How will Trump's auto tariffs affect car prices?

President Trump is imposing 25 percent tariffs on auto imports, which is expected to drive up prices for American consumers and squeeze automakers that depend on global supply chains.

The tariffs will impact popular foreign brands like Toyota and Honda but also American car manufacturers like Ford and General Motors, which rely on imported parts and assemble many of their vehicles in Canada and Mexico.

That means car shoppers should prepare for higher prices at the dealership.

"It’s reasonable to expect that vehicle prices will rise, which presents an added challenge to an industry that is already grappling with ongoing affordability concerns," Jessica Caldwell, head of insights at Edmunds, said in a statement.

The White House claims the tariffs will "protect America’s automobile industry," which it says has been undermined by "excessive imports."

Half of the cars, SUVs and light trucks Americans bought in 2024 were imports, according to a fact sheet published by the Trump administration. When you factor in car parts, the White House said "only 25% of the vehicle content can be categorized as Made in America."

Here's what the tariffs could mean for your wallet.

How much will car prices rise?

Last month, the average transaction price for a new vehicle was $47,373, up more than 20 percent from just before the COVID-19 pandemic, according to Edmunds.

If the tariffs are fully passed onto consumers, the average auto price on an imported vehicle could jump by $12,500, a sum that could feed into overall inflation, The Associated Press reported.

Cox Automotive, a research firm, estimates that the tariffs will add $6,000 or more to the cost of a typical vehicle assembled in Canada or Mexico.

"Half of all the affordable vehicles sold in the U.S. are dependent on Mexico and Canada," Cox Automotive chief economist Jonathan Smoke said on a conference call Wednesday.

If the tariffs move forward as planned, Smoke said by mid-April, they will disrupt "virtually all North American vehicle production" and lead to 30 percent fewer cars being made.

He warned that some car models, particularly affordable ones, could be completely eliminated if the tariffs persist.

"Bottom line: lower production, tighter supply and higher prices are around the corner," Smoke added.

Keep in mind that other countries are likely to respond with retaliatory tariffs, which could hike prices further.

"There's never been a trade war in the history of the world where there wasn't some form of retaliation," Peter Earle, senior economist at the American Institute for Economic Research, told NewsNation on Thursday.

Canadian leaders like Ontario Premier Doug Ford are already calling for retaliatory tariffs. Ford vowed to inflict "as much pain as possible to the American people" after Trump's announcement on Wednesday.

Will the cost of owning a car go up?

The cost of fixing a car could also rise, which in turn would push insurance prices even higher.

"Many vehicle parts are sourced globally, which would increase repair costs for car owners," Caldwell said. "Insurance premiums will also likely increase as any accidents involving new parts will see increased costs."

Americans are already facing a car affordability crisis, which got significantly worse during the pandemic.

Auto loan debt recently surpassed student loans as the second-largest consumer debt category in the U.S. and now stands at a record $1.66 trillion.

New car shoppers are taking out larger loans than ever, even as auto borrowers fall behind on their car payments at the highest rate in years.

Last quarter, nearly 1 in 5 new car shoppers committed to a monthly payment of $1,000 or more, the highest percentage ever, according to Edmunds.

Caldwell said Trump's tariffs could also cause automakers to cut back on incentives, which had only recently returned as inventory rebounded.

Another concern: Higher new car prices will steer more people to the used car market, which will then drive up those prices.

Will the tariffs raise revenue?

Trump insists the levies will boost revenue and encourage auto companies to set up shop in the U.S.

"This will continue to spur growth like you haven't seen before," Trump said Wednesday.

The White House claims the tariffs — which will go into effect on April 3 — will raise more than $100 billion in revenue annually.

It's worth noting that importers, U.S. companies, are the ones that pay tariffs to the government. Economists warn that those costs ultimately get passed on to consumers in the form of higher prices.

The American Automotive Policy Council, which represents domestic automakers, said in a statement that it is "committed to President Trump’s vision of increasing automotive production and jobs in the U.S."

"It is critical that tariffs are implemented in a way that avoids raising prices for consumers and that preserves the competitiveness of the integrated North American automotive sector," the council added.

The United Auto Workers, one of the nation's largest labor unions, praised Trump's new tariffs, calling them a "victory for autoworkers."

"We applaud the Trump administration for stepping up to end the free trade disaster that has devastated working class communities for decades," UAW President Shawn Fain said in a statement.

Shares of the big three U.S. automakers — Ford, General Motors and Stellantis — were down as of midday Thursday.