If you’re buying a car, you might be interested in what factors play into its price. A car’s worth may be determined by things like its inclusion of advanced technology, safety features, and manufacturer. Alongside this, car prices in 2025 may be impacted by something called tariffs. Let’s walkthrough what tariffs are, how they may be affecting people buying cars, and what this means for auto insurance prices.
What are tariffs and why do they matter?
Tariffs might sound like a complicated economic term, but they’re a simplistic concept. A tariff is essentially a tax that governments may place on certain imported goods. Countries may impose tariffs for several reasons: to uplift domestic industries, generate revenue, or as a tool of retaliation against rival countries. When it comes to the auto industry specifically, tariffs may play a huge role in car prices going up and the overall costs associated with owning a vehicle.
Understanding tariffs and the auto industry
The auto industry is a booming, global business. Because of this, many cars and car parts are built in various countries before being shipped to the U.S. For instance, Mexico and Canada are two major trade partners for the American auto market, supplying a significant portion of vehicles and components.
With looming tariffs on American trade partners for imported car parts, consumers may worry about the impact it may have on purchasing a vehicle. If tariffs are imposed, here’s how these increases may affect new car and used car prices:
New car prices
When tariffs increase the cost of imported vehicles, manufacturers typically pass those costs onto consumers. That means if you’re in the market for a new car, you could see higher sticker prices. Even the price of domestic-made cars can be affected, since U.S. manufacturers may use parts imported from other countries.
Used car prices
If you’re wondering if car prices are going down for used cars this year, you may not like the answer. Even used cars may experience the costly repercussions of tariffs. If new cars become too expensive, it’s common for people to turn to the used car market. Increased demand may lead to higher prices for pre-owned vehicles. So, even if you’re looking for a budget-friendly car that’s accrued thousands of miles, you may end up paying more than expected.
Car parts and repairs
Like stated above, tariffs may also impact the cost of car parts. Many essential components, such as engines, transmissions, and electronic systems, are imported into the U.S. Higher prices on these parts from countries like Canada and Mexico may mean that repairs and maintenance could be more expensive. This may put more strain on the average driver.
Increased auto insurance rates
Unfortunately for drivers, tariffs may also affect the price of auto insurance. When car prices and repair costs rise, insurance rates may similarly go up. Here’s why:
- Higher car replacement costs: When insurers determine your premium, one of the factors they may consider is the cost of replacing your vehicle in the event of an accident or total loss. The cost of certain car parts may be more expensive in the future, which is why tariffs could change your insurance rates.
- Increased repair costs: Since tariffs drive up the price of car parts, repair costs may similarly surge. When an insured vehicle needs repairs after an accident, more costly repairs may lead insurers to raise premiums to balance their payouts.
- Potential increase in auto theft: When vehicle prices soar, car theft may rise, too. Insurers may take this risk into account when setting future insurance rates.
What can drivers do about tariffs?
While tariffs and their effects can seem out of your control, there are steps you may be able to take to minimize the monetary impact:
- Shop around for insurance: By comparing rates from different insurers, you may have a better chance at finding an auto insurance policy that aligns with your budget.
- Consider timing: If tariffs are looming, buying a vehicle before potential price hikes take effect may help you save money.
- Choose cars with lower repair costs: Vehicles with widely available and affordable parts can help you avoid expensive repairs.
- Adjust your policy: Increasing your deductible can help lower your monthly premium, though it typically means paying more out-of-pocket if you’re involved in certain accidents.
Tariffs can have a widespread impact and may influence the price of cars and car repairs, which in turn may affect auto insurance rates. Staying informed about market changes and reviewing your insurance options can help you navigate these daunting financial shifts. With Infinity Insurance Agency, Inc. (IIA), our knowledgeable agents can help you compare rates from various carriers and assist you with your auto insurance questions. If you’re looking for a free personalized quote, call IIA at 1-855-478-3705 today!