Auto tariffs drive up car costs and economic strain

[UNITED STATES] The United States' sustained 25% tariffs on imported vehicles and forthcoming levies on auto parts are poised to significantly elevate the costs associated with owning a car. These measures are expected to affect not only the purchase price but also insurance premiums, repair expenses, and overall vehicle affordability.

The tariffs, initially introduced in 2018 under Section 232 of the Trade Expansion Act, were justified on national security grounds, though critics argue they disproportionately burden consumers. With the Biden administration maintaining these policies, analysts suggest the long-term effects could reshape the automotive landscape, pushing some buyers toward electric vehicles (EVs) or alternative transportation options.

The tariffs, imposed by President Donald Trump, have disrupted the North American automotive supply chain, leading to production challenges and heightened costs. Automakers warn that these tariffs will result in vehicle price increases of up to 25%, with the average price of a new car already hovering around $35,000.

Supply chain experts note that the tariffs have forced some manufacturers to relocate production to avoid duties, but these transitions come with their own costs. For example, shifting operations to Mexico or Canada—while mitigating some tariff impacts—requires significant capital investment, which may still trickle down to consumers in the form of higher prices.

Beyond the showroom, the impact extends to maintenance and insurance. As key replacement parts such as hoods and fenders become more expensive and potentially scarcer, repair and insurance expenses have already risen sharply by 27% and 53%, respectively, in the last three years, outpacing general inflation. Insurers facing increased repair costs are likely to pass these expenses onto consumers through higher premiums.

The parts shortage has also led to longer repair times, with some drivers waiting weeks for critical components. This delay not only inconveniences consumers but also increases rental car costs, adding another layer of financial strain. Industry groups are urging policymakers to reconsider tariffs on essential auto parts to alleviate some of these pressures.

The financial strain is leading consumers to reconsider vehicle purchases. A recent survey revealed that 56% of respondents now view it as a bad time to buy a car, up from 46% previously. This sentiment is contributing to a projected decline in auto sales, with forecasts indicating a reduction of approximately 2 million vehicles in the U.S. and Canada for 2025.

The automotive sector's challenges have wider economic repercussions. A study by the Center for Automotive Research estimates that the tariffs could lead to nearly 715,000 job losses and a GDP reduction of $59.2 billion in the U.S. The analysis also predicts an increase in used car prices due to heightened demand and limited supply, further straining consumers' budgets.

Small businesses, particularly those reliant on affordable fleet vehicles, are also feeling the pinch. Delivery services, ride-sharing drivers, and independent contractors report that higher vehicle costs are cutting into profit margins, forcing some to delay upgrades or seek alternative financing options.

While the focus is often on the U.S., these tariffs also affect international markets. In Malaysia, for instance, the Malaysian Automotive Association (MAA) has indicated that the hike in electricity tariffs is a contributing factor to the increase in car prices. This is due to higher manufacturing costs passed on to consumers, highlighting the interconnectedness of global automotive markets.

In Europe, automakers are bracing for potential retaliatory tariffs, which could further complicate trade relations. The European Union has previously threatened countermeasures, raising concerns about a broader trade war that could disrupt supply chains and inflate prices worldwide.

Automakers are actively seeking solutions to mitigate the impact. Some companies are adjusting manufacturing operations and offering higher consumer incentives to offset potential price hikes. However, the uncertainty surrounding the tariffs poses significant challenges, making it difficult for manufacturers to plan and for consumers to anticipate future costs.

As the situation evolves, consumers are advised to stay informed about policy changes and their potential effects on vehicle ownership costs. Exploring maintenance options, comparing insurance rates, and considering both new and used vehicle markets may provide avenues to mitigate the financial impact of these tariffs.