Find out how raising tariffs on imported goods could have a major impact on car prices and your money!
The President, Donald Trump, has suggested raising tariffs on imported goods, a move experts believe could lead to higher car prices. Among Trump’s proposals are a 10% tariff on goods from China and a 25% tariff on all products from Mexico and Canada. He has also warned the European Union to reduce its trade imbalance with the U.S. by buying more oil and gas or face a similar scenario.
Tariffs are essentially taxes on imports, paid by U.S. companies when they bring goods into the country. And these taxes could have a significant impact on car prices due to the global nature of automotive supply chains. The automotive industry relies on a complex supply chain where components are often transported across borders multiple times before they are fully assembled into a vehicle, according to Ivan Drury, director of insights at Edmunds.
“There’s no such thing as a 100% American vehicle. There’s so much complexity, even though it’s a seemingly straightforward thing”, said Drury.
For example, a steering wheel might include electronic sensors from Germany, get stitched in Mexico, and finally be installed in a U.S. factory. Wells Fargo analysts estimate that tariffs on parts from Mexico, Canada, and China could add between $600 and $2,500 to the cost of manufacturing a single vehicle. For cars built in Mexico or Canada, which account for about 23% of those sold in the U.S., prices could increase by as much as $1,750 to $10,000.
Automakers may not pass the full cost of these tariffs onto buyers. Instead, the financial burden will likely be shared among automakers, dealers, and consumers, according to Erin Keating, an executive analyst at Cox Automotive. “No one company is going to dump all of that expense directly on their consumers”, he noted.
What Car Buyers Can Expect in 2025
Car prices in 2025 are not expected to spike due to new tariffs, at least not immediately. Many cars available in 2025 will have already been assembled or are in production now, meaning that inventory won’t immediately reflect the higher costs associated with potential tariffs.
Experts predict stable baseline prices with dealers offering incentives to attract buyers. According to Keating, the average transaction price for new cars will likely remain between $47,000 and $48,000, close to November 2024’s average of $48,724.
The current average auto loan rates are at 9.01% for new cars and 13.76% for used vehicles, both slightly lower than earlier this year. Jonathan Smoke, chief economist at Cox Automotive, predicted further decreases by spring, potentially creating the most favorable buying conditions since 2019.
Experts are optimistic about the 2025 auto market. Inventory levels are improving, and more deals are expected, regardless of tariff changes. “Tariffs or no tariffs, there will be more incentives”, Drury said.