DETROIT — President Donald Trump’s decision to impose a 25% tariff on imported cars, light trucks, and auto parts is expected to lead to increased vehicle prices, adding to the financial burden of many Americans who already struggle to afford new vehicles. In addition to price surges, the tariffs are prompting automotive companies to reassess their production strategies and locations.
Trump has long intended to target foreign automotive imports. During his first term, he cited these imports as a national security risk, thereby granting him the authority to introduce tariffs. The tariffs, announced on Wednesday, are set to become effective at midnight on April 3. This move adds to a series of actions Trump has taken regarding the auto industry since resuming his presidency, which includes revisiting fuel economy standards, adjusting greenhouse gas regulations, and altering policies on electric vehicles.
Details of the new tariffs remain vague, including how they will interact with the impending 25% import taxes on all products from Canada and Mexico. If both tariffs are applied concurrently, vehicles from these countries could face combined tariffs as high as 50%. Currently, the administration exempts vehicles and parts qualifying for duty-free status under the US-Mexico-Canada Agreement from these tariffs. However, Trump aims to narrow this exemption strictly to U.S.-made content, a move that requires establishing processes for designating goods as American-made, potentially taking weeks or months to finalize.
The import tax will also target essential auto components such as engines, transmissions, powertrains, and electrical systems, with possibilities of expanding to other parts if deemed necessary.
Modern automakers rely on complex, international supply chains cultivated over years. For example, Mexico contributes low-cost labor and assembles smaller vehicles, while Canada and the United States offer skilled labor and advanced technology. Trump’s tariffs are designed to encourage domestic production, but this shift poses considerable challenges due to the intricate global network of parts and assembly operations.
The tariffs could put a significant strain on companies like Toyota, Mazda, and Subaru, which import substantial portions of their fleet. Even giants like General Motors, Stellantis, and Ford might face financial setbacks, losing billions from diminished profits due to taxed imports. While some firms might adapt and increase U.S. manufacturing content to avoid import duties, others remain tied to foreign facilities and may find immediate relocation to be impractical.
Car buyers and prices will also feel the impact, with estimations suggesting an increase of up to $5,000 on the average vehicle price, currently exceeding $47,000. If the tariffs extend fully to Mexican and Canadian-made cars, price hikes could soar to $10,000. The industry is already battling the aftermath of pandemic-related disruptions, semiconductor shortages, and limited inventories, which have kept prices skyrocketing with minimal incentives available.
The increased new car prices could push more buyers towards the used car market. However, with existing limited used car stocks, an increased demand might escalate prices further. Average used car prices now hover around $25,000, and reduced leasing rates during the pandemic have resulted in fewer used cars entering the market, just as buyer interest in secondhand vehicles is likely to rise.
Responses to the tariffs vary. The American Automotive Policy Council supports efforts to boost U.S. auto production, but stresses that tariffs need to be managed carefully to keep consumer prices stable and protect the North American sector’s competitiveness. Meanwhile, the United Auto Workers union praised the move as a positive step forward for blue-collar workers, urging automakers to restore unionized jobs in the U.S. Conversely, Autos Drive America, representing foreign car manufacturers, criticized the tariffs, arguing they will boost production costs, raise prices, restrict consumer choices, and reduce U.S. manufacturing jobs.