The U.S. introduced a 25 percent tariff on imported cars and light trucks on April 3, and the same will apply to select automobile parts from May 3.
The Trump administration’s motivation for the levies is to decrease the country’s reliance on new vehicles and parts supplied from overseas and to boost homegrown production by allegedly making it cheaper to assemble vehicles in the U.S. than to import them from other countries. However, it will make cars universally more expensive to build, to buy, and to repair, irrespective of where they’re from.
This is what the tariff means for the automotive industry, for the new and used car markets, and for car buyers and owners.
Why is the U.S. taxing foreign cars?
President Donald Trump has been keen to tax foreign-built cars for a long time. During his first term, he commissioned an investigation by the Department of Commerce on the effect of imported vehicles to the U.S., and concluded that they happened “in such quantities and under such circumstances as to threaten to impair the national security of the United States”.
The New Cars Still Widely Available Without Tariffs—For Now
The theory is that the new tariff will boost U.S. vehicle production and give homegrown cars a competitive advantage, because they will be cheaper to buy than those imported from other countries. According to the White House, 50 percent of the 16 million cars, SUVs, and light trucks sold in the U.S. last year were imported.
Some of the details of Trump’s tariff are complicated. For example, products not compliant to the US-Mexico-Canada Agreement (USMCA), will be subject to tariffs on top of their existing 25% import tax. So, while many vehicles will be be spared completely, others could be taxed up to 52.5% if they are non-USMCA compliant and have no US-produced parts content. The White House announcement said “certain” car parts would be tariffed, specifically “engines and engine parts, transmissions and powertrain parts, and electrical components,” but some parts could be exempt from the tariff.
The exact nature and scope of the tariff could always change, too.
How will the tariff affect new cars?
At its most basic level, Trump’s auto tariff will lead to higher prices for cars built overseas and imported to the U.S.. How each carmaker responds to the tariff will vary, as some may attempt to absorb a portion of the cost to soften the impact on price hikes, while others might pass on the full 25 percent to customers. According to Kevin Roberts, CarGurus Director of Economic and Market Intelligence, "based on our recent analysis, it looks like new car prices could rise across the board by around $3,300, going from around $49,500 dollars at the end of March to approaching $53,000 in a future state if all tariffs went into effect."
Homegrown manufacturers, such as Ford, will see an immediate competitive advantage, because their cars will not be subject to the tariff. The same will apply to non-U.S. automakers with local factories, but only to the specific models built in those facilities. Toyota, for example, builds the Tundra pickup truck and the Sequoia SUV in its Texas factory, so those models—among other vehicles it assembles in the U.S.—won’t be directly hit by the tariff. Their prices could be more consistent than, say, those of the Toyota RAV4 SUV, which is built at another of the manufacturer’s North American plants in Ontario, Canada.
There is more to the tariff than dealership sticker prices, though, because it will also apply to automobile parts. Manufacturers that build their cars in the U.S. will be affected by this, because they typically import significant numbers of parts from other countries to assemble their vehicles. So, although the finished product might avoid the tariff, a proportion of the parts required to build it won’t, which means U.S. consumers will still pay more for cars built on home turf.
Share prices were an early indicator of the tariff’s likely impact on vehicle manufacturers. U.S-based companies, such as Tesla and General Motors, and those based overseas with factories in the U.S., such as Stellantis and Toyota, saw their share prices fall following the tariff’s confirmation on March 26.
Will the tariff affect used cars?
Outside of some potential fringe cases, such as a vehicle being non-USMCA-compliant and imported for resale, most used cars will not be subject to the tariff. That said, it will almost certainly push up prices. The increased costs it will add to new cars will put them out of reach of a greater number of American consumers, which means more people will look to the used car market as a more affordable way to buy a car.
The used car market is all about supply and demand, so when there are lots of cars, or a particular type of car, and few people want them, prices go down. Prices rise when there are fewer cars around and lots of buyers want them.
While the market can always vary, used cars have generally been in short supply—and therefore expensive—since the pandemic. That’s because manufacturers shut down their factories when Covid-19 hit, which led to a shortage of new cars that continued well into 2022. Anyone who wanted to change their car in the meantime had to wait or buy used.
In a nutshell, used cars have been in short supply and high demand for most of this decade. CarGurus’ latest analysis showed that the average used car price was $27,700 in February, while our used car price index revealed that average values actually started to ease from around mid-October 2024, albeit from a high base of around $28,000. They fell to about $27,000 in early February but began climbing soon afterwards—well before the tariff announcement.
It is widely believed that the tariff will price more buyers out of new cars and channel them into the used car market, so used car values are likely to go only one way: up.
What does the automotive industry think about the tariff?
It’s not a fan. The American Automotive Policy Council (AAPC), which represents Ford, General Motors, and Stellantis, initially struck a conciliatory tone when the tariff was announced on March 26. Two days later, citing a report by economist Dr. Art Laffer, it said the tariff would “raise vehicle prices in the U.S., disrupt long-term investment cycles, and create uncertainty by weakening consumer confidence and supply chain stability.”
Also from Michigan, the Detroit Regional Chamber and MichAuto, an automotive, mobility and technology association, published a joint statement in response to the tariff, claiming it would “impact the availability of products for consumers and will increase prices in the showrooms. Demand will be affected across the industry, and that will likely cause production cuts that will reverberate through the supply chain. This means jobs lost, increased input costs, and pressure on the balance sheets of companies large and small.”
Industry bodies representing vehicle manufacturers outside the U.S. have campaigned for the President to reconsider the tariff. “We urge President Trump to consider the negative impact of tariffs not only on global auto makers but on U.S. domestic manufacturing as well,” said Sigrid de Vries, director general of the European Automobile Manufacturers’ Association. Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders in the UK, described the tariff as “disappointing”.
I’m not planning to change my car. Why should I worry about the tariff?
Existing car owners won’t be immediately affected by the tariff if they have no plans to buy or sell their car for the foreseeable future. In fact, due to the supply-and-demand constraints around the used-car market, they may see their vehicles' trade-in values rise.
Remember, though, that the tariff will apply to automobile parts as well as to the vehicles themselves, so few, if any, car owners will avoid higher costs. Auto parts costs will be on the rise due to the combination of steel and aluminum tariffs, the auto tariff, and potential reciprocal tariffs from affected countries. Auto insurance rates are also rising due to price increases, and tariffs could exacerbate this further. If your car needs a repair or maintenance and the part in question is subject to the tariff, then your invoice at the shop will be more expensive than it used to be.
