If/Then: What’s the Cost of Vehicle Import Tariffs?

If vehicle import tariffs remain in place, then the costs to both vehicle consumers and producers will far outweigh the benefits of boosted domestic manufacturing and revenues from tariffs.

Editor’s Note: The modeling results and analysis described here are current as of Friday, May 2, at 9:00 a.m.

On March 26, 2025, President Donald Trump imposed 25% tariffs on vehicles and auto parts imported from outside North America, aiming to jump-start US manufacturing and reduce imports. (On April 29, the administration clarified that the tariffs would stay at 25%, even though imports of materials like steel and aluminum would be subject to additional levies.) Though framed as protecting American industry and boosting tariff revenues—the Trump administration claimed these tariffs would raise $100 billion in revenues—the reality is far more complex. For example, industry observers have predicted that the tariffs would increase vehicle prices by $3,000 to $20,000, hurting consumers.

Questions about the effects of the tariffs remain, particularly as their details continue to evolve. How much would these tariffs boost domestic industry, and would they raise as much revenue as the administration expects? What would the tariffs cost consumers and vehicle producers? Are these tariffs aligned with the administration’s goals of promoting gasoline vehicles over electric vehicles?

To answer these questions, we modeled the impact of these tariffs (and potential variations) on broad outcomes across the auto industry. We find that the tariffs would raise substantial revenue, though far less than the amount asserted by the Trump administration, and that the costs to consumers and producers would far outweigh the revenues. The tariffs would boost domestic vehicle production—particularly for gasoline vehicles—but only modestly under the current structure of the tariffs (i.e., tariffs are imposed on vehicles and vehicle parts that are imported from outside North America). Domestic production would decrease if vehicle parts produced in Mexico and Canada are subject to the tariffs. In sum, our modeling suggests that costs to consumers from the tariffs would far exceed both the benefits to domestic producers and the amount of revenue raised by the tariffs.

Tariff Scenarios Explored

The vehicle tariffs imposed in March apply to imported vehicles; on May 3, additional tariffs will apply to vehicle parts that come from countries outside North America (i.e., excluding Canadian and Mexican imports). The evolution of the tariffs is uncertain. Given ongoing trade tensions with Canada and Mexico, the tariffs could be extended to vehicles and parts that those countries produce; alternatively, future tariffs may exclude imported vehicle parts.

We modeled three possible scenarios (Table 1), in order of increasing stringency:

Only imported vehicles face 25% tariffs.
Vehicles and vehicle parts imported from outside North America face 25% tariffs (i.e., the current situation).
Imported vehicles and imported parts face 25% tariffs, regardless of the country of origin.

Table 1. Tariff Scenarios Summarized

President Trump is expected to sign an executive order on May 5, which would return up to 15% of the tariffs paid on imported parts to manufacturers that assemble vehicles in the United States. Though we did not model this adjustment, the results from such modeling should reflect a midpoint between the outcomes from Scenarios 1 and 2.

Impacts on Vehicle Prices

We used the Resources for the Future Vehicle Market Model to estimate the effects of these three tariff scenarios, relative to a baseline that excludes any tariffs on vehicles or parts.

Vehicle prices are projected to increase with the stringency of the tariffs. In the current situation (approximated by Scenario 2), prices on average go up by about $3,500, or 7.4% (Figure 1). However, if Canada and Mexico also face 25% tariffs (Scenario 3), prices would increase by over $5,000.

Figure 1. Change in Vehicle Price Due to Tariffs

Because domestically assembled vehicles do not rely entirely on imported parts, the prices of domestic vehicles increase less than the prices of imported vehicles, which would increase by more than $8,000 in Scenario 3 (Figure 2).

Figure 2. Change in Price of Domestic and Imported Vehicles Due to Tariffs

Vehicle Production

Higher vehicle prices reduce total sales, as consumers respond to more expensive new vehicles by buying used vehicles or skipping the purchase of a vehicle altogether. In aggregate, demand for new vehicles goes down with the current tariffs, reducing total annual sales by almost a million units (Figure 3).

Figure 3. Change in Vehicle Sales Due to Tariffs

One of the main goals of imposing tariffs is to increase domestic manufacturing. We find that the tariffs would increase the domestic production of gasoline vehicles by approximately 3% (340,000 units) per year under the current tariff setting (Scenario 2). However, if imports from Mexico and Canada were no longer exempt from the tariffs (Scenario 3), domestic manufacturing of gasoline vehicles would decrease by almost 4% (420,000 units) (Figure 4).

Figure 4. Change in Gasoline Vehicle Production, by Country of Origin

Production of electric vehicles (including both battery electric vehicles and plug-in hybrids) tells a different story. No matter the tariff scenario, domestic manufacturing of electric vehicles decreases, and with the most stringent tariff (Scenario 3), production of electric vehicles would decrease by 4.3%.

The tariffs would reduce total sales of electric vehicles. As the tariffs become more stringent, domestic electric vehicles become more expensive, which would lead some consumers to shift to purchasing imported electric vehicles (Figure 5).

Figure 5. Change in Electric Vehicle Production Due to Tariffs, by Country of Origin

Manufacturer Profits

The tariffs decrease manufacturer profits when considering all manufacturers, though domestic vehicle manufacturers would see increases in profits under the less stringent (Scenario 1) and current (Scenario 2) tariffs (Figure 6). Under the most stringent tariff (Scenario 3), however, profits for domestic manufacturers would decrease by almost $8 billion per year, given their reliance on parts imported from Canada and Mexico and reduced consumer purchases of new vehicles.

Figure 6. Change in Manufacturer Profits Due to Tariffs

Tariff Revenues and Consumer Welfare

The tariffs generate government revenue, yet at the same time, they increase vehicle prices and are projected to cause consumers to shift their purchases toward less desirable vehicles (Figure 7). Because the tariffs would increase the cost of individuals’ first-choice vehicles, many consumers would shift to their less preferred options. For example, consumers who wanted to purchase an imported vehicle (which could end up being $8,000 more expensive due to the tariffs) would more likely choose a cheaper domestic vehicle. Because some consumers switch to their less preferred options, the tariffs would make consumers worse off—and we quantify that impact as consumer well-being (or “welfare,” as we economists call it).

Figure 7. Effect of Tariffs on US Revenues and Consumer Welfare

Due to the higher vehicle prices and consumer transitions to less preferred options for their vehicle purchases, consumer well-being declines far more than the total tariffs collected, with consumer welfare losses approximating $100 billion per year under the most stringent tariff (Scenario 3).

Braking the Market

Our analysis shows that vehicle import tariffs would substantially distort the market, increasing vehicle prices across the board and decreasing vehicle sales significantly.

For the tariffs as they are currently implemented, we see some transfer of benefits from consumers to domestic manufacturers, though in aggregate, vehicle producers and consumers both would be worse off, and consumers would lose far more than the domestic manufacturers would gain. Moreover, the tariff revenues would not offset the costs to the market.

Our analysis evaluates the short-term effects of these tariffs, due to the fact that domestic manufacturing of vehicles and vehicle parts conceivably could increase over the next decade, though that outcome is unlikely to occur in the next few years. Without the ability to change suppliers or build new manufacturing plants, vehicle manufacturers will be less likely to avoid the fallout of these tariffs.

In the longer run, these results could change. For example, if the currently implemented tariffs hold, then manufacturers could readjust their supply chains and invest in scaling up or building more domestic manufacturing plants (for both vehicles and parts). However, without long-term certainty on the structure and magnitude of the tariffs, these expensive investments are unlikely to happen, and consumers will not just continue to face sticker shock when making their purchases—they’ll be priced out of the vehicles they want to buy.

For more information on this analysis, see our report, Import Tariffs and the Market for Vehicles.