How Trump's Canada and Mexico tariffs risk higher prices on cars
President Donald Trump’s decision to impose a 25% tariff on all imports coming into the U.S. from Canada and Mexico is expected to take a particular toll on the U.S. auto industry.
President Donald Trump’s decision to impose a 25% tariff on all imports coming into the U.S. from Canada and Mexico will touch thousands of products across dozens of industries. But it is expected to take a particular toll on the U.S. auto industry, adding thousands of dollars to the cost of each new vehicle — with potential consequences including contributing to higher prices, falling sales and even cuts to manufacturing jobs.
With millions of auto parts and vehicles flowing between Canada, Mexico and the U.S. each year, the tariffs are estimated to increase the cost of producing most vehicles in North America by $4,000 to $10,000, according to an analysis by Anderson Economic Group. Even vehicles assembled in the U.S. will face higher costs, because their parts are imported from Canada and Mexico and will be subjected to the new tariffs.
“If I was a consumer and had my eye on a particular vehicle and I found it in inventory, I would buy it right away because the price could be significantly higher in just a month,” said Patrick Anderson, head of Anderson Economic Group.
At least some of those higher costs will likely be passed on to consumers, he said, since automakers are already operating on relatively thin margins. Car prices are at record highs, having increased 34% since 2019 to an average selling price of nearly $50,000. Used car prices could also increase if the supply of old cars goes down because higher prices encourage more Americans to put off upgrading their vehicle.
Vehicles and their parts have been freely flowing between Canada, the U.S. and Mexico for decades as the automotive supply chain has become deeply interwoven. Cars made in the U.S. contain parts from Canada and Mexico, while U.S. parts are used in cars assembled across the border and later shipped back for sale to American consumers.
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