Trump tariff policy to further drive up U.S. car prices by thousands: Research

Since reclaiming the presidency on January 20, U.S. President Donald Trump has shaken up the global landscape with his bold and often controversial domestic and foreign policies. A key aspect of his agenda has been the imposition of tariffs, which has sparked widespread concern both in the U.S. and abroad. In particular, experts warn that his tariff policies could have severe consequences for the U.S. automotive industry, driving up car prices and burdening consumers.

Within less than one month of taking office, Trump has made three major moves on tariffs. His first round targeted Canada, Mexico and China, imposing tariffs of 25 percent and 10 percent, respectively, on imports from these countries. The tariffs on Canada and Mexico were later postponed by a month. The second round involved a 25 percent tariff on imported steel and aluminum, affecting countries such as Canada, Mexico, Brazil, South Korea, Vietnam, the UK, and the European Union countries. The third round, referred to as "reciprocal tariffs," applies to all countries.

Trump described tariffs as one of the 'most beautiful word in the dictionary'. Experts argue that his motivation for imposing tariffs is multifaceted. On one hand, the tariffs are a response to trade tensions, with the U.S. accusing foreign governments of subsidizing domestic companies, discriminating against American businesses, or maintaining large and persistent trade surpluses with the U.S. On the other hand, Trump has used tariffs as a political leverage tool, such as in the case of the 25 percent tariffs on Canada and Mexico, citing the need to curb fentanyl trafficking and immigration. Following agreements with both countries on border control and organized crime, Trump temporarily suspended the tariffs for at least 30 days.

Despite warnings from economists that tariffs ultimately burden U.S. consumers, due to higher prices, Trump's policies show little sign of shifting. In fact, experts believe that the costs of the tariffs will mostly be passed onto American consumers, particularly in industries like automobiles, where the U.S. lacks the capacity to manufacture certain products domestically.

The automotive industry, a key sector in the U.S. economy, is particularly vulnerable. Industry insiders have warned that U.S. carmakers will bear the brunt of these tariffs, which will increase the cost of auto parts and raise car prices in the U.S even higher. 

According to market research firms, if Trump's proposed tariffs come into effect, U.S. car buyers could face price hikes of several thousands of dollars. Cox Automotive data shows that the average transaction price for new cars is already $49,740, which is very close to $50,000.

Benchmark analyst Cody Acree estimates that, should the proposed 25 percent tariffs on cars and car parts from Mexico and Canada go through, the average price of a car in the U.S. will rise by approximately $5,790. This would push the average cost of a new car to over $54,500, nearly a 12 percent increase from 2024.

Acree wrote in a note to clients, "We believe the Auto sector is the most exposed to the risks of increased tariffs, given its sheer size of trade dollars, the complexity of the intertwined supply and manufacturing channel that has been cultivated over decades, and the sheer number of our companies that participate in support of this key consumer industry."

Benchmark's estimates are based on data showing that over 22 percent of the vehicles sold in the U.S. last year came from Mexico and Canada. Additionally, around 40 percent of the parts used in U.S. cars are sourced from these two countries.

In 2024, Mexico and Canada exported over $200 billion worth of vehicles and auto parts to the U.S. Mexico, specifically, supplied $95 billion in vehicles and $68 billion in parts, while Canada provided over $36 billion in vehicles and nearly $16 billion in parts.

Analysts at Wolfe Research also predict an increase in car prices, but have provided a different figure. It predicted that U.S. car prices could rise by $3,000 on average as a result of tariffs.

During an industry event this week, Ford CEO Jim Farley expressed concern over Trump's proposed tariffs on Canada and Mexico, as well as the 25 percent tariffs on steel and aluminum imports.

"President Trump has talked a lot about making our U.S. auto industry stronger, bringing more production here, more innovation in the U.S...., So far what we're seeing is a lot of cost, and a lot of chaos," Farley said during a Wolfe Research investment conference.

He also pointed out that Canada and Mexico are crucial trade partners for the U.S. and important suppliers of parts for Ford. Imposing tariffs on these countries could place U.S. car manufacturers at a competitive disadvantage against carmakers from Japan, South Korea and Europe.

U.S. is the world's largest importer of goods, with Mexico, Canada, China, Germany and Japan ranking as the top five suppliers. Automobiles are not the only goods causing Americans to suffer from rising costs. 

According to the National Retail Federation (NRF), the tariffs proposed by Trump are expected to lead to an increase in consumer spending of between $46 billion and $78 billion annually on items such as clothing, toys, furniture, household appliances, footwear, and travel goods.