The first financial quarter of the year has been marked with big changes for the global economy. This year, the U.S. has announced a universal 10% tariff to be placed on all imported goods and added additional tariffs to other major countries like China, Mexico, and Canada with few exceptions (BBC). As we move into the second quarter of 2025, many consumers may be wondering how the broad U.S. tariffs will affect different parts of the economy, particularly the auto industry. It is important to understand how tariffs work and what the outcome of the U.S. tariffs may be so that you can make an informed plan for your money as a consumer.
What are Tariffs and How Do They Work?
A tariff is a tax that the government can place on imported goods. These taxes are commonly applied in the form of a flat fee or fixed percentage. Before that good can come into the country, the business importing that product will need to pay the applied tax from the tariff to its government. For example, if there is a 25% tariff placed on a $1 product, that product will now cost $1.25 in total. The importing business will have to pay $0.25 to their government and $1.00 to the product’s seller.
Tariffs, in theory and in practice, are a trade tool that can be used to accomplish a country's specific goals. If a country wants to deprioritize goods from another country that has harmful climate output, it might place a tariff on goods from that country as part of an overall strategy working towards cleaner global climate practices. Tariffs can also be used to keep a country's domestic product or industry competitive in the global market or protect domestic workers from foreign businesses that use low labor costs to keep the price of their products low.
Often, when a country places a tariff on another country's goods, that country will respond with a retaliatory tariff. This is not uncommon and part of the reason why tariffs are used with intention as to not invoke further conflict like a trade war.
What is the U.S. Placing Tariffs On?
In the past couple of months, there have been many changes to the U.S.' proposed tariffs. It is important that you keep up-to-date on these changes as they occur with a trusted news source. As for the auto industry specifically, a 25% tariff was applied to “imported passenger vehicles (sedans, SUVs, crossovers, minivans, cargo vans) and light trucks, as well as key automobile parts (engines, transmissions, powertrain parts, and electrical components)” (whitehouse.gov). Parts of this tariff are expected to go into effect as early as May 3, 2025 (CNBC).
A 25% tariff on all imports from Mexico and Canada has also been announced, though United States Mexico Canada Agreement (USMCA)-compliant goods will not be affected by the tariff (AP News).
How Are the U.S. Tariffs Going to Affect the Auto Industry?
There is one thing you need to know about the auto industry in general. The vast majority (if not all) of U.S. car manufacturers utilize the global supply chain in some way. Even if manufacturers decided to stop importing fully assembled cars, they would still be impacted by the tariffs. Many U.S car manufacturers assemble their cars on U.S. soil, but the individual parts of the vehicle come from different countries around the world. Even if you were to find a make and model that uses parts from and is assembled in the U.S., the raw materials needed to make those parts are likely to have been sourced from outside of the country.
Now that tariffs have come into the picture, consumers should prepare for a couple changes:
Price Changes
As businesses try to adjust to the potential new cost of materials, it is entirely possible that some may raise prices or apply a fee to finished products or offer fewer sales and discounts to account for the tariffs.
Job Decline
Instead of or in addition to raising prices, some production facilities may slim down their workforce in order to keep production costs lower. Other production plants, especially smaller ones, may become unsustainable and shut down, also resulting in job loss.
Production Changes and Disruptions
In order to circumvent the full brunt of the tariffs, U.S. automakers may try to shift as much of their production domestically as they can. Some automotive manufacturers may decide to pause production or stop imports to the U.S. altogether.
