Will Trump’s 25% tariffs to foreign cars affect the price of American ones? Here’s what car shoppers should know

The price of cars in the United States could be set to rise after President Donald Trump announced his intention to impose a 25% tariff on vehicles and auto parts imported into the US.

The Trump administration has been aggressive with its use of trade threats but this latest proposed tariff could be the most impactful yet. Trump announced the 25% tariff with a promise that it will “spur growth like you haven’t seen before” and insisted that it will take effect on April 2, with duties collected as soon as the following day.

A study from the European Automobile Manufacturers’ Association found that the United States is currently the top destination for cars made in the EU and officials have already promised a “decisive response” to the US.

How will the Trump tariffs affect American car prices?

In announcing the latest measure, Trump was eager to explain that the tariff on overseas cars and car parts would help to bolster the US automobile industry. Speaking from the Oval Office, he told reporters: “We’ll effectively be charging a 25% tariff. But if you build your car in the United States, there is no tariff.”

However the tariffs will also hit the vast majority of US manufacturers, who still use overseas parts and labour to complete the finished vehicle. Equity analyst Rella Suskin of Morningstar explained: “Domestically produced vehicles are expected to gain market share, but very few, even from US-based manufacturers, are made with 100% US content.”

This is backed up by the markets with shares of the ‘big three’ US car manufacturers - Ford, General Motors, Sellantis - all falling immediately after Trump announced the new tariffs. The value of GM shares tumbled by 7.3% in a single morning, likely a consequence of the instability of the White House’s economic policy.

Trump has promised to use some of the revenue raised by the tariffs to offer a tax deduction on interest paid on auto loans. Again, this would only apply to US-made cars. However typically only high-income homeowners utilise itemized tax deductions and the standard deduction is taken by low- or middle-income filers. It the initiative has any real benefit for Americans with auto loans, it will be most felt by the more wealthy.

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