Understanding Tariffs - What They Mean for Car Prices

You've got your sights set on getting a car . You’ve put in the work for a down payment, worked on your credit a little, and are filled with excitement\! And then you hear it on the news “Trump’s tariffs on China, Mexico and Canada will increase the cost of cars”

We get it. Finding a car loan with bad credit, poor credit, or no credit can be tough enough without throwing in complex trade policies. Fear not! We’re breaking down what tariffs are, how they work, how they might impact the cost of vehicles, and how we can still help you find a way to get behind the wheel.

(I hope you’ve had an extra cup of coffee today.)

What Exactly Are Tariffs? (TL;DR)

Think of tariffs as extra fees or taxes that the government puts on products coming into the country from other places. It’s like adding a small (or in our case large) charge to the price of things like cars or car parts that are made overseas. The idea behind this is often to make products made in our own country more appealing because they don’t have that extra fee.

How Do Tariffs Work?

And why should you care? Glad you asked!

When a tariff is put on something like imported cars or the parts used to build cars, the companies that bring those items into the U.S. often have to pay more. Don’t reach for the third cup of coffee - You read that right. The companies pay more, not the country exporting. For someone looking for an affordable vehicle, this means that the prices of new and even used cars will be higher than they would be without these tariffs. This is especially relevant when we talk about how global trade affects the car market.

Tariffs: Beyond the Basics

Tariffs are taxes on imported goods. Got it. You might be asking “Okay, but how does that affect me?” That answer is nuanced and depends on how the tariffs are applied and collected. Let’s get into some details.

Point of Collection: Tariffs are typically collected by customs authorities when the imported goods enter the country. The importer (the company bringing the cars or parts in) pays this tax.

Direct Cost Increase: This paid tariff is a direct increase in the cost for the importing company. To maintain their profit margins, this added cost is often passed on, at least partially, to the businesses that buy from them (like dealerships) and ultimately to you, the consumer.

Types of Tariffs

Ad Valorem Tariffs: These are the most common type and are calculated as a percentage of the imported good’s value. For example, a 25% ad valorem tariff on a car valued at $20,000 would add $5,000 to its cost.

Specific Tariffs: These are a fixed amount per unit, like $500 per imported engine, regardless of its value.

Compound Tariffs: These combine both ad valorem and specific tariffs.

Current Tariffs on Countries Assembling Our Cars

The landscape of automotive tariffs is dynamic, but as of late May 2025, several key points stand out regarding countries that assemble vehicles sold in the U.S.:

• China: Currently faces a significant tariff on imported vehicles. While there have been recent agreements to temporarily lower some tariffs, automobiles assembled in China still face a tariff of 47.5%. This high tariff makes vehicles directly imported from China considerably more expensive. For your audience, this likely impacts a smaller segment of the market, but it can affect certain brands or electric vehicle components sourced from China.
• Canada and Mexico (USMCA): Under the United States-Mexico-Canada Agreement, vehicles that meet specific “rules of origin” (meaning a certain percentage of their parts and labor originate within these three countries) can enter the U.S. with a 0% tariff. However, there’s a 25% tariff on the non-U.S. content of vehicles that don’t meet these requirements. This is crucial because many vehicles assembled in Canada and Mexico still utilize parts from other countries.
• Rest of the World: For vehicles assembled in countries outside of the USMCA region and China, there’s a baseline tariff of 25%. This impacts imports from major automotive manufacturing hubs in Europe, Asia (excluding China in this context), and other parts of the world.

It’s important to note that tariffs can also apply to auto parts imported into the U.S., even if the final assembly of the vehicle happens here. As of early May 2025, a 25% tariff is in effect on many imported car parts like engines and transmissions. This increases the production costs for all automakers selling in the U.S., regardless of where the final assembly takes place.

Percentage of Cars Manufactured Outside the U.S. and Tariff Impact

Approximately 45% of the vehicles sold in the United States are imported. The majority of these imports come from Canada and Mexico, but significant numbers also originate from Japan, South Korea, and Europe.

Even vehicles assembled in the U.S. rely heavily on imported parts. On average, at least 15% of the content of a car assembled in the U.S. comes from outside the country. For some models, this percentage can be significantly higher, reaching upwards of 80% for certain components or even the entire vehicle (if it’s classified as having minimal U.S. content despite final assembly here).

How Tariffs Impact Supply and Price

• Increased Prices: As highlighted earlier, tariffs directly increase the cost of imported vehicles. The 25% tariff on vehicles from most of the world (excluding USMCA compliant and China with its higher rate) can add thousands of dollars to the sticker price. Even the tariffs on imported parts drive up the cost of domestically assembled vehicles, as manufacturers pass on these increased production expenses to consumers. Experts predict that these tariffs could lead to an average increase of several thousand dollars on both imported and domestically produced vehicles over time.
• Reduced Supply: To mitigate the impact of tariffs, some foreign automakers might choose to limit the number of vehicles they import into the U.S. market, focusing on higher-margin models. This could lead to fewer choices for consumers, particularly in segments dominated by imports, like certain fuel-efficient or luxury vehicles.
• Shift in Sourcing and Production: Over the long term, tariffs can incentivize automakers to shift their supply chains and production. They might look for more domestic suppliers for parts or consider moving assembly operations to the U.S. to avoid the import duties. However, these shifts are complex, take time, and can initially be costly, potentially leading to further price increases in the short to medium term.
• Impact on Used Car Market: The tariffs on new cars also have an indirect effect on the used car market. As new car prices rise, more budget-conscious buyers turn to used vehicles, increasing demand and potentially driving up used car prices as well. Higher costs for imported parts can make repairs more expensive, affecting the overall cost of owning and maintaining a used vehicle. You see where this is going…

Smart Moves for Car Buyers in a Tariff Climate

Tariffs have a ripple effect on the automotive market, potentially increasing the cost of both imported vehicles and those built domestically with foreign parts. This can lead to higher sticker prices and, in some cases, fewer options on dealer lots.

So, how can you navigate this?

• Be Budget-Savvy: Factor potential price increases into your car-buying budget.
• Explore Financing Options Early: Now more than ever, securing favorable financing is crucial. Services like CreditYES can help you find a loan that works for your financial situation.
• Consider Both New and Used: With new car prices potentially higher, a reliable used vehicle might be a more budget-friendly option.
• Be Flexible: You might need to broaden your search to different makes and models to find the best value.
• Factor in Long-Term Costs: Remember that tariffs on parts could also influence repair and maintenance expenses down the line.

The key is to be informed and plan ahead. By understanding the impact of tariffs, you can make smarter choices and still drive away in the vehicle you need!

You can read more about current tariffs and how to navigate an auto loan with challenged credit below:

The State of US Tariffs

Navigating Auto Loans

Getting Approved With Bad Credit