Get ready to pay more for your next car. Car prices in the United States are set to rise very soon — possibly within the next few weeks.
This is because President Donald Trump announced a 25% tariff on imported cars and parts that will take effect on April 3, a measure that will increase the production cost of all cars sold in the United States — both imported and those built in American factories — by thousands of dollars each.
These additional costs will likely be passed on to buyers and will quickly drive up car prices.
Although the tariffs aim to boost U.S. manufacturing by steering buyers toward cars made in the U.S., automobiles built in U.S. factories will also be hit by tariffs. This is because there is no such thing as a completely American car. All 10.2 million cars built in U.S. factories last year were constructed with a significant number of imported parts, primarily from Canada and Mexico.
But Trump predicted on Wednesday in the Oval Office that car prices will fall because of the tariffs.
“You will see prices coming down, but it will come down specifically because they will buy what we are making, encouraging companies and even countries with companies to come to America and build,” Trump said.
Industry experts expect the opposite: prices will rise for manufacturers and customers. Estimates on the impact of the tariffs on production costs range from $3,500 to $12,000 or more per vehicle, depending on the model, according to the Anderson Economic Group, a Michigan-based think tank.
The other major impact on prices could come from a significantly lower availability of cars.
Automakers will likely reduce car production while they wait to see if the tariffs will be short-lived. They may also consider that the additional cost of the tariffs could drive some potential buyers out of the market. Here comes the famous law of supply and demand. A reduced supply of new cars could increase prices on its own, as demand will be greater than supply.
That’s exactly what happened in 2021 when a shortage of computer chips due to the Covid-19 pandemic caused deep cuts in car production, resulting in high prices for both new and used cars.
If the tariffs are indeed implemented, by mid-April, we expect disruptions in virtually all North American vehicle production, totaling 20,000 fewer vehicles produced per day, which represents an impact of about 30% on production,” said Jonathan Smoke, chief economist at Cox Automotive. “In summary, lower production, lower supply, and higher prices are on the way, reminiscent of 2021.”
Source: CNN