What Tariffs Mean for Car Drivers and Buyers

Stephen Fogel
May 27, 2019

Tariffs are a hot topic in the news these days. You may have heard about steel tariffs, aluminum tariffs, imported car tariffs, and tariffs on everything traded between the U.S. and China. 

But what are tariffs, what do they mean if you plan to buy a car, and do they have any effect on the average driver’s car-related expenses?

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What are tariffs?

A tariff is essentially a tax that is placed on goods imported from another country. They make these goods more expensive to buy. Tariffs have been used by countries around the world for centuries, for a variety of purposes.

To protect local industries: Some countries may consider certain industries to be strategically important, or worth protecting because they employ large numbers of their citizens, even if they can’t compete cost-wise with other importing countries. Examples of this are U.S. sugar growers, the Canadian dairy industry, and the producers of various European agricultural products. Adding tariffs to the imported versions of these products makes the domestic products competitive in their home markets.

To protect specific companies: Sometimes tariffs are put into place to protect an individual company from similar imported (and often lower-priced) goods. For instance, the U.S. created a specific tariff on Japanese motorcycles of 750cc displacement and higher in 1983. This tariff was designed to protect one particular American motorcycle maker, Harley-Davidson, from the less expensive Japanese competition.

To punish other countries for unfair trade practices: Some countries will try to sell their companies’ products into world markets at prices that are lower than their cost of production. This is known as “dumping.” These countries and companies do this to maintain high production and employment levels and to grow their market share — and other companies must lose money to compete with them. Tariffs on these products level the playing field for those competitors who are operating legitimately, and who need to make a profit to stay in business.

Some countries also have less ethical trade practices. In China’s case, it has forced foreign manufacturers that want to sell goods there to partner with a Chinese company. Once this partnership is set up, some of the Chinese companies have been accused of stealing the foreign firm’s intellectual property and then creating competing companies that use that technology. Imposing tariffs on products from an entire country is meant to send a message that these practices will no longer be tolerated.

To reduce trade deficits: Placing tariffs on a wide variety of low-priced imported goods makes them more expensive. The resulting higher prices of these imports makes locally produced goods more competitive, encouraging consumers to purchase more domestic merchandise. Over time, these tariffs could reduce a trade deficit, like the one the U.S. has with China.

As leverage or a bargaining chip: When is a tariff not a tariff? When it is used as a threat to get other countries to change their bad or unfair behavior. Many observers believe that the threat of tariffs on nearly all Chinese goods being shipped to the U.S. will be enough to make China a better, more law-abiding trading partner.

What tariffs mean for your car

Even if you already own a car, you won’t be immune to the effects of tariffs. Any parts used to repair your car will cost more if they come from China — and they usually do. This also applies to the parts used by body shops, so increased parts prices here could drive up your car insurance rates. 

In addition, any parts that you purchase yourself for routine maintenance and car care will go up in price. This includes items like windshield wipers, oil, air filters, brake pads, batteries, replacement bulbs and tires. 

What tariffs mean for new car buyers

Car-related tariffs may be coming on several different fronts. Let’s look at each of these:

Tariffs on steel and aluminum: Steel and aluminum make up a lot of today’s cars. The 25% tariffs on the imported versions of these metals have already increased expenses for American carmakers. The estimated impact of these tariffs on retail car prices is somewhere between $200 and $300.

Tariffs on Chinese-made auto parts: A large percentage of the parts that go into cars of all types and nationalities are sourced from Chinese manufacturers. Because Chinese auto parts companies can produce these items at much lower prices than their European or U.S. counterparts, vehicle manufacturers source more and more of their parts from China. Whether you drive a Jeep, a Toyota, a Hyundai or a Volkswagen, it is filled with Chinese parts.

Tariffs placed on automotive components from China will have significant effects for both new car buyers and those who currently own and drive a car. The Center for Automotive Research has estimated that new car buyers will pay an average increase of $2,270 on U.S.-assembled vehicles sold in America, if the 25% tariff on imported parts goes into effect.

Tariffs on cars made in Europe: The U.S. is considering levying tariffs of 25% on cars made in Europe and shipped to the U.S. to be sold. This is because most imported European cars are expensive luxury models that create large trade deficits with the producing countries, especially Germany. If these European imports have a 25% tariff applied, the Center for Automotive Research estimates that the average price will increase by $6,875. That’s a lot, even on a Mercedes-Benz or a BMW.

Stephen Fogel

About the Author

Stephen has been an automotive enthusiast since childhood, owning some of his vehicles for as long as 40 years, and has raced open-wheel formula cars. He follows and writes about the global automotive industry, with an eye on the latest vehicle technologies.