Chennai: The automotive components industry appears to be the biggest loser in the U.S. tariff war as the industry will lose to its bigger rival, Mexico, which enjoys preferential trade agreement benefits.
Although the United States imposes a 25% tariff on automobiles and certain auto parts, it is temporarily exempted under the USMCA’s preferential treatment rules.
Mexico is one of the countries that are part of the USMCA preferential trade agreement, and USMCA-compliant goods will attract zero responsibilities, while non-compliant goods will face a 25% tariff. Mexico also does not face reciprocity tariffs. Mexico is the largest supplier of automotive components in the United States. Last year, the United States imported $89 billion worth of auto parts, with Mexico accounting for $36 billion and China accounting for $10 billion.
India exported $6.79 billion in automotive components to the United States, while imports amounted to $1.4 billion. In fiscal year 2024, the total turnover of the automotive components industry was US$74.1 billion and exports were US$21.2 billion, with U.S. exports accounting for 30% of total exports.
Mexico can offer automotive components to the United States at competitive prices. Automatic component manufacturers are moving to Mexico at a cost advantage and proximity cannot be ruled out.
However, the Indian industry hopes that the U.S. will soon make a decision on tariffs from the USMCA countries.
USMCA tariff exemptions will remain the same until the Department of Commerce and the U.S. Customs and Border Protection (CBP) establish a process through which only 25% of the tariffs apply only to non-US content imported from USMCA auto parts. In this potential process, companies importing auto parts under the USMCA will be able to prove the U.S. content of their products, and pay tariffs only on non-U.S. content. However, the timeline for the development of this process seems uncertain at the moment.
“Acma still hopes that the ongoing bilateral negotiations between India and the U.S. governments will lead to a balanced resolution that will benefit both economies. We believe that a strong trade relationship between India and the U.S., especially in the automotive component sector, will encourage the continued dialogue to mitigate the impact of these measures,” Shradha Suri Marwah, President of ACMA, ACMA.
