India and Mexico have formally begun discussions on a potential Free Trade Agreement (FTA) when bilateral trade has fallen under strain due to Mexico’s decision to sharply raise import tariffs on countries without preferential trade arrangements, including India. The move is publicly framed as a domestic industrial protection measure, but deeply intertwined with US-led efforts to limit Chinese trade influence. Indian exporters have thus been caught in the unintended crossfire.
According to the Economic Times (December 14, 2025), Mexico has announced tariff hikes of up to 50% on imports from non-FTA partners, with the new regime scheduled to take effect from January 1, 2026. Indian officials confirmed that terms of reference (ToR) for an FTA are likely to be finalised soon, following Mexico’s outreach to strengthen bilateral economic ties. These ToR will define the scope and sequencing of negotiations.
India’s merchandise exports to Mexico stood at $5.75 billion in FY25, while imports were $2.9 billion, giving India a sizeable trade surplus (Economic Times, December 14, 2025). However, the composition of exports is heavily skewed towards automobiles and engineering goods, and renders the tariff shock to India significant.
The Times of India (December 14, 2025) reported that nearly $2 billion of India’s exports to Mexico consist of automobiles and auto components alone. Mexico is India’s third-largest export destination for passenger vehicles, after South Africa and Saudi Arabia (New Indian Express, December 12, 2025). Officials acknowledged that the FTA talks are being fast-tracked precisely to prevent these exports from becoming commercially unviable under the new tariff structure.
While the tariff proposal was initially introduced in September 2025, it was deferred to August 2026 after objections from non-FTA partners and Mexican industry groups. However, the measure was re-introduced on December 3, 2025, and subsequently cleared by Mexico’s Congress in an accelerated legislative process (Times of India, December 14, 2025). The amendment affects 1,463 tariff lines, with most products facing duties in the 30–35% range.
Indian officials have objected to the unilateral nature of the move. As noted by the Daily Pioneer (December 14, 2025), New Delhi believes that unilateral MFN tariff increases without prior consultation “do not align with the principles of predictability and transparency underpinning the multilateral trading system.” The Indian Embassy in Mexico raised the issue as early as September 30, 2025, seeking special concessions.
There is also disagreement over whether the tariffs are genuinely “new.” An analysis published by The Hindu (December 11, 2025) points out that Mexico had already imposed 5–50% tariffs on non-FTA partners in April 2024 for a two-year period. The December 2025 Senate decision, therefore, represents an extension rather than an initiation of the measure. At an aggregate level, these exports account for just 1.3% of India’s total exports, suggesting limited macro impact. However, sectoral concentration tells a different story.
The Hindu notes that motor cars and parts alone form 25% of India’s exports to Mexico, with motorcycles contributing another 7%. Mexico absorbs about 10% of India’s total auto and auto-component exports and 12% of motorcycle exports, making it a systemically important market for these industries.
Industry groups have already reported real damage. The Engineering Exports Promotion Council (EEPC) told the commerce ministry that between April–October 2025, India’s engineering exports to Mexico fell 12%, including a 20% drop in auto components, a 32% fall in two- and three-wheelers, and a 56% decline in aluminium products (The Hindu, December 11, 2025). The Federation of Indian Export Organisations cautioned that such high duties could break supply chains built over years (Daily Pioneer, December 14, 2025).
India Today (December 12, 2025) highlighted the geopolitical subtext: Mexico’s move broadly aligns with US pressure to prevent Chinese trans-shipment into North America ahead of the USMCA review in 2026. Mexico has serious s trade surplus concerns with China, as the latter’s surplus with the former exceeds $100 billion (India Today, December 12, 2025). Also, the new tariffs could generate 70 billion pesos ($3.75 billion) annually for Mexico.
India Today’s sectoral breakdown shows that Indian passenger vehicle exports worth $800 million–$1 billion annually could become largely unviable under a 50% tariff, while auto components ($600–700 million) face duties of up to 50%. Iron and steel exports of $900 million may face 35–40% tariffs, and textiles and footwear ($500–600 million) could see 30–35% duties, threatening price-sensitive segments.
What is still not clear is the final list of products that will face higher tariffs, and whether any exemptions or temporary transition arrangements will be agreed upon under an interim deal. Officials say that the real impact will depend on how important Indian products are to Mexican supply chains and whether companies can pass the extra costs on to consumers (Daily Pioneer, December 14, 2025).
Strategic Implications
- China-Focused Trade Wars Indirectly but Significantly affect India: The event highlights how trade actions aimed mainly at China are increasingly hurting India, even if unintentionally. India got caught in this situation because it exports similar products and does not have an FTA with Mexico. In light of the above, India must not assume that China-specific trade measures will remain limited only to China, and must make efforts to enter into FTAs with important trade partners.
- This FTA Is About Protection, Not New Opportunity: Unlike many Indian FTAs that are designed to open new markets, the India–Mexico FTA is being discussed mainly to protect what India already exports. Thus, the objective is not expansion, but damage control.
- Heavy Dependence on Autos Is a Strategic Weakness: India’s exports to Mexico are heavily concentrated in automobiles and auto components. Because Mexico is a major buyer of Indian vehicles, any policy shock there causes disproportionate damage. This highlights the need not just to diversify export destinations, but also to diversify products within the same market.
- US Politics Is Quietly Reshaping India’s Trade Space: Mexico’s actions are closely linked to the upcoming 2026 review of the US–Mexico–Canada Agreement (USMCA). To stay aligned with Washington, Mexico is adjusting its trade policy in advance. This shows that political developments in North America can directly affect India’s trade interests in Latin America, even without India being involved in those negotiations.
- Global Trade Rules Are Losing Their Protective Power: India’s objections based on MFN principles reflect a deeper problem, that global trade is no longer strictly governed by neutral rules. Countries are increasingly aligning trade policies with geopolitical blocs rather than WTO norms. For economies like India, this means greater uncertainty and fewer predictable safeguards.
- A Limited Deal May Be the Only Practical Option: Given the tight timelines and the immediate tariff threat, negotiating a full-scale FTA may not be realistic in the short term. A focused or partial agreement covering key sectors like automobiles and engineering goods may be the fastest and most effective way to limit damage and buy time.
