Trump’s tariffs will change car prices, experts say

Kara Pérez originally didn’t plan on buying a new car. Her 2008 Kia Spectra has 152,000 miles on it, and she was hoping to “get another year out of it.” But then Donald Trump won the US election.

In a social media post in November, Trump promised to use an executive order to impose a 25% tariff – taxes on cross-border goods – on imports from Canada and Mexico and threatened to impose an additional 10% tariff on all products from China to raise. All on his first day in office.

These tariffs could have far-reaching consequences for the auto market, as U.S. and European automakers rely on Mexico and Canada for auto production and China is the second-largest source of imported auto parts. Analysts at Wells Fargo recently estimated that a 25 percent tariff on Mexican and Canadian auto parts could add about $2,100 to the cost of each vehicle assembled in the U.S., and cars made in Mexico or Canada could add $8,000 to $10,000 cost more.

As a result of these proposed tariffs, Pérez, a Massachusetts-based financial educator, said she now plans to buy a car before the year is over and Trump takes office.

“Why should I pay a 5, 10, 15% premium in three months when I could avoid it now?” she said. And she asked herself, “If I need to repair something in two years and we have to import that part, will it be more expensive?”

She fears that higher prices are not “a question of if, but when.”

Should you join Pérez and speed up your car buying timeline? “It’s a good idea,” said Robert Handfield, a professor of supply chain management at North Carolina State University.

“If you’re thinking about buying a car, now would be a good time to buy one before the end of the year,” he said.

If Trump’s tariffs are implemented, they could take effect “immediately” and apply “to all vehicles already in the parking lot,” Handfield said. Economists expect Trump’s high tariffs to worsen inflation and raise prices by as much as 1.1% in 2025.

“What people don’t understand is that they think that … tariffs are paid by Mexico, Canada or China,” he said. In reality, the company importing the products pays the duty and can then choose to pass those costs on to U.S. customers. “The truth is that U.S. consumers pay tariffs through higher prices for their goods,” Handfield said.

But to be clear, no one knows yet if and how Trump’s tariffs will take effect, so don’t panic – buy a new car you don’t need.

Pérez knew her car was “already on the way.” But if her car had driven fewer miles, she might have had a different bill. “If you have a 2020 car that has 80,000 miles on it and the make and model is supposed to get 200,000 miles, you don’t need a new car. “Don’t worry about it,” Pérez said.

She urges other potential buyers to run their numbers to see if a new car fits their budget. Before Pérez made the decision to buy a car, “I looked at how much my partner and I drive per year.” I looked at how much it would cost us to make major repairs to the (current) car, and I looked at what the car was worth.”

If you’re in a similar boat, ask yourself, “How often do you drive?” Are you a two-car household? “Is one car newer than the other?” said Pérez. “Can you start using public transportation more? Don’t just say, “Oh, I saw a TikTok of someone buying a new car, I should buy a new car.”

If you were planning on buying an electric vehicle, the bill might also make sense for you to buy now.

New electric vehicles (EVs) are eligible for a tax credit worth up to $7,500 and up to $4,000 for used vehicles under the Biden administration’s Inflation Reduction Act. But that could disappear under Trump. “Tax credits and tax incentives are generally not a very good thing,” Trump told Reuters during his presidential campaign when asked about the electric vehicle credit.

“If Donald Trump decided to eliminate the federal IRA tax credit, that would definitely change the pricing of many electric vehicle leases, because most people who buy electric vehicles also lease them,” said Jessica Caldwell, director of insights at Edmunds , a car buying website.

Caldwell said purchasing a new electric vehicle is one of the “best deals on the market right now” because of this tax credit. “A (car) lease is only for three years, so you’re not even paying the full cost of the vehicle, and then you subtract $7,500 from that and you end up with a pretty reasonable lease rate,” explained she . So if you’re thinking about buying an electric car in the next six months, you might want to accelerate that timeline now.

In general, the last month of the year is a good time to buy a car because car dealerships “want to sell out all 2024 model years,” Caldwell noted.

At the same time, Caldwell doesn’t think you need to buy a car now if you don’t plan on buying it in the next two years because “that’s quite a while.” A lot can change.”

Don’t let Trump’s promised tariffs be the deciding factor in how you buy your next car. “People are probably going to be very focused on this rate issue, but then there are a few basic things about buying a car that they’re not even thinking about,” Caldwell warned. “We will respond to the news cycle, but perhaps not the fundamentals, and end up getting a bad deal.”

So if you’re buying a new car in the next few weeks, be strategic. For one thing, don’t just accept the car loan your dealer offers. Try going to your bank or credit union and seeing if you can get a better interest rate on your car loan, advises Caldwell.

And second, shop around for good prices on any used car you trade in and see how much you could make at different dealerships and car dealers like Carvana and CarMax. “Knowing how much you’ll get for your trade-in will help you determine how much you should pay on your loan and vehicle,” Caldwell said. You may be pleasantly surprised with a larger new car budget than you hoped.

Ultimately, cars are one of the largest purchases Americans make in their lives. So don’t rush into this decision without thinking through every detail. Caldwell said that according to Edmunds data, the average transaction price for a new car in October of this year was $47,612.

Regardless of whether that price goes up next year because of tariffs, you should think carefully about how and when you buy your next car. Take it from Pérez: “I look at a lot of different cars just to see the different offerings because prices really change,” she said. “I cast my net wide.”