New Modeling Shows How Much Auto Tariffs Will Raise Prices and Harm Buyers
New modeling projects that the tariffs will reduce vehicle sales, raise both gas and electric vehicle prices, and modestly boost profits for US manufacturers.
💡 What’s the story?
Last month, the Trump administration announced tariffs that target imported vehicles and automobile parts. New modeling from researchers at Resources for the Future (RFF) projects that the tariffs will reduce vehicle sales, raise both gas and electric vehicle prices, and modestly boost profits for US manufacturers. The modeling also projects that these tariffs (as currently structured) would generate yearly government revenue of around $16.5 to $39 billion—far less than the White House’s estimates—though the annual impact on consumers significantly exceeds the tariff revenues and any potential benefits to domestic manufacturers.
📈 What does the modeling show?
The researchers analyzed three tariff scenarios, which help estimate a range of possible economic impacts.
An April 29 executive order—which President Trump signed after the research team completed this analysis—offers manufacturers that assemble vehicles in the United States up to a 15 percent reimbursement for tariffs paid on imported car parts. Given this change, the authors find that the updated tariffs would affect vehicle prices, profits, sales, revenues, and consumer welfare to a degree somewhere between Scenario 1 and Scenario 2. The results below reflect the range between Scenarios 1 and 2 to account for this recent update.
The authors expect the following effects—at least until automakers adapt their supply chains and build domestic manufacturing plants:
- Total vehicle sales fall by about 3 percent to 6 percent.
- Electric vehicle sales decline by about 2 percent to 3 percent, while gas-powered vehicle sales fall by about 3 percent to 7 percent.
- Average vehicle prices rise by about 4 percent to 7 percent, or by about $2,000 to $3,500. The price of imported vehicles rises by about 13 percent to 14 percent, or about $6,200 to $6,700.
- Profits for US manufacturers—such as Ford and General Motors—increase by about 4 percent to 9 percent. However, international manufacturers see profits fall by about 5 percent to 10 percent.
- The tariffs raise government revenue between $16.6 billion to $38.8 billion annually.
The modeling shows that tariffs cause consumers to buy their second- or even third-choice vehicle or delay buying new vehicles altogether. Welfare losses to consumers—about $29 billion to $59 billion per year—are far greater than the tariff revenue, indicating that the tariffs would substantially distort the market even as they raise revenue for the government.
The authors find that, in the case of a hypothetically more stringent tariff where imported vehicles and vehicle parts from Canada and Mexico face 25 percent tariffs, the impacts to consumers, prices, and sales are much larger (resulting in almost $100-billion loss to consumer welfare), and even domestic manufacturers lose profits.
Expert Perspective
“Vehicle manufacturing is a global effort. While the United States is trying to bring manufacturing back to its shores, our analysis shows that this plan would hurt people looking to buy a new car. This analysis shows that policymakers need to consider the full scale of the tariff’s impacts, including how these tariffs affect consumers by pushing them into purchasing decisions they wouldn’t otherwise make.”
—Beia Spiller, RFF Fellow and Director of the Transportation Program
🚘 How do we know?
The research team used RFF’s Vehicle Market Model to understand how vehicle suppliers and consumers respond to changes in federal and state policies. The team modeled the three tariff scenarios outlined above and compared the results to a scenario in which no tariff is applied, but that includes policies that affect the vehicle market, such as the Inflation Reduction Act’s vehicle production and purchase subsidies.
Until recently, the tariffs most closely resembled Scenario 2, which includes a 25 percent tariff on imported vehicles and imported parts from non-North American countries. The report’s findings are framed around this central scenario.
Expert Perspective
“Businesses and consumers want to know how these tariffs will affect them. For businesses, it depends—but for consumers, they are worse off. Given that fewer customers buy new vehicles, which may use less fuel and produce less pollution than the models that they’re currently driving, this is bad news for efforts to reduce pollution from the transportation sector.”
—Joshua Linn, RFF Senior Fellow and professor at the University of Maryland
📚Where can I learn more?
For the full findings, read the report, Import Tariffs and the Market for Vehicles, by RFF Senior Fellow and University of Maryland professor Joshua Linn and RFF Fellow and Transportation Program Director Beia Spiller.
Linn and Spiller also discuss their findings in a related blog post.
Resources for the Future (RFF) is an independent, nonprofit research institution in Washington, DC. Its mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement. RFF is committed to being the most widely trusted source of research insights and policy solutions leading to a healthy environment and a thriving economy.
Unless otherwise stated, the views expressed here are those of the individual authors and may differ from those of other RFF experts, its officers, or its directors. RFF does not take positions on specific legislative proposals.
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