The newly imposed 25% tariff on imports from Canada and Mexico could have a chilling effect on U.S. auto sales. Not only will vehicle production be disrupted, industry analysts say car availability will also be restricted, causing prices to increase.
“The unthinkable is coming true, with tariffs being applied to our free trade partners across North America,” Cox Automotive Chief Economist Jonathan Smoke said in a statement Tuesday, hours after the Trump administration imposed tariffs on Canada and Mexico. “We have no history to study for this, but there will be implications.”
About 44% of new vehicles sold in the U.S. are imported, according to Cox Automotive. More than 50% of auto bodies and parts are imported from Mexico and Canada, according to the U.S. International Trade Commission. Mexico and Canada also account for about 43% of motor vehicles exported to other countries from the United States.
Smoke said the supply of new vehicles is already tight. Vehicle sales tend to spike in the spring as Americans receive their federal tax refunds. While consumers who plan to buy cars are likely to do so quickly to avoid the full effect of tariff-induced price increases, Smoke said the ultimate result will be higher vehicle prices and slowing demand.
The average transaction price for a new vehicle in February was $48,641 — almost 22% higher than before the pandemic, according to Kelley Blue Book.
Before the tariffs, Cox Automotive predicted annual new vehicle sales of 16.3 million in 2025 — up from 15.9 million last year — but that is now in question.
“Depending on how long this tariff stance lasts, it will also jeopardize the trajectory of the overall economy, further weaking growth potential later in the year,” Smoke said.
The auto industry represents 3% of U.S gross domestic product and supports 4.5% of all private-sector U.S. jobs, employing about 9.7 million workers, according to the Alliance for Automotive Innovation.
According to a February 2024 report from the U.S. International Trade Commission, an increase in the cost of imported vehicles due to tariffs “could lead to a reduction in vehicle imports, an increase in prices paid by U.S. consumers and an increase in sales of domestically produced vehicles.”
On Tuesday, the union representing Ford, General Motors and Stellantis workers praised the new tariffs, saying 40 years of free trade have killed blue-collar jobs in the U.S.
“Tariffs are a powerful tool in the toolbox for undoing the injustice of anti-worker trade deals,” the United Auto Workers said in a statement. “We are glad to see an American president take aggressive action on ending the free trade disaster that has dropped like a bomb on the working class.”
The group said it is actively negotiating with the Trump administration to shape auto tariffs in April to benefit the working class. President Donald Trump said Monday that will he will impose reciprocal tariffs on April 2, targeting countries’ imports that impose high tariffs on U.S. goods.