly US $71 billion in recent years. The Mexican government has expressed concern that this imbalance places local industries at a disadvantage and could hinder the development of deeper industrial value chains at home.
• Mexico’s largest trading partner is the United States, and trade relations between the two countries remain central to Mexico’s economic strategy. Mexico’s tariff adjustments may be partly designed to show alignment with U.S. trade priorities ahead of the scheduled review of the United States-Mexico-Canada Agreement (USMCA) in the near future.

Impact on India

• India and Mexico have grown trade ties in recent years. Bilateral trade rose steadily from about $7.9 billion in 2019–20 to more than $8.4 billion in 2023–24. Trade has surged, with India enjoying a large surplus (around $6 billion in 2024), making Mexico a key Latin American partner. This tariff move adds significant headwinds, potentially stalling this positive momentum.
• The most immediate impact will fall on exporters of manufactured goods. Indian firms that sell Mexico’s explicitly targeted products will face higher entry costs. India’s largest exports, including popular cars and auto components may face heavy duties, directly affecting market share. Indian car shipments to Mexico are estimated to be about $1 billion of Indian vehicle exports to Mexico.
• India’s exports to Mexico reached about $5.6 billion in 2024 while Mexico’s imports from India were approximately $9.0 billion in 2024. Higher duties will lower trade volumes for affected tariff lines in 2026. Exporters of textiles, plastics, steel items, and electronics will face reduced demand in Mexico. Firms that rely on Mexico as a growth market may redirect shipments.
• Numerous Indian companies have invested in Mexico in sectors like IT, pharmaceuticals, and automotive parts, using it as a base to access North and Central American markets. The proposed tariffs on auto parts and concerns about potential tariffs on pharmaceuticals create a climate of uncertainty for these existing investments and future expansion plans.