The average car buyer doesn’t think about where the parts in their vehicle come from – but automakers do.
That’s why a new round of auto tariffs – this time on parts – coming into effect Saturday could upend the industry, even more than previous levies on imported cars.
As of 12:01 am ET on Saturday, most auto part imports will come with a 25% import tax.
The previous auto tariffs left US-made cars untouched. Not anymore. Not a single of the 10 million cars turned out by US plants last year was built without at least some imported parts. The tariffs on parts could now mean tens of billions of dollars in new cost to the industry – and eventually to American car buyers and owners.
“Frankly, from my perspective, (the parts tariffs) looks worse for the broader economy than the tariffs on imported vehicles,” said Jonathan Smoke, chief economist at Cox Automotive, at an Automotive Press Association webinar this past week.
More than 50% of the content of cars assembled in American auto plants is imported, according to the government’s own estimates. But the tariffs won’t apply equally to all those imports.
For example, parts from Canadian or Mexican suppliers who pay their workers $16 or more an hour are deemed “compliant” with the US-Mexico-Canada Agreement, a trade deal negotiated during the first Trump administration. That means most Canadian parts are exempt from tariffs, but relatively few Mexican parts.
And as of last week, automakers assembling cars in the United States will be able to offset part of the parts tariff, at least temporarily. The White House said it would refund automakers up to 3.75% of price of the vehicle against their parts tariffs bill in the first year, sliding to 2.5% in the second year before being phased out in the third year.
But even with that refund, the added cost of tariffs could still come to an average of about $4,000 per vehicle, according to estimates derived from a CNN analysis of government trade data.
For car buyers, it might take awhile to see price hikes. General Motors CEO Mary Barra told CNN Thursday tariffs will cost her company between $4 billion and $5 billion this year, but she doesn’t expect car prices to change in the near term. Ford CEO Jim Farley told CNN on Wednesday that it would extend its “employee pricing” offer through July 4.
But everyday Americans will still see higher prices elsewhere, like the repair shop.
“The tariffs on parts that will lead to higher inflation in repair and maintenance and insurance which impact every American and not just the people thinking about buying a new imported vehicle,” Smoke said.