Trump’s proposed auto tariffs will lead to sharp spikes in the price of Americans’ most prized possession

  • President Donald Trump shows no sign of pulling back from his trade war, and the auto sector appears a dangerous next candidate on the administration’s list of goods that should face tariffs.
  • Economists at the Peterson Institute for International Economics forecast a sharp spike in auto prices from Trump’s proposed 25% tariffs on auto imports.
  • The sticker-shock would severely hit a sector that has been key to the economic recovery.

Talk about hitting American consumers where it hurts. President Donald Trump’s proposed tariffs on imported cars could sharply raise auto prices for a public-transport deficient, car-dependent nation.

A new study from the Peterson Institute of International Economics (where I used to work) shows just how much of a sticker shock Americans should be prepared for.

Trump has proposed charging tariffs of 25% on imported cars, SUVs, vans, trucks and even auto parts. If implemented, the plan would “raise car prices significantly, suppressing sales and pushing some buyers with modest incomes out of the new car market entirely,” write Peterson Institute scholars Mary Lovely, Jérémie Cohen-Setton, and Euijin Jung in their policy brief.

The authors use industry and consumer data to estimatethat:

  • The average price of an entry-level compact car will increase between $US1,408 and $US2,057.
  • The price of a new compact SUV/crossover, the most popular vehicle in the country, will rise by $US2,093 to $US3,066.
  • More upscale versions of the compact SUV/crossover will rise by significantly more, $US4,708 to $US6,972.
PIIE1Peterson Institute for International Economics

The auto sector has been a key component of the US economic recovery as sales benefited from the Federal Reserve’s low interest rate policy and discounts from car dealers. The chart below shows disproportionate job growth in the auto industry and related sectors.

The expected price spikes would add to pressures already being felt from a rising interest rate environment as the US central bank looks set to keep tightening monetary policy.

PIIE2Peterson Institute for International Economics

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