Mexico’s decision to impose tariffs of up to 50% on hundreds of items, including cars, from countries without trade agreements, such as India and China, is set to significantly impact India’s $1 billion car exports to Mexico. The move is expected to affect major car manufacturers like Volkswagen Group AG, Hyundai Motor Co., Nissan, and Maruti Suzuki, which rely on exports to maximize production and improve margins. Skoda Auto Volkswagen India Pvt. Ltd. accounts for nearly 50% of India’s total car shipments to Mexico, with Hyundai, Nissan, and Suzuki also having significant exports to the country.
The Society of Indian Automobile Manufacturers (SIAM) had urged the Indian government to press Mexico to maintain the status quo on tariffs, warning that the proposed hike would have a direct impact on Indian automobile exports to Mexico. However, Mexico approved the tariff hike to protect local jobs and manufacturing, despite opposition from local business groups. The tariff hike will increase the import duty on cars to 50% from 20%, dealing a significant blow to carmakers in India.
India is the world’s third-largest car market, and Mexico is its third-largest car export market after South Africa and Saudi Arabia. The carmakers had argued that Indian-origin vehicles are not a threat to the Mexican local industry, as they do not cater to high-end segments manufactured by Mexico for the North American market. However, the Mexican government has gone ahead with the tariff hike, which is expected to force carmakers to re-evaluate their strategy on exports.
The impact of the tariff hike will be significant, with carmakers likely to face increased costs and reduced demand. The Indian government, SIAM, and carmakers are yet to respond to the development, but it is likely that they will engage with the Mexican government to try to negotiate a better deal. The tariff hike is also expected to have a broader impact on India’s trade relations with Mexico, with India shipping goods worth $5.3 billion to Mexico in FY24, of which cars made up close to $1 billion.