Donald Trump's 25% auto tariff could trigger used car frenzy in US? What this shift would mean

The ripple effect of President Donald Trump’s latest 25 per cent tariffs on imported vehicles and auto parts will be felt not just in new car lots, but the shock is expected to hit the used car market as well. The import duties may also lead to rise in trends of second hand cars in the United States.

The tariffs, which will take effect on April 3 at 12:01 am (0401 GMT), were pushed through after Trump’s administration declared auto imports a “national security threat."

The new tariffs will leave the auto industry bracing for a turbulent few years. The impact will be cast on used car prices as well, however, it could also lead to a trend shift in the US.

A direct hit on your wallet: New car prices to surge

The White House said that the new import tax would apply to “key'' auto parts, including engines, transmissions, powertrain parts and electrical components, which will lead to a significant rise in the prices of new cars.

Trump's tariffs are intended to bring auto manufacturing back to the United States. But it won't be easy.

Estimates by Beata Caranci and Andrew Foran of TD Economics, cited in an Associated Press report say that the tariffs could raise the average price of cars and light trucks in the United States — which totalled more than $47,000 last month — by up to $5,000 if automakers pass along the entire cost to consumers.

That price hike could go higher – to as much as $10,000 – if the Trump administration applies the tax full to cars made in Mexico and Canada.

Automakers and their suppliers are only now recovering from years of instability brought on by pandemic-forced production halts, a sweeping semiconductor shortage and low inventory on dealership lots. That meant prices were sky-high, incentives were low, and few deals were to be had.

During the peak of the pandemic, consumers still bought vehicles at high prices. But the piled-on tariffs could put new vehicles out of reach for many would-be buyers, especially given rising indications of potentially broader inflation ahead throughout the economy.

The used car market may get interesting

As the prices for new cars soar, many potential buyers will naturally flock to the used car market. But the used car market is already in a precarious position.

The industry has been grappling with low leasing rates in recent years, meaning fewer used vehicles – especially two- or three-year-old cars – are being turned over for resale.

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With such limited used inventory in the US where buying second hand cars is not a common practice, an influx of buyers could rock used car prices, too. And they already average $25,000.

Lease penetration, or the number of vehicle transactions that are leases, has averaged around 30 per cent or so over the past 10 years, according to Edmunds data.

So, there is likely to be a shortage of used cars just as more buyers start shopping for them.

Trump's 25% auto tariffs: Know it all

President Donald Trump on Wednesday announced a 25 per cent tariff on auto imports, saying it would boost domestic manufacturing and generate $100 billion annually.

Trump expects the move to drive factory openings in the United States and eliminate what he calls a “ridiculous” supply chain spanning the United States, Canada, and Mexico. Emphasising his stance, he said, “This is permanent.”

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The Trump administration claims the tariffs will encourage automakers to move production to the US, creating jobs.

Leaders from Canada and the European Union (EU) criticised the tariffs, warning of economic disruptions.

(with AFP inputs)