Trump's tariffs on Canada, Mexico, and China could lead to car price increases of up to $12,200

 

Trump's tariffs on Canada, Mexico, and China could lead to car price increases of up to $12,200

The tariffs introduced by President Trump targeting three major U.S. trading partners are scheduled to take effect on Tuesday, March 4. Analysts and American automobile manufacturers warn that these tariffs could significantly raise vehicle prices for U.S. consumers and negatively impact car sales in the country.

A 25% tariff on imports from Canada and Mexico, along with an extra 10% tariff on goods from China, may result in some car models becoming as much as $12,200 more expensive, as per a report from the Michigan-based economic consulting firm, Anderson Economic Group (AEG).

These sweeping tariffs are expected to drive up the cost of multiple vehicle types, including SUVs, compact cars, and electric vehicles, according to AEG's findings. With car prices already approaching a near-record high of around $50,000, additional costs could place an even greater financial burden on inflation-stricken consumers.

AEG CEO Patrick Anderson emphasized that the projected price hikes from Mr. Trump's tariffs could be significant enough to deter potential car buyers.

"Our analysis shows the proposed tariffs would have a very big effect on North American assembled cars by multiple automakers," Anderson told CBS MoneyWatch.

He continued, "These are cost increases that cannot be hidden from the consumer. Substantial portions, or perhaps all of it will be passed along to consumers, or manufacturers will stop producing them."

Anderson also noted that some vehicle models and equipment configurations might become financially unviable for manufacturers. "It would be a huge disruption to the industry," he added.

Which vehicles are expected to see the steepest price increases?

According to AEG's research, additional costs on vehicles could range from $4,000 to $10,000, with certain electric vehicles—highly dependent on Chinese-made components—experiencing price hikes of up to $12,200.

AEG's study outlined the expected impact on various vehicle categories:

• Battery-powered electric crossover vehicles: +$12,200
• Full-size SUV: +$9,000
• Pickup truck: +$8,000
• Small car: +$6,200

Anderson pointed out that these cost increases might drive some consumers toward the used car market or alternative options such as vehicles manufactured in Japan, which might be more affordable.

"Or, they could decide simply not to buy one at all," he said.

The automobile manufacturing industry relies on highly intricate supply chains, with various components frequently crossing international borders multiple times during the production process. Imposing tariffs on these goods could quickly elevate manufacturing costs for automakers.

Cornell University government and public policy professor Gustavo Flores-Macias commented on the situation, stating that "The automobile sector, in particular, is likely to see considerable negative consequences, not only because of the disruption of the supply chains that crisscross the three countries in the manufacturing process, but also because of the expected increase in the price of vehicles, which can dampen demand."

Dan Hearsch, head of the automotive & industrial practice for the Americas at global consulting firm AlixPartners, suggested that these tariffs could temporarily benefit companies assembling vehicles in Japan, South Korea, or Europe.

"For automakers that don't import from Canada or Mexico, they'll end up with a little bit of an advantage, because they won't be hit with this brand-new tariff," he explained. "So for some period of time, vehicles coming in that aren't subject to additional tariffs will have a big advantage over domestic companies, or those that are producing in Canada, Mexico or the U.S."

He further noted, "It's basically penalizing companies relative to those that are importing vehicles from other places, for now."

Ford CEO highlights the potential "huge impact" of tariffs

During a recent earnings call, Ford Motor Company CEO Jim Farley cautioned that an extended period of heightened tariffs could erase company profits, raise vehicle costs, and hinder economic expansion.

"There is no question that tariffs at 25% level from Canada and Mexico, if they're protracted, would have a huge impact on our industry with billions of dollars of industry profits wiped out and adverse effect on the U.S. jobs as well as the entire value system in our industry," Farley said. "Tariffs would also mean higher prices for customers."

In contrast, Mr. Trump defended the tariffs in a social media post, asserting that they would be a "win" for the U.S. auto industry by bringing "massive amounts of auto manufacturing" back to states like Michigan.

With the implementation of these tariffs drawing closer, the auto industry and consumers alike brace for potential changes that could reshape the market landscape.