“Disruption” is the word of the moment in the auto industry after President Donald Trump announced Wednesday that, starting next week, the US will impose a 25% tariff on all vehicles imported into the US.
“While we’re still uncertain about exact policy outcomes, it looks like we are headed for the highest effective tariff rate since World War II,” Jonathan Smoke, Cox Automotive’s chief economist, said during a presentation Wednesday ahead of the announcement. “For the auto market, that is especially problematic, as such tariffs would be highly disruptive to North American vehicle production––resulting in tighter supply, higher prices, and lower production and sales.”
What to know: The auto tariffs are slated to take effect at 12:01am ET on April 3, per Trump’s proclamation, which also stated that new import tariffs on car parts will go into effect by May 3.
Car parts from Canada and Mexico that meet the requirements of the United States-Mexico-Canada Agreement (USMCA) will be exempt “until US Customs and Border Protections has a system in place to apply tariffs to non-US parts,” CNN reported.
Underscoring the significance of the policy: About half the vehicles sold in the US are imports.
Likely impacts: Auto industry analysts have predicted that, if implemented as proposed, the tariffs would have sweeping effects.
“Imposing a 25% tariff, with some exclusions for USMCA compliant parts, could raise vehicle prices as much as $10,000–$20,000,” Art Wheaton, director of labor studies at Cornell University’s School of Industrial and Labor Relations, said in a statement. “If the end goal is to increase production of parts and assembly in the United States, then the tariffs would likely need to be consistent for decades to allow planning for the shifting supply chain.”
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Cox analysts warned that while the industry had been poised for growth heading into 2025, all bets would be off if an all-out global trade war ensues. They estimated that North American auto production would almost immediately decrease by 30%.
Longer term, it’s possible that automakers would eliminate some models altogether––likely the more affordable models that automakers tend to assemble in Mexico and Canada.
Affordability challenges: Analysts say that these expected impacts are likely to exacerbate the auto industry’s existing affordability crisis. The average transaction price for a new vehicle in the US was $47,373 in February, according to Edmunds.
Jessica Caldwell, head of insights at Edmunds, predicted that not only will vehicle prices go up as a result of the tariffs, but ownership costs like insurance premiums and vehicle repairs could also become more expensive. And analysts expect automakers to pull back on discounts and incentives.
“Tariffs could encourage increased investment in US-based manufacturing (a trend already signaled by automakers such as Hyundai),” Caldwell said. “Over time, this may contribute to a more resilient and locally rooted auto industry. However, those potential benefits will take time to materialize. For consumers navigating higher prices in the short term, the promise of future gains may feel distant—at least for now.”
On the other hand: The United Auto Workers cheered the tariffs as a “victory for autoworkers” and an opportunity for domestic automakers to add jobs and boost production at “underutilized” US plants.
“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,” UAW President Shawn Fain said in a statement.