“If that’s the case, people are going to buy American-made cars, so I hope they raise prices,” President Trump said in an interview with NBC News on March 29. “If prices of foreign cars went up, they would buy American cars, so I couldn’t really care.”
Trump “didn’t care much” about the tariffs that raise the price of cars, but you and your wallet probably should. The President’s newly announced America’s first trade policy follows the promise of more tariffs. Economic policy includes a baseline global tariff of 10% on all imports and an additional mutual tariff in the range of 10-50%.
US drivers are already struggling under the weight of rising car insurance rates, and Trump’s latest tariffs will only exacerbate the pressure. Tariffs increase the costs of vehicles, auto parts, healthcare, and more, increase the operating costs of insurance companies, and increase policyholder premiums.
Vehicles and parts face 25% tariffs
According to the White House fact sheet, a 25% tariff will apply to all imported passenger cars and light trucks, along with vehicle engines, transmissions, powertrain parts and electrical components. In 2024, as part of the US Mexico Canada Agreement (USMCA), over 50% of US vehicle purchases were imported from Canada or Mexico without tariffs.
These duties affect all aspects of the cost of ownership of a car, including insurance premiums. “The type of insurance that is most likely to be affected by tariffs involves exposure to the international supply chain,” says Rick Golbett, professor of mathematics and actuarial science at Bryant University. “Personal car insurance is most likely to be affected in this way.” Because auto insurance companies pay to replace or repair the car when it is damaged in a covered claim, customs duties increase the price of parts and materials will affect the final profit.
The USMCA puts overseas manufacturers at a disadvantage.
Canada and Mexico will still be subject to the new 25% tariff, unlike overseas manufacturers. Manufacturers importing under the USMCA can certify US content, so tariffs can only apply to non-US content. Furthermore, USMCA compliant automotive components are not taxed until a process has been established regarding how to apply automatic fees to components consisting of both US and non-US content.
Although there are no 100% American-made products, some manufacturers like Tesla and Honda have final gatherings in the US, with most models making up the majority of US content. These manufacturers still face tariffs, but they only face non-US content, not entirely. This distinction leaves car manufacturers with unstable manufacturing industries overseas. This pays to move operations to the US or take the risk of domestic manufacturers selling them.
Hyundai Motor America recently announced that it will invest $21 billion in US manufacturing operations, including a new steel mill in Louisiana. Hyundai has existing factories in Alabama and Georgia, but most of its manufacturing operations are carried out in Korea. Over time, this movement can localize parts, strengthen the supply chain, and keep the price of the vehicle lower than overseas manufacturers.
Policyholders can expect interest rate hikes in the next 12-18 months
The economic impact of tariffs is immediately felt in some markets. If you are buying a new car in the near future, you may get a higher price at the dealer, but when it comes to car insurance, drivers will not see any tariff-related fee changes in their car policy any time soon. “The impact of the proposed tariffs could be delayed due to the locked annual insurance rates,” Islam says. “But consumers will feel that in the next underwriting cycle.”
Insurance prices are reactionary, and fees will be delayed as prices rise for products and services covered by car insurance. Once insurers quantify how much they pay in their claims for customs duties, they will have to go through a state fee approval process that could still take months.
Additionally, car insurance is issued under six or 12 months’ terms of the insurance contract. Aside from changes initiated by the driver, fees will remain the same for the duration of the policy agreement, including adding or removing coverage. Once a state fee application is approved, it will not be reflected in the premium until the policy is updated.
The potential impact of tariffs on car insurance premiums is difficult to identify early. However, Dr. Robert Hartwig, director of the Center for Risk and Uncertainty Management at the University of South Carolina’s Moore School of Business, estimates that tariffs could increase personal car insurance premiums by about $11 billion.
These new tariffs are a dramatic increase to Trump’s 2018 tariffs. This costs an estimated $200-300 per year for additional tax collections. This time, auto insurance companies face 10% baseline tariffs, which dramatically affects almost every aspect of their operating expenses. Everything from billing payments for medical use to paper costs and head office electricity can rise.
Tariffs place new burdens on the vulnerable auto insurance industry
According to the true cost of Bankrate’s auto insurance, the full coverage car insurance averages $2,678 per year. Average car insurance rates increased by 12% from 2024 to 2025. This has improved by 17% increase from 2023 to 2024, but it has not been offered much in the way drivers’ economic relief.
The auto insurance market is driving slowly to recover from the challenges of inflation, delayed shipments and some shortages. Auto insurance inflation is cooled, vehicle theft rates have fallen, and traffic deaths are at its lowest level in three years. Rising prices due to tariffs could bring this trend of stabilization back on track.
The aggressive Ping-Pong customs dialogue between the US and other countries contributed to a 7.2 point decline in the Conference Committee’s Consumer Trust Index in March. The expectations index, which measures how consumers feel about short-term outlook on income, business and labor market conditions, fell 9.6 points to 65.2 (12-year low).
“In many cases, tariffs are implemented (or cancelled), and their levels increase (or decrease) quite rapidly, causing economic uncertainty and making planning difficult for businesses and organizations,” Gorvett said. “This is not as direct or transparent as the rise in product prices, but there is a ‘cost’ in society, but it is a very realistic cost in terms of consumer behavior and confidence. ”
By the time tariffs are realized with car insurance premiums, Americans could pay higher prices for other goods and services for more than a year. Currently, fully covered car insurance only constitutes an average of 3.39% of median household income, while tariffs indicate the risk of family pricing.
As for consumers, the cost of car insurance is not the only cost, so allocating a limited budget for household essentials can affect the ability of households to fully afford car insurance.
– Dr. Samiislam, Professor of Economics, Faculty of Economics, Boise State University
Conclusion
It will take time to see how rising costs for vehicles, materials and healthcare will shrink to premiums.
If Americans turn their backs on imported vehicles, domestic automobile production will need to increase quickly, but it will likely take years. Meanwhile, demand for imported cars and other goods will continue to decline, leading to layoffs in manufacturing industries in various sectors. Stellantis, which makes ram trucks and jeeps, has already announced a temporary layoff of 900 workers and has announced the closure of two assembly plants in Mexico and Canada. Drivers may hold their current car for a long time and raise the selling price of used cars along with new ones.
And these tariffs do not occur in vacuum. They are widely popular and have an impact on the already growing national budgets of Americans. Most Americans rely on vehicles to commute, and there are limited alternatives. As budgets get tighter, car insurance payments are pushed up to the roadside for more specific daily necessities, such as food and housing, increasing the number of uninsured drivers and pushing up automatic rates even further. The outcome of uninsured driving can quickly snowball into difficult-to-recover financial situations, including revoking driving privileges and losing employment, including vehicles trapped.
“In the absence of a transport alternative, cars are important for mobility and employment access for most households in the United States,” Islam says. “Rises in car insurance costs can have a greater economic impact on the workforce, particularly margin households.”
