On March 26, 2025, President Trump imposed a 25 percent tariff on automobile imports and key inputs to the assembly of vehicles—including engines, transmissions, powertrain parts, and electrical components. These tariffs were followed by a much broader set of tariffs on imports from all countries outside of North America, announced on April 2. Though country-specific tariffs were imposed for most goods (then subsequently paused on April 9 for 90 days), as of this writing, vehicles and the materials used to assemble vehicles remained subject to the pre-established 25 percent import tariff (with some exceptions). The rationale expressed by the government in imposing these tariffs was to ramp up domestic manufacturing and raise revenues for the federal government, with news sources stating that the White House expects the auto tariffs to produce $100 billion in federal revenues. See https://apnews.com/article/autos-tariffs-trump-tax-imports-ford-gm-e53823ef7bbb7b3c46d11eca90aaa638.
Importantly, these new tariffs would affect the entire supply chain because, even for vehicles assembled in the United States, most of them include imported vehicle parts. On average, over half of the materials (by value) required to assemble a vehicle in the United States are imported, though the amount ranges significantly across manufacturers, models, and vehicle fuel type (electric vehicles (EVs) tend to include more imported materials, in large part due to limited domestic battery supply chains; in this report, we define EVs as including battery electric and plug-in hybrid vehicles). For example, though both vehicles are assembled in the United States, Honda’s CR-V FWD is made with 15 percent materials imported from Japan, while the CRV e-FCEV contains 65 percent of its materials from Japan. See https://www.nhtsa.gov/sites/nhtsa.gov/files/2025-02/MY2025-AALA-Alphabetical-2.4.25.pdf.
Although some analysts have estimated how the tariffs would affect vehicle prices and how much revenue they would raise, some big questions remain: will the tariffs boost domestic vehicle production and producers’ profits, and how will the tariff revenue compare with the harm to vehicle consumers from paying higher prices? This report presents the results of using Resources for the Future’s Vehicle Market Model to answer those questions.
We find that a 25 percent tariff on vehicle imports and parts produced outside North America would generate revenue of about $39 billion (2024 US$) per year, far less than the White House predicts (the shortfall likely occurs because of reduced vehicle sales). The tariffs would increase average vehicle prices by about $3,500 per vehicle, and they would reduce imports by 1.3 million units while increasing domestic production by about 340,000 units (higher average prices cause total vehicle sales to drop by about 1 million units). Yearly profits of US-based producers (such as Ford, General Motors, Stellantis, and Tesla) would increase by about $8.5 billion, while profits of foreign producers would decline by about $26 billion.
Consumer well-being (as approximated by the difference in what consumers would be willing to pay and the price—what economists term consumer welfare) would decline by about $59 billion per year. This drop in consumer well-being reflects not just the higher prices consumers face, but also a decrease in benefits consumers receive from purchasing vehicles; specifically, the tariffs cause consumers to shift their purchases to less-desirable vehicles and/or avoid buying a new vehicle altogether. These consumer costs are far greater (in magnitude) than the tariff revenue, indicating how much these tariffs would distort the market. Costs to consumers also exceed the increase in US firm profits by $50 billion, which represents the net loss to US welfare.
The above findings reflect the fact that vehicles and parts imported from Mexico and Canada are currently exempt from the tariffs, yet changes to the current tariff policy would have significant impacts on outcomes. Imposing tariffs on Mexican and Canadian imported vehicles and parts raises tariff revenue to $64 billion, but it harms US-based vehicle producers. Rather than seeing profits increase, US-based vehicle producers’ profits would decrease by $7.7 billion per year because of their reliance on parts produced in Canada and Mexico. It also causes significant decreases in vehicle purchases and much higher impacts on vehicle prices. We note that the tariffs have been in a state of flux, and the chosen scenarios represent variations in how the administration may handle tariffs on imported parts.