Trump Tariff Tax: Why Your Next Car Will Cost More

“A 25% tariff on imported cars and parts could add $6,250 to the price of a $25,000 vehicle.” That was the estimate from S&P Global when Trump first floated the idea. If you’re in the market for a new car, work in the industry, or just follow global trade, that number should make you pay attention. Now that these tariffs are in effect, they won’t just hit imports. The price of American-made cars will rise, supply chains will take a hit, and consumer demand could shift in ways the market hasn’t seen in years.

When the U.S. government slaps a tariff on imports, automakers have two choices: absorb the cost or pass it on to you. Most won’t eat the losses, which means higher prices at the dealership. The last time tariffs hit the automotive industry, the average new car price climbed by around $2,000. The proposed 25% tariff on vehicles and parts could push that much higher. Even if you buy an American-made car, you won’t be spared. Modern cars rely on a global supply chain. The Ford F-150, built in the U.S., still uses parts from Canada, Mexico, and China. If those parts get taxed, the cost of production increases, and so does the price you pay.

Some automakers might try to offset the increases by cutting costs elsewhere. That could mean fewer features, lower trim options, or delays in rolling out new models. Toyota warned that even its U.S.-built Camry could see a price hike of $1,800 due to imported components. If you’re shopping for a vehicle, that could make used cars a more attractive option, leading to higher demand and rising prices in the pre-owned market as well.

At the same time, tariffs could give foreign automakers a competitive advantage. If U.S. car prices increase while European and Asian automakers maintain lower costs, consumers may shift towards imports from countries that are not subject to these tariffs. This could allow companies like Hyundai, Volkswagen, and BMW to gain market share while U.S. brands struggle with higher production costs.

Tariffs don’t just raise prices—they disrupt how cars are made. The automotive industry relies on a finely tuned supply chain where parts move seamlessly across borders. If tariffs hit, delays will follow. Factories may be forced to rethink sourcing strategies, and some suppliers could get priced out of the market altogether. This isn’t speculation. When Trump’s steel and aluminium tariffs took effect in 2018, Ford reported that they added $1 billion to production costs.

Automakers might look for alternative suppliers in tariff-free countries, but shifting production isn’t simple. Setting up new supplier contracts and retooling factories takes time. In the short term, that means fewer parts on hand, possible production slowdowns, and longer wait times for new cars. If foreign automakers can avoid these disruptions by keeping production in non-tariffed regions, they may have a distinct advantage in the global market.

Tariffs on Mexican imports could have particularly severe consequences. Mexico is one of the largest exporters of auto parts to the U.S., and an increase in production costs could impact both countries. A weakened Mexican auto sector could lead to job losses, economic instability, and even increased illegal migration into the U.S. as economic opportunities shrink. Additionally, U.S. border states that rely on cross-border trade, such as Texas and Arizona, could experience economic downturns due to reduced trade activity.

Reshoring auto production to the U.S. is often discussed as a solution to tariffs, but it comes with significant hurdles. Labor costs in the U.S. are considerably higher than in Mexico and Asia, making it more expensive to manufacture vehicles domestically. There is also a growing labor shortage in skilled manufacturing, which presents a long-term challenge for automakers looking to expand domestic production.

However, some reshoring could be possible without building entirely new plants. U.S. automakers are currently producing at about 55% capacity, meaning there is room to increase output in existing facilities. While this could ease some of the burden, significant investment would still be needed to retool factories and adjust supply chains to accommodate higher production volumes.

Establishing new manufacturing facilities is another hurdle. It takes years and billions of dollars to build new plants, hire and train workers, and establish reliable supply chains. Automakers must weigh the long-term viability of such investments, especially if tariff policies shift in the future. If tariffs are reversed or modified, the time and capital spent on reshoring could result in wasted resources.

Automakers operate on tight margins, and tariffs can disrupt production schedules by increasing costs and reducing profitability. Companies may delay the release of new models or limit production volumes to maintain financial stability. A 25% tariff on imported parts means that even U.S.-built cars could see a 10-15% increase in overall production costs. This puts pressure on automakers to either raise prices or absorb losses, both of which come with significant downsides.

To counter rising costs, automakers are looking at ways to streamline operations and invest in new technology. Increased investment in automation and AI-driven manufacturing could help reduce labor costs and improve efficiency. Companies are also diversifying their supply chains, seeking out suppliers in non-tariffed countries to minimize disruptions. These strategies require substantial upfront investment but may help offset tariff-related cost increases in the long run.

Industry analysts predict that prolonged tariffs could reshape the global automotive landscape. Some experts warn that persistent trade barriers could lead to regional production hubs, where manufacturers concentrate production in specific countries to avoid tariffs. Others suggest that automakers might shift more investment into electric vehicles and alternative transportation models to reduce reliance on traditional supply chains.

Tariffs don’t just affect U.S. consumers—they create ripples across the global auto industry. Canada, Mexico, the EU, and China have all threatened retaliatory tariffs on U.S. goods if auto levies go into effect. When China imposed a 25% tariff on American-built cars in 2018, sales of U.S.-made vehicles in China fell by 35% within months. If a trade war escalates, automakers with international operations could take an even bigger hit.

This isn’t just a policy debate. Real jobs, real investments, and real consumer costs are on the line. If you’re planning to buy a car in the next year, what would a price hike of $2,000-$6,000 mean for your decision? Opt for a used model instead? Let me know your thoughts.