If the United States imposes 5% to 25% tariffs on all imports from Mexico starting Monday, U.S. consumers can expect to see sharp price increases on new cars and trucks as well as higher costs to maintain and repair their existing vehicles. The tariff move also endangers ratification of President Donald Trump’s signature trade agreement — the U.S.-Mexico-Canada Agreement — and sows uncertainty that puts a chill on investments in America.
The Center for Automotive Research, where I am a vice president, estimates that a 5% tariff rate would increase the price of an average new vehicle built in the United States by at least $250. At a 25% tariff rate, U.S.-built vehicle prices would rise at least $1,100. Vehicles imported from Mexico would see sharper price increases — at least $1,100 at 5% tariff rate and at least $5,400 if the tariffs were ratcheted up to 25% by this fall. Overall, the tariffs would reduce U.S. gross domestic product by at least $7 billion to $34 billion annually and cause the loss of 82,000 to 390,000 U.S. jobs.
CAR’s analysis is conservative in that it only counts parts as crossing the border one time. However, motor vehicle parts may cross the U.S.-Mexico border many times as they are built up to components and systems that automakers ultimately install in a vehicle on one side of the border or the other.
CAR also did not model any retaliatory tariffs that Mexico may enact if the United States moved forward with tariffs.
The price, economic and employment impacts of the proposed U.S. tariffs on Mexico are likely to be significantly larger than CAR’s estimates.
Studies have shown that U.S. producers and consumers bear the entire burden of paying for tariffs. For some vehicles — such as small or economy sedans that cannot be produced profitably in the United States — the addition of a 5% to 25% tariff could make it cost prohibitive to offer that vehicle for sale in the U.S. market. In those cases, U.S. consumer choice will be restricted, which puts further upward pressure on prices.
Mexico is the United States’ third largest overall goods and services trading partner, behind China and Canada — but in goods trade, Mexico ranks second. The vehicles and parts category makes up the largest share of Mexico’s imports to the United States.
In 2018, Mexico accounted for 27% of U.S. motor vehicle imports ($52.6 billion) and 37% of motor vehicle parts imports ($59.4 billion). Mexico is also a major destination of U.S. parts exports — accounting for 37% of U.S. parts exports in 2018 ($32.5 billion) and 6% of U.S. motor vehicle exports ($3.3 billion).