Mexico's Tariff Increase to Affect $1 Billion in Indian Car Exports

Mexico's tariff increase will affect $1 billion worth of shipments from major Indian car exporters, including Volkswagen and Hyundai, despite industry lobbying efforts to prevent the move, according to two sources and an industry letter reviewed by Reuters.

Mexican President Claudia Sheinbaum's government approved Wednesday raising import tariffs next year on hundreds of items from countries without trade agreements, including China and India. The import duty on cars will rise to 50% from 20%.

The tariff hike will impact India's largest vehicle exporters to Mexico, including Volkswagen, Hyundai, Nissan and Maruti Suzuki. Mexico is India's third-largest car export market after South Africa and Saudi Arabia.

The Society of Indian Automobile Manufacturers urged India's commerce ministry in November to press Mexico to maintain existing tariffs for vehicles shipped from India, according to a copy of the letter.

"The proposed tariff hike is expected to have a direct impact on Indian automobile exports to Mexico...we seek Government of India's support to kindly engage with the Mexican government," the industry body said in its letter to the commerce ministry before the tariff was finalized.

India shipped goods worth $5.3 billion to Mexico in the last fiscal year, of which cars made up close to $1 billion, according to the letter and commercially available customs data.

Skoda Auto accounts for nearly 50% of India's total car shipments to Mexico. Hyundai shipped cars worth $200 million, Nissan's exports stood at $140 million and Suzuki's at $120 million, the data showed.

Piyush Arora, chief of VW's Indian unit, Skoda Auto Volkswagen, said India has been a strong export base for many years and the company ships to more than 40 countries from here.

"Mexico has consistently been one of our important export markets, given the rising demand there and the traction of our India-made models," Arora said before the tariffs were approved.

Car makers told Indian officials that the majority of shipments from India to Mexico are compact cars with an engine size of less than one litre, designed for the Mexican market and not for further export to the U.S., one of the sources said.

"Indian-origin vehicles are not a threat to Mexican local industry as Indian vehicles do not cater to high-end segments manufactured by Mexico for serving the North American market," the industry group said in its letter.

Car makers also told Indian officials that of the 1.5 million passenger vehicles sold in Mexico each year, about two-thirds are imported and India's shipments make up just about 6.7 percent of the total sales, according to the first source and the letter.

The tariff hike could force Indian automakers to reevaluate strategies reliant on Mexico. The move comes amid U.S. pressure on Mexico to curtail business with China, despite opposition from local business groups warning that higher tariffs will raise costs.

India's Commerce Ministry, Society of Indian Automobile Manufacturers and the Mexican government did not respond to requests for comment. Hyundai and Maruti Suzuki did not respond to requests for comment, while Nissan declined to comment.