Looking to buy a car? Expect higher prices under U.S. auto tariffs
25% tariffs on automotive industry go into effect April 3
New tariffs from the U.S. on the auto industry are expected to have a huge impact on the price of cars for Canadians.
U.S. President Donald Trump's administration first announced last week that a 25 per cent tax on all fully built vehicles imported into the U.S. would go into effect on April 3. Trump confirmed on Wednesday that those tariffs would go ahead, and tariffs on parts will follow by May 3 at the latest, according to the White House.
However, the White House also said importers who bring cars into the U.S. under the United States-Mexico-Canada Agreement (USMCA) will be given the opportunity to certify their U.S. content. The 25 per cent tariff would then only apply to the parts of the car that are not American-made.
Colin Mang, an assistant economics professor at McMaster University, says how the tariffs play out in the U.S. and how Canada reacts will impact how much the price of a car rises, but adds the dollar amount could increase anywhere from $1,000 to $8,000 Cdn.
"What we're going to see is prices start to increase in the United States, and that's going to have spillover effects here in Canada as well, because the prices will track each other," Mang said.
Retaliatory tariffs by Canada would only add to the price increase, according to Mang. While there are about a dozen or so car models that are assembled in Canada that might not be as impacted by tariffs, the interconnected supply chain that sees car parts criss-cross North America many times before they end up in a vehicle will be affected.
Prime Minister Mark Carney said Wednesday that Canada would fight the tariffs with "countermeasures," though further details have yet to be announced.
Mang says Canada exports some 1.1 million cars to the U.S. each year, so tariffs on the domestic auto industry could mean potential job losses.
He noted that these changes would also undo the decades of work since the inception of the 1965 Auto Pact, which sought to build a single North American auto industry that both countries would benefit from.
Charles Bernard, lead economist with the Canadian Automobile Dealers Association, agrees that tariffs will be quickly followed by a price hike. He says the current supply of cars on the lot will cushion the price increase ever so slightly, but as soon as those cars are sold, the sticker price would go up.
"It would be a significant amount of money in a world where cars were already not cheap," Bernard said.
Those looking to non-North American carmakers will also be out of luck, he says. Production of brands consumers might associate with South Korea or Japan still often takes place in North America, so they're likely to see the same kinds of increases, according to Bernard.
Before the 25 per cent tariff went into effect, South Korean automaker Hyundai was already warning its prices could increase as a result.
Tariff uncertainty already having impact
Mang says that for anyone in the market for a new car, trying to buy a vehicle before the full force of tariffs and reciprocal measures come in would be a smart choice. He says interest rates are down as well, giving prospective buyers another reason to purchase sooner rather than later.
But the mere anticipation of tariffs was already having an impact at dealerships. Greg Carrasco, managing partner at Direct Nissan in Mississauga, Ont., said on Tuesday that price panic had been keeping car shoppers away.
"There is a lot of doubt … in the air, and we see it," Carrasco said. "We're sitting [in] a holding pattern."
He says he and other dealers around the Greater Toronto Area are using low interest rates and offers of no payments for the first six months on used cars to attract buyers. He says these deals should have cars flying off the lot, but instead, sales have been quite moderate.
Carrasco says it's a scary time to be a car dealer, given there's not much he can do except buy cars ahead of the tariffs and hope they can weather the storm. "We're just keeping our fingers crossed that the economic gods are going to be favourable to us," he said.
Mang agrees that uncertainty because of tariffs is making an impact. He points to consumer confidence, which dropped drastically in recent weeks. The Conference Board of Canada puts the figure at 52.6 points — down by 12 points for the month of February, which is the biggest decrease in a year and a half.
"People are really, really worried," Mang said. "They're worried about their jobs. They're worried the economy is heading to a recession, and so they're not really thinking about those big purchases, like a new car."
Bernard says there's some indication the market might be softening. He says February sales numbers show a slight dip, which can be partially explained by an expected decline in electric vehicle sales, as incentives to buy EVs in Quebec ended last month, and notes that it looks like cars are sitting on lots longer.
He says that factor on top of the trade war will be bad for dealerships.
The best thing people interested in buying a car can do is pay a visit to their local dealership, according to Bernard. He says staff will be knowledgeable about how the tariff situation is impacting prices and are best-suited to explain where cost savings can be made.
"It might not always be about what is on the internet or what Trump is saying," Bernard said. "The direct connection, or the only way [you] can talk in a way with the … company building that car is through the dealership. And I think dealers will be well-prepared."
Corrections
- A previous version of this story stated that both vehicles and parts imported into the U.S. under the USCMA would be exempt from tariffs as U.S. officials determine a process for applying tariffs to the components of those cars that are not American made. The exemption only applies to parts.Apr 02, 2025 4:08 PM EDT
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With files from Ali Chiasson and James Dunne
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