President Donald Trump recently announced new tariffs on auto imports, set to go into effect on April 3. These tariffs are expected to significantly increase the cost of producing all cars sold in the United States, whether imported or built in American factories. Ivan Drury, director of insights at Edmunds.com, suggests that the sticker shock could come much sooner than most people anticipate, even before these more expensive cars arrive at local dealerships.
“It is going to be expensive,” Drury said, predicting a potential cost increase of several thousand dollars per car. Automakers may not raise their wholesale prices immediately but might find other ways to pass the costs onto consumers. “They can simply remove some lucrative incentives,” Drury explained.
For example, automakers eliminating subsidized car loan rates could cost buyers an additional $6,000 to $7,000 per car. Although the tariffs aim to boost US manufacturing by encouraging buyers to choose American-made cars, vehicles built in US factories will still be affected due to their reliance on imported parts. Estimates suggest that the average domestic content for US-built cars is only around 40% to 50%.
Peter Nagle, an automotive economist for S&P Global Mobility, expects prices to start changing one to two weeks after the tariffs go into effect. The fundamental economic principle of supply and demand also drives the potential price increase.
Trump’s tariffs impact auto prices
Dealers, anticipating higher future costs, may not be as willing to negotiate on current inventory prices, even if those cars were purchased before the tariffs. “If the tariffs go through, we expect disruptions in North American vehicle production, amounting to 20,000 fewer vehicles produced per day, which is about a 30% hit to production,” said Jonathan Smoke, chief economist for Cox Automotive. “Lower production, tighter supply, and higher prices are around the corner.”
The United Auto Workers (UAW) union praised the decision, stating it would help reverse over 30 years of free trade policies impacting the US auto industry.
UAW president Shawn Fain said, “Ending the race to the bottom in the auto industry starts with fixing our broken trade deals, and the Trump administration has made history with today’s actions.”
However, Tesla CEO Elon Musk stated on X that the tariffs would still significantly impact the electric vehicle company despite Tesla producing its cars in the US. “To be clear, this will affect the price of parts in Tesla cars that come from other countries,” Musk posted, highlighting that the cost impact is “not trivial.”
Japan, the second-largest exporter of vehicles to the US after Mexico, has warned of a strong response. Prime Minister Shigeru Ishiba stated that “every option” was under consideration, and his government called the tariffs “extremely regrettable” and a threat to bilateral relations.
European automakers also expressed concerns, with the European Automobile Manufacturers’ Association warning that tariffs would hurt both global automakers and US domestic manufacturing. European Commission President Ursula von der Leyen and UK Finance Minister Rachel Reeves expressed their disappointment but said Britain would not escalate trade tensions. South Korea’s industry minister, Ahn Duk-Geun, highlighted the “considerable difficulties” faced by Korean automakers and announced plans for emergency measures to counteract the tariffs.
Autos Drive America, representing foreign automakers such as Honda and Toyota, warned that the tariffs would lead to higher prices, fewer consumer choices, and potential job losses. “The tariffs imposed today will make it more expensive to produce and sell cars in the United States,” said Jennifer Safavian, CEO of Autos Drive America.
Image Credits: Photo by Evgeny Tchebotarev on Unsplash
