Will Tariffs Increase Car Prices?

If you're shopping for new vehicles near Frankfort, you may be wondering if tariffs will increase car prices. With global trade affecting the cost of materials, parts, and manufacturing, tariffs can influence how much you pay at the dealership. While not every model is affected equally, imported vehicles and those using international components may see higher prices due to shifting tariffs.

Whether you're buying now or planning, understanding what a tariff is and how it affects the auto market can help you shop with confidence, and Lincoln of Lafayette, IN, is here to help you make sense of it all.

What is a Tariff?

In short, tariffs are taxes or duties that are imposed by governments on goods imported from a particular country. Let's use an example of t-shirts. If a Chinese company sells shirts to a U.S.-based company for $10, and there is a 10% tariff on shirts coming out of China, then there is a $1 tax. As a result, the U.S.-based company pays $11. That company then has to turn around and charge an extra $1 per shirt it sells to cover the tax. 

 

Tariffs can be imposed on individual products or even on the raw materials coming out of a country. The United States has often imposed tariffs on finished automobiles to protect domestic manufacturers by increasing the prices of foreign models. If they are usually used on finished vehicles, how will tariffs increase car prices? Below, we'll talk about the global impact of tariffs.

Modern Cars Are a Global Effort

Modern vehicles are the result of a highly complex, multinational supply chain. Few cars are produced entirely in one country, as automakers source materials and components from around the world to optimize costs, quality, and efficiency. Some key aspects of this globalized production include:

1. Component Sourcing - Automakers rely on suppliers from multiple countries. For example, a single car might have an engine from Germany, electronic components from Japan with semiconductors from Hong Kong, steel from South Korea, and tires from the United States.
2. Global Manufacturing Plants - Many car companies operate assembly plants in different regions to reduce costs and avoid tariffs. For instance, Japanese manufacturers like Toyota and Honda build cars in the U.S. to sidestep import tariffs on fully finished vehicles.
3. Research and Development (R&D) - The design and innovation of vehicles often take place across various countries. A German automaker might conduct R&D in Germany, but collaborate with U.S. tech companies for advanced driver assistance systems and manufacture components in China.
4. Shipping and Logistics - After assembly, vehicles are transported globally to reach their final markets. Trade policies, tariffs, and import/export restrictions can significantly impact the efficiency and cost of this distribution network before they arrive at a dealership.

How Tariffs Can Affect Automobile Prices

For consumers and automakers alike, tariffs can have a major impact on the price of everything. For example, a tariff on Canada and Mexico hits automotive manufacturers at multiple parts of the process. For example, one vital component of an engine, like the piston rods, might cross the borders several times. 

 

• The piston rod starts as raw steel in Tennessee in a quarry.
• The steel is then transported to Michigan, where it is turned into steel to be sold to other companies.
• A Canadian-based company buys that steel, importing it into their factory, then turns it into hardened steel.
• A U.S.-based company has a factory in Mexico that purchases the hardened steel for its factory from the Canadian-based company, and turns it into piston rods for automotive engines, paying a tariff on the Canadian product.
• Then, a U.S.-based automotive company purchases the piston rods for use in its engine, paying a tariff on the product coming out of Mexico.

 

If there is a 25% tariff on products coming out of Canada and Mexico, then just one piston rod is taxed twice in this example. This is just one of many possible pieces of a car that can be impacted by tariffs, and the combined price increase is passed onto consumers. 

Real-World Impact of Tariffs

How much can vehicle prices be expected to rise? The answer is complex, as it depends on the number, severity, and duration of the tariffs. Economists estimate that a 25% tariff on Mexico and Canada-two key U.S. allies-could drive up new car prices by $3,000 to $6,000 in 2025. According to MotorTrend, 3.6 million vehicles were imported from Canada and Mexico last year alone, representing about 25% of all new vehicles sold last year, with $100 billion in just car components being imported into the U.S. from manufacturers in those two countries. 

On the other hand, higher vehicle prices can work in your favor, as the value of used cars often rises. This makes it a great time to trade in your old vehicle and maximize your return, utilizing our value your trade tools.

Let Lincoln of Lafayette, IN, Take Care of Your Shopping Worries

Will tariffs increase car prices in West Lafayette and nearby areas? They might-but you can still shop confidently at Lincoln of Lafayette, IN. We work closely with manufacturers to offer competitive pricing, and we make it easy to custom-order your Lincoln so you get exactly what you want, when you want it.

We also feature rotating new vehicle specials to help offset market fluctuations. Whether you're shopping for a luxury SUV or an efficient commuter, we're here to make sure you get value without compromise.

Still wondering what a tariff is or how it might affect your vehicle purchase? Reach out to the team at Lincoln of Lafayette, IN, and let us guide you through a smarter car-buying experience.