Tariffs – a tax on goods and services – have an impact on any good or material that is produced outside of the United States, including cars and car parts. Currently, car tariffs are impacting the price American consumers are paying for a vehicle in many ways. Not only does it impact the cost of getting some cars, but it's also limiting availability for others.
No matter how much the government insists the tariffs are for our own good, they are only affecting the prices we pay on American soil, especially for foreign vehicles and other goods. In 2025, the Trump administration initially enacted a 25% tariff on cars and auto parts built outside of the United States, which has impacted how cars are made, sold, and bought nationwide ever since.
The auto-related taxes effectively increase the cost of manufacturing and production for automakers, which ultimately trickles down to consumers. Cars made overseas, and those assembled in the U.S. that rely heavily on imported parts, are starting to see incremental price hikes. With sticker prices increasing, consumers can anticipate higher car taxes, interest rates, and other ownership costs.
How Do Tariffs Impact Car Prices?
Tariffs directly impact car prices because of higher costs of materials and goods, which are being offset by higher sticker prices on new cars.
After some early turmoil, many car tariff rates and other tariffs have settled, and they're not the same for every country importing vehicles and auto parts to the U.S. Tariffs vary both by country and by the goods.
Some countries, like Japan, Mexico, Canada, and China, have a 25% tariff on cars and auto parts coming into the U.S. Other countries, such as Germany and other European Union nations, negotiated to reduce their tariff to 15% starting in 2025.
With our fellow North American countries, the Trump administration did make an exemption, taxing only the portions of the vehicles that are manufactured outside the U.S. initially.
A 50% tariff on imported steel and aluminum, which has been in effect since June 2025, is also having a ripple effect in the industry, as these materials are often used in car and truck production.
There has been some recent whiplash, though. In January 2026, President Donald Trump threatened some countries with talk of imposed tariffs that may or may not come to be, such as an increased tariff on South Korean vehicles, raised to 25% from 15%, and a 100% tariff on goods from Canada.
These threats have been made; whether or not they will be imposed is yet to be seen. If they are, vehicles such as Hyundai, Kia, and Genesis could feel the brunt of the car tariffs, which could ultimately raise the cost of getting one of these vehicles.
Additionally, as pre-tariff inventory dwindles, higher MSRPs from some companies, such as BMW, could lead shoppers to look for something more affordable, creating more demand in the used car market. Used car inventory is already tight as manufacturers made 8 million fewer vehicles during the COVID-19 pandemic. Industry experts expect increased demand to drive up prices on used cars as well.
"If tariffs cause the average price of a new unit to rise above $50,000 (which is likely given prices today), then even more consumers cannot or will not pay up for a new vehicle," said Jeremy Robb, senior director of economic and industry insights at Cox Automotive. "As a result, some consumers will get priced out of new vehicles and must trade down to used vehicles, which puts more upward pressure on the value of used vehicles."
How Car Tariffs Impact Financing
Higher car prices can lead buyers to finance their purchase over longer periods, 72-month terms and up, often at higher interest rates. The industry is already seeing this play out as 84-month loans hit another all-time high in Q2 2025, according to Edmunds. In the third quarter of 2025, these long loans accounted for 29.8% of new-vehicle financing – up 2% from Q3 2024. A year ago, 84-month loans only accounted for 27.2% of all loans.
While extending your loan makes financing more manageable in the short term, it creates a lock-in effect that can make it take longer for the buyer to pay off the loan, driving up the loan amount due to interest, and making future trade-ins less affordable.
"It would be easy to assume that tariffs are already reshaping the market, but the reality is that the record-breaking trends we saw in the second quarter are reflective of more consumers opting for maxed-out term lengths despite vehicle prices remaining steady," said Ivan Drury, director of insights at Edmunds. "It's clear that buyers are pulling the few levers they can control to manage affordability, whether that's by taking on longer loans, financing more, or putting less money down – even if some of those decisions increase their total costs. Consumers are continuously stretching to afford new vehicles in this market, and while tariffs haven't directly driven these Q2 numbers, they're certainly not going to make things any easier for shoppers moving forward."
How Automakers Are Responding to Tariffs on Imported Cars
Car manufacturers had been swiftly reacting to the tariffs by raising new car prices, increasing interest rates, scaling back incentives, and pausing production or halting shipments. Here's a look at how they are changing their strategies:
Raising Prices
On average, new car prices typically rise 3% year-over-year, per Kelly Blue Book estimates. However, in response to the tariffs, we've seen some new year models already receive increases above 4%.
Volvo increased prices on some 2026 models as much as 5.6%, CarsDirect confirmed. The 2026 Volvo XC60's base model is going up $2,650 from $47,050 to $49,700 (5.6%), with other models facing 4.2% and 4.5% hikes. Volvo officials noted "rising costs and market conditions" as reasons for the changes.
BMW also revealed higher MSRPs on its 2026 models, which are expected to rise as much as 1.9%. The 2026 BMW X5 M and X6 M Competition grades got the largest price hike of $2,500 each, per CarsDirect. BMW officials did not explicitly cite the 25% tariffs for the mid-year increases, but said they are "in line with past pricing communications, and account for inflation and enhancements to standard equipment where applicable."
Increasing Interest Rates
Interest rates for new vehicles were already at an all-time high, and the tariffs could drive rate adjustments and boost the cost of ownership. Edmunds reports that the average new-vehicle annual percentage rate for new vehicle purchases held at 7% in Q3. This is the third consecutive quarter that interest rates were at or above 7%. Edmunds also reported that promotional financing was limited in the third quarter of 2025. Just 3.4% of loans had a 0% rate, while 18.3% of loans carried rates below 4%. That said, a majority of loans – 71.6% – carried an APR of 5% or higher, and 13.8% of loans were at an APR of 10% or higher.
The industry has yet to see interest rates go up. In fact, the Federal Reserve cut the national prime rate in late 2025 and held it steady in January 2026. But automakers had already revised rates.
Subaru, for example, raised rates by up to 3% in late April 2025, adding approximately $4,000 on some models for long-term financing, CarsDirect reported. That same month, Hyundai's interest rates also went up by 2% for 72-month financing on some 2025 models, and 60-month rates were up 1%. Similarly, Mazda raised APR on its SUVs by 1%.
"When one in five new-car buyers are taking on seven-year loans, it’s clear how many consumers are still financially stretched. Even with rates holding relatively flat, the continued reliance on extended terms and high monthly payments reveals how challenging car buying remains," said Jessica Caldwell, Edmunds’ head of insights. "And now, with auto tariffs officially taking effect today, there’s a risk that they will add fuel to the fire – triggering a disruption that could push vehicles even further out of reach for many shoppers."
Scaling Back Incentives
In addition to raising prices and rates, automakers have reduced or eliminated incentives like rebates, loyalty bonuses, and price protection programs.
Here again, Volvo decided to quietly cancel its Offer Protection Program, which gave buyers the opportunity to lock in their price with available incentives and rebates even if the deal expired after the delivery date. The German automaker also ended its 70th Anniversary Bonus, worth $1,000 on 2025 models, a week earlier than planned last year.
Both Ford and Stellantis, which includes the Dodge, Chrysler, Jeep, and RAM brands, unveiled employee pricing programs in 2025, which, according to CarsDirect, can be misleading. Despite the employee pricing incentive, Ford rolled back rebates worth up to $5,000, while Stellantis' program prohibits buyers from stacking it with other incentives.
The Bottom Line
Current trade policies have created an uncertain market with automakers and dealers adjusting pricing and incentives in real time – and buyers locking into longer, pricier loans. It's clear the tariffs are reshaping the industry and consumer confidence, albeit slowly. Still, the financial impact of initial price and interest rate hikes is likely to shape buyer financing for years to come.
