Auto Sector Could Be Thrown “Into Crisis” by Incoming Car Tariffs

New presidents typically mean a change in economic policy. With President-elect Donald Trump, the federal government will likely alter its approach to trade. Once the presidency changes hands, you could see car tariffs and more expensive vehicles. What’s likely to happen in 2025 and beyond? Here’s your auto tariffs guide to stay in the know. 

What Are Tariffs?

A tariff is a tax on imported or exported products. Governments typically use this strategy to raise revenue for their budgets. However, it could also be part of a larger foreign policy strategy. Another reason for tariffs is to encourage purchases from domestic companies, as this protective strategy increases the price of imported products.

Tariffs have existed in the U.S. since the 1700s and are a big part of the modern economy. Right now, the U.S. has a tariff rate of 2% on industrial goods, meaning the imported goods are taxed just a little bit higher. However, the next administration could change everything, especially regarding auto tariffs. 

What Car Tariffs Could Be Coming in 2025? 

Regardless of the dealership, cars have become more expensive due to supply chain disruptions and shortages. The pain could worsen next year with the president-elect’s tariff plan. During his campaign, Trump proposed tariffs on specific countries like China and Mexico. If they come to fruition, your next car could increase in price if imported. 

Trump has proposed a universal tariff of up to 20% on all imported goods and a 60% levy on Chinese imports. In theory, this would increase the competitiveness of U.S. factories and encourage people to buy American cars. However, numerous popular imported cars will see price increases, making it harder for people to afford vehicles. 

Will Cars Become More Expensive?

Consider how many cars the U.S. imports annually. With a 20% tariff, the $30,000 Toyota suddenly becomes $36,000 and is out of range for some consumers. While not all vehicles will see a parallel increase with the tariffs, automakers will likely pass the cost of car tariffs onto the consumer. 

Nissan’s sedans are an excellent example, as they’re consistently among the most affordable cars sold in America. However, the auto tariffs could immediately decrease their competitive rates. An Autoweek analysis found a Nissan Versa SV CT would increase by nearly $5,000 after the tariffs are in place. Therefore, first-time buyers may have to look elsewhere.   

How Have the Auto Tariffs Impacted the Manufacturers? 

The U.S. has numerous automakers, whether domestic or foreign companies. With the impending car tariffs, these automakers have been affected in three ways. 

1. Slipping Stocks

The day after the presidential election, stocks began slipping for international automakers. For instance, BMW and Mercedes stocks fell by around 6.5% due to fears of tariff hikes on imported vehicles. Other German automakers like Porsche and Volkswagen also declined between 4-5%. Stock prices fell in European markets and saw the same fate in America’s stock exchange. 

Conversely, American auto manufacturers have seen stock price increases since the beginning of November. For instance, General Motors stock saw a boost from $50.76 a share on Halloween to $57.66 in the week following the election. While American companies benefit, they must also consider their manufacturing plants in Mexico and other countries. 

2. Contemplating a Move

The impending car tariffs have forced some automakers to rethink their presence in the U.S. For instance, Honda leaders have said they fear increased costs due to the tariffs. Therefore, they may rethink production in places outside the nations where the U.S. imposes high tariffs. In this instance, Honda is rethinking its vehicle production in Mexico, where it produces 200,000 cars. 

Toyota has warned that these tariffs could affect consumers as much as the companies themselves. In a CNBC interview, the Japanese automaker’s leadership said to consider the automotive supply chain as a whole. Auto tariffs raise prices for the customer as much as the manufacturers. While Toyotas are tough and reliable, you may have to pay a premium to drive them. 

3. Reducing Vehicle Demand

Total vehicle sales have been highly volatile since the COVID-19 pandemic. In April 2021, companies sold more cars than they have since 2005, marking a period of high demand. However, the desire for vehicles quickly dropped and hasn’t necessarily climbed back to stellar levels. Industry experts say consumer demand could fall if the auto tariffs arrive next year. 

Costs will likely increase across the board, thus pricing numerous customers out of the market. If people hold their cars longer, the primary beneficiary could be the aftermarket industry because drivers need upgrades. However, the car tariffs will likely constrict competition within the U.S. and increase prices. With that in mind, you could pay more for an F-150 or a Silverado. 

What Can You Do About Car Tariffs?

If and when the tariffs arrive, it’s wise to plan ahead and consider all your options. There aren’t necessarily ways to get around the tariffs, considering they impact the auto industry in its entirety. Here are a few strategies for consumers:

• Buy early: The auto tariffs won’t take effect until 2025 at the earliest, so there’s still time to buy a car and lock in your price before it increases. If your finances are in good shape, now may be the time. 
• Consider used cars: Used cars are a clever financial path and could be even more vital next year. Kelley Blue Book says used cars cost about $25,500 on average — nearly half the price of a new vehicle. 
• Research for deals: Now more than ever, it’s vital to research dealerships for good deals. Use websites like Autotrader and AutoTempest to find the best prices on the cars you want. 
• Negotiate: Brush up on your negotiating skills because they could be handy at the dealership. If demand drops, use that to your advantage and find leverage for better car prices. 
• Follow news: If you’re in the market for a car, it’s critical to pay attention to news on the tariffs. Watch the specific policy rollout to see what countries it affects and how the manufacturers respond. 

Understanding the Implications of Car Tariffs

While the tariffs aren’t exclusively on vehicles, these new levies will affect most aspects of the supply chain. Modern auto manufacturers rely on imported goods to build their cars. Plus, some companies produce popular vehicles in Mexico, Canada, and other countries affected by the tariffs. The precise tariff increase is unknown, but even a 20% change could drastically affect the cars you want to buy.