Car prices are about to shoot higher.
That’s because a 25% tariff across all cars that the United States imports is set to take effect on April 3. And not long after, a 25% tariff on most foreign-made car parts is set to take effect.
In President Donald Trump’s ideal world, his tariffs will cause auto producers to move more of their production to the US. But automotive experts have told CNN that’s more or less a pipe dream. And even if it were possible for companies to move all production to the US, it would end up costing a lot more to manufacture.
On top of that, Trump has already enacted 25% tariffs on steel and aluminum shipped to the US and he’s threatened to impose tariffs on copper. All three metals are needed to make cars, therefore, tariffs on those will also raise the cost of making a car.
But even putting that aside, the 25% tariff on imported cars could raise prices per vehicle by a range of $5,000 to $15,000, depending on the make and model, according to Goldman Sachs estimates.
For decades, North America has functioned virtually without any border when it comes to producing cars, as a result of free trade agreements that allowed cars and car parts to come into the US duty-free. That’s in part why Mexico was the top source of cars imported into the US last year.
Even though there is a lot of auto production that takes place in the US, there is no car that’s 100% American-made, given how many parts are shipped in from abroad.
For instance, at least 60% of Volvo, Mazda, Volkswagen and Hyundai’s US car sales last year were imported, according to an analysis by S&P Global Mobility.
For the time being, imported cars that comply with the United States-Mexico-Canada Agreement (USMCA), which was negotiated by Trump during his first term, will be able to come in to the US duty-free until US Customs and Border Protection has a system in place to apply tariffs to non-US parts, according to a fact sheet published by the White House.
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