An announcement from the White House on March 26 places a 25% tariff on a large number of vehicles while the consumer will likely eat most of the cost.
Earlier analysis from the Joint Economic Committee in the House came to the conclusion that, at bare minimum, tariffs are going to cost the average U.S. family $1600/year, and more likely closer to $2000/year.
With brand new tariffs set to hit foreign-made vehicles on April 3, that number could jump to over $3100/year. While domestically produced vehicles will not be subject to tariffs, it is hard to imagine American companies wouldn’t feel comfortable raising their prices. If a new Mazda CX-5 costs about $29,000 now, it would likely jump to about $36,000, assuming the manufacturer eats a portion of the tariffs. It doesn’t take much to see your local Ford dealership bumping the price of their $29,000 2025 Ford Escapes to $32,000, even though they would not be impacted by the new tariffs.
Assuming a family with two vehicles purchases one on average once every three years, that bump in price due to tariffs could cost a family approximately an extra $1100/year on a vehicle. The bump in price would filter down to used vehicles as well, which factors in to the purchase of a vehicle every six years (family with two purchasing a different one every three years). Price action on the supply side for new vehicles would affect the demand side for used cars. The lone bright spot would be a likely small increase for the trade-in value of current vehicles. Though any rise in trade-in values would be more than washed out by the added cost of either a new or used vehicle.
The move is primarily marketed as a way of re-shoring automobile manufacturing and it may have the desired effect, but at a significant cost. If the tariffs do appear to be permanent, there will probably be a rise in automobile manufacturing in the U.S. However, there’s a reason a significant amount of the manufacturing occurs outside of the U.S., namely the infrastructure is already in place in places like Japan and South Korea. More vehicles being manufactured/built in the U.S. would probably lead to more jobs, though the economic bump would be hyper-regional at best. Automation has been cutting into vehicle production jobs for the past 50 years. Even with relatively conservative numbers, the U.S., on average, loses about 80 vehicle manufacturing-related jobs per day.
What’s more concerning is that the newest round of tariffs may not be the last. At least with previous tariffs in the last 60 days, there have been pullbacks and delays, this does not appear to be the case with the automobile tariffs. The newest tariffs appear to be strictly related to bringing back manufacturing jobs. What could possibly happen is that individual companies will make deals to bring a certain amount of manufacturing into the U.S. and in exchange, they could be granted exemptions.
The newest salvo of tariffs are going to be costly to U.S. families. Without taking into account possible retaliation tariffs, it’s going to hurt to the tune of approximately $3100/year for the average family. Further tariffs will probably push that number up, even if they are later lifted, as companies will have to account for them being implemented again at any time.
