All is not well, and not all deals are sewn up yet. As India and the US laboured over and finally reached a deal on tariffs a few days ago, not much attention was paid to another icky tariff trauma that haunts India.
Punitive tariffs on India’s exports to Mexico range as high as up to 50%. The lesser-known tariff war that India is still fighting.
New Delhi was all caught up in recent months trying to work out US President Trump’s vexatious total 50% tariffs — after all, the US was India’s biggest trading partner with a total goods and services trade worth over 200 billion dollars (and a target of half a trillion by the end of this decade). But that had meant that another punitive tariff imposition has not only gone relatively less noticed, but still remains to be sorted out.
The backgrounder may have more to do with Trump’s tirade against the USA’s immediate neighbours, Canada and Mexico and sealing the influx of cheap Chinese products through a third country route — though it has come to bite India’s own prospects down the value chain.
This is because, even before the by-now notorious ‘Liberation Day’ announcements of April 2, Trump had started aiming his ire at both the land neighbours for their conventional base as a cheaper manufacturing base for products aimed at the USA, as well as trans-shipment of China-made items through them.
Arguing that so much of manufacturing, particularly of the automobile sector, was taking place right across the border to the south (Mexico) and north (Canada), was taking away American jobs, Trump had first played around with the thought of cancelling the USMCA or the US-Mexico-Canada trade deal implemented, ironically, by Trump himself during his first presidency in 2019. That time, it was meant to replace the North American FTA which was in force from the early 1990s and which according to Trump then, was the reason why so much of manufacturing and jobs shifted out of mainland USA to the neighbouring countries, because they were cheaper for the big auto companies to make there and use the deal to import the vehicles into US for sale, with a better profit margin.
There is some truth in it. Mexico, for example, makes around 40 lakh cars a year. As much as up to 88% of these are exported, primarily to the US. Trump, in his second coming, was having none of it.
Trump’s blow-hot, blow-cold ire towards his neighbours had seen him first threatening Mexico and Canada with tariffs and then finally stepping back, allowing the provisions of USMCA and letting especially Mexico overcompensate — by cracking down on its non-FTA countries.
This includes India. According to the Mexican government, the tariffs on India have been increased to boost domestic production, address trade imbalances, and safeguard local employment.
But there is more to it than meets the eye. Indian traders allege they have been targeted so that Mexico’s own local manufacturing is not tariffed by Trump directly.
While India’s trade with Mexico is much lower compared to that with the US, at just over $ 6 billion, it does make a crucial difference in certain areas. Auto components and even automobile exports to that country, for instance, face a duty of 35%.
Steel faces the highest tariff at 50%, while garments and ceramics now have to contend with anything from 25% to 35%. This makes Indian exports there uncompetitive on two levels — one, the tariff is only on nations with which Mexico doesn’t have an FTA deal. Leaving India in quite a disadvantageous position vis-a-vis some of its rivals.
Second is the more important one. Read between the lines, it is clear that what Mexico is particularly looking to shut down is the alleged tendency of trans-shipment and supply chain diversion that Indian exporters are alleged to indulge in. Meaning they export to Mexico, but then the parts (or the full product in many cases) finally make their way to the US.
For example, automobile components, the export of which from India to Mexico has been spiralling up in recent years and now is nearly a billion dollars. Many Indian bike and car makers had also started looking at Latin American countries as a burgeoning market for ‘Made in India’ vehicles, considering that the more evolved American and European markets were more difficult to break into.
But Mexico definitely does not want to suffer the immediate neighbour US’s wrath for the sake of distant India.
While Indian trade negotiators have been having their hands full lately — there was a flurry of deals worked out, ranging from New Zealand to the EU to finally the US this week, it is not that they have not tried. There was one round of talks in December (after the punitive tariffs on India were announced by Mexico and before they came into effect on New Year’s Day in 2026), but nothing much apparently came out of it.