Customs duties on imported vehicles came into effect Thursday. This said there is a policy that President Trump will promote investment and employment in the United States, but analysts say they will raise new car prices by thousands of dollars.
The 25% obligation applies to all vehicles gathered outside the United States. Starting May 3rd, customs duties will also apply to imported auto parts, adding additional automobile costs, just like auto repairs.
There is a partial exemption for cars made in Mexico or Canada, and meets the conditions of a free trade agreement with these countries. Automakers do not have to pay for parts such as engines, transmissions, batteries, and other items that were made in the US and later installed in cars at factories in Mexico or Canada.
This provision reduces the impact on vehicles such as Chevrolet Equinox electric vehicles that are assembled in Mexico but contain battery packs and other components made in the US. General Motors pays customs duties only on some of the cars made overseas.
At the same time, parts obligations increase the costs of cars made in Michigan, Tennessee, Ohio, or other states. That's because most cars rolling from US factories contain components made overseas, often costing more than half the cost of a vehicle.
For example, around 90% of the value of some Mercedes-Benz cars made in Alabama is found in engines and transmissions imported from Europe, according to data compiled by the National Highway Traffic Safety Administration.
The impact of tariffs on individual vehicles varies widely. Cars like the Tesla Model Y made in Texas and California, or Honda Passports made in Alabama, have a higher percentage of US-made parts and pay lower duties.
The highest tariffs are available for cars manufactured overseas, such as the Toyota Prius made in Japan and the Porsche sports cars made in Germany.
Even those who don't buy a new car will be hit by tariffs as they pay more for parts like tires, brake pads, and oil filters.
Michael Holmes, co-director of Virginia Tire and Auto, is a chain of auto repair and maintenance shops, and he and his suppliers initially said they would try to absorb most of the cost increase.
“It's not sustainable,” Holmes said. “It's magical thinking to think companies won't take over this.”
Analysts say car tariffs can also boost the price of used cars over the long term. He said increasing demand for these vehicles will make new vehicles uncontrollable for many buyers. Repairs cost more, so insurance premiums could also increase.
