ImportTariffsandtheMarketforVehicles

JoshuaLinnandBeiaSpiller

Report25-10

ImportTariffsandtheMarketforVehicles A

May2025

ResourcesfortheFuture

i

AbouttheAuthors

JoshuaLinnisaprofessorintheDepartmentofAgriculturalandResourceEconomicsattheUniversityofMarylandandaseniorfellowatResourcesfortheFuture(RFF).

Hisresearchcentersontheeffectsofenvironmentalpoliciesandeconomicincentivesfornewtechnologiesinthetransportation,electricity,andindustrialsectors.HistransportationresearchassessespassengervehicletaxationandfueleconomystandardsintheUnitedStatesandEurope.HehasexaminedtheeffectsofBeijing’svehicleownershiprestrictionsontravelbehavior,laborsupply,andfertility.

BeiaSpillerisafellowandthedirectorforRFF’sTransportationProgram.PriortojoiningRFF,shewasLeadSeniorEconomistatEnvironmentalDefenseFund

(EDF),wheresheworkedforalmostadecade.ShewasalsoaBoardmemberfortheAssociationofEnvironmentalandResourceEconomiststhrough2024.Spillerisanenergyeconomist,withexperienceworkingonelectricityandtransportationissues.DuringhertimeatEDF,sheparticipatedinmanyelectricutilityproceedingsinNewYorkandCalifornia,withagoalofusheringinacleaner,moreefficientandequitableenergysystem.

AboutRFF

ResourcesfortheFuture(RFF)isanindependent,nonprofitresearchinstitutioninWashington,DC.Itsmissionistoimproveenvironmental,energy,andnaturalresourcedecisionsthroughimpartialeconomicresearchandpolicyengagement.RFFiscommittedtobeingthemostwidelytrustedsourceofresearchinsightsandpolicysolutionsleadingtoahealthyenvironmentandathrivingeconomy.

TheviewsexpressedherearethoseoftheindividualauthorsandmaydifferfromthoseofotherRFFexperts,itsofficers,oritsdirectors.

SharingOurWork

OurworkisavailableforsharingandadaptationunderanAttribution-NonCommercial-NoDerivatives4.0International(CCBY-NC-ND4.0)license.Youcancopyandredistributeourmaterialinanymediumorformat;youmustgiveappropriatecredit,providealinktothelicense,andindicateifchangesweremade,andyoumaynotapplyadditionalrestrictions.Youmaydosoinanyreasonablemanner,butnotinanywaythatsuggeststhelicensorendorsesyouoryouruse.

Youmaynotusethematerialforcommercialpurposes.Ifyouremix,transform,orbuilduponthematerial,youmaynotdistributethemodifiedmaterial.Formoreinformation,visit/licenses/by-nc-nd/4.0/.

ImportTariffsandtheMarketforVehicles

ii

Abstract

Vehicleimporttariffscanhavemeasurableimpactsonthemarketforvehicles.Dependingonhowtheyarestructured,tariffsincreasethecostofimportingvehiclesandvehicleparts,affectinghowmanufacturerspricetheirvehiclesacrosstheirentirefleet.Pricechangesaffectconsumerchoices,buttheextentdependsonconsumerpricesensitivityandthesubstitutabilityoftariff-affectedvehiclesandotheroptions.In2025,theTrumpadministrationlevied25percenttariffsonvehiclesandvehiclepartsimportedfromoutsideNorthAmerica.Inthisreport,weleverageastructuraleconometricmodelofthevehiclemarkettoquantifytheimpactofthesetariffsonoutcomesincludingvehicleprices,demand,domesticmanufacturing,tariffrevenues,manufacturerprofits,andconsumerwell-being.Thesetariffsdistortthemarket,increasingvehiclepricesandreducingdemandfornewvehicles.Moreover,thetariffswouldreducemanufacturerprofits,thoughdependingonthestructureofthetariffs,US-basedmanufacturersmayprofittosomeextent.However,thecoststoconsumersfarexceedthebenefitstodomesticmanufacturersandtherevenuescollectedbythegovernment.

ResourcesfortheFuture

iii

Contents

Introduction 1

CurrentAssessmentsofTariffImpacts 2

UnderstandingtheVehicleMarketinLightofTariffs 3

MarketStructure,ConsumerPreferences,andPriceSensitivity 3

MaterialandVehicleImports 4

FromGasolinetoElectricVehicles 5

HowWilltheTariffsAffectConsumersandProducersOverall? 5

ConsumerWelfareandTariffRevenues 5

ManufacturerProfitability 6

ModelingtheResults 6

Results 7

VehicleSales 7

VehiclePrices 8

VehicleProductionandImports 10

ManufacturerProfits 12

TariffRevenue 12

ConsumerWelfare 14

PuttingitAllTogether 14

Scenario1:25PercentTariffonNon-NorthAmericanVehicleImports 14

Scenario2:25PercentTariffonNon-NorthAmericanImportsandParts 15

Scenario3:25PercentTariffsonAllVehicleImportsandParts 15

Conclusion 16

Appendix 17

A1.Model 17

A2.ApplyingTariffstoImportedMaterials 17

A3.PoliciesintheModel 18

ImportTariffsandtheMarketforVehicles

1

Introduction

OnMarch26,2025,PresidentTrumpimposeda25percenttariffonautomobileimportsandkeyinputstotheassemblyofvehicles—includingengines,transmissions,powertrainparts,andelectricalcomponents.Thesetariffswerefollowedbya

muchbroadersetoftariffsonimportsfromallcountriesoutsideofNorthAmerica,announcedonApril2.Thoughcountry-specifictariffswereimposedformostgoods(thensubsequentlypausedonApril9for90days),asofthiswriting,vehiclesandthematerialsusedtoassemblevehiclesremainedsubjecttothepre-established

25percentimporttariff(withsomeexceptions).Therationaleexpressedbythegovernmentinimposingthesetariffswastorampupdomesticmanufacturingandraiserevenuesforthefederalgovernment,withnewssourcesstatingthattheWhiteHouseexpectstheautotariffstoproduce$100billioninfederalrevenues.1

Importantly,thesenewtariffswouldaffecttheentiresupplychainbecause,evenforvehiclesassembledintheUnitedStates,mostofthemincludeimportedvehicle

parts.Onaverage,overhalfofthematerials(byvalue)requiredtoassembleavehicleintheUnitedStatesareimported,thoughtheamountrangessignificantlyacrossmanufacturers,models,andvehiclefueltype(electricvehicles(EVs)tendtoincludemoreimportedmaterials,inlargepartduetolimiteddomesticbatterysupplychains;inthisreport,wedefineEVsasincludingbatteryelectricandplug-inhybridvehicles).Forexample,thoughbothvehiclesareassembledintheUnitedStates,Honda’sCR-VFWDismadewith15percentmaterialsimportedfromJapan,whiletheCRVe-FCEVcontains65percentofitsmaterialsfromJapan.2

Althoughsomeanalystshaveestimatedhowthetariffswouldaffectvehiclepricesandhowmuchrevenuetheywouldraise,somebigquestionsremain:willthetariffsboostdomesticvehicleproductionandproducers’profits,andhowwillthetariffrevenuecomparewiththeharmtovehicleconsumersfrompayinghigherprices?ThisreportpresentstheresultsofusingResourcesfortheFuture’sVehicleMarketModeltoanswerthosequestions.

Wefindthata25percenttariffonvehicleimportsandpartsproducedoutsideNorthAmericawouldgeneraterevenueofabout$39billion(2024US$)peryear,farlessthantheWhiteHousepredicts(theshortfalllikelyoccursbecauseofreducedvehiclesales).Thetariffswouldincreaseaveragevehiclepricesbyabout$3,500pervehicle,andtheywouldreduceimportsby1.3millionunitswhileincreasingdomesticproductionbyabout340,000units(higheraveragepricescausetotalvehiclesalestodropbyabout1millionunits).YearlyprofitsofUS-basedproducers(suchasFord,GeneralMotors,Stellantis,andTesla)wouldincreasebyabout$8.5billion,whileprofitsofforeignproducerswoulddeclinebyabout$26billion.

See

/article/autos-tariffs-trump-tax-im-

ports-ford-gm-e53823ef7bbb7b3c46d11eca90aaa638

.

See

/sites//files/2025-02/MY2025-AALA-Alphabeti-

cal-2.4.25.pdf

.

ResourcesfortheFuture

2

Consumerwell-being(asapproximatedbythedifferenceinwhatconsumerswouldbewillingtopayandtheprice—whateconomiststermconsumerwelfare)woulddeclinebyabout$59billionperyear.Thisdropinconsumerwell-beingreflectsnotjustthehigherpricesconsumersface,butalsoadecreaseinbenefitsconsumersreceivefrompurchasingvehicles;specifically,thetariffscauseconsumerstoshifttheirpurchasestoless-desirablevehiclesand/oravoidbuyinganewvehiclealtogether.Theseconsumercostsarefargreater(inmagnitude)thanthetariffrevenue,indicatinghowmuchthesetariffswoulddistortthemarket.CoststoconsumersalsoexceedtheincreaseinUSfirmprofitsby$50billion,whichrepresentsthenetlosstoUSwelfare.

TheabovefindingsreflectthefactthatvehiclesandpartsimportedfromMexicoandCanadaarecurrentlyexemptfromthetariffs,yetchangestothecurrenttariffpolicywouldhavesignificantimpactsonoutcomes.ImposingtariffsonMexicanandCanadianimportedvehiclesandpartsraisestariffrevenueto$64billion,butitharmsUS-basedvehicleproducers.Ratherthanseeingprofitsincrease,US-basedvehicleproducers’profitswoulddecreaseby$7.7billionperyearbecauseoftheirrelianceonpartsproducedinCanadaandMexico.Italsocausessignificantdecreasesinvehiclepurchasesandmuchhigherimpactsonvehicleprices.Wenotethatthetariffshavebeeninastateofflux,andthechosenscenariosrepresentvariationsinhowtheadministrationmayhandletariffsonimportedparts.

CurrentAssessmentsofTariffImpacts

Severalindustryandconsultancyestimatesofautotariffimpactsareavailable,butitisunclearwhatunderlyingassumptionsandmodelswereusedtocalculatethese

impacts,aslittletonodetailisprovidedwiththereportedestimates.Industryanalystshaveestimatedthatthetariffscouldresultinaveragevehiclepriceincreasesof$3,000to$10,0003.CoxAutomotiveexpectspricesoftariffedvehiclestoincreaseby10–15percent4,withpricesofvehiclesnotsubjecttotariffsalsoincreasingby5percent.

TheAndersonEconomicGroupconsultingfirmestimatesthatpricescouldincreasebetween$2,500to$20,000(withthehigherrangeonimportedvehicles),costingconsumers$30billioninthefirstyear.5JPMorganestimatesthatvehiclepricescouldriseby11.4percentunderaspecificscenario.6

See

/post/car-tariffs-no-problem-heres-how-get-best-deal-

amid-president-donald-trumps-looming/16112125/

.

See

/market-insights/new-auto-tariffs-are-now-in-place-

driving-the-industry-into-uncharted-territory/

.

See

/tariffs-economic-impact-on-auto-in-

dustry/

.

See

/insights/global-research/current-events/us-tariffs

.

ImportTariffsandtheMarketforVehicles

3

Yale’sBudgetLabestimatesthatthevehicletariffswouldincreasevehiclepricesby

$6,400.7ThisanalysisusedtheGlobalTradeAnalysisProject(GTAP)toestimatetradeflowchanges,andtheBureauofEconomicAnalysis’input-outputandimportrequirementmatricestoestimatepricechanges.Importantly,unlikeourmodel,thisanalysisdoesnotaccountforstrategicbehaviorbyvehiclemanufacturers,northeresultingchangeinconsumerchoices.

TheFederalReserveBankofRichmondestimatesthatthetariffswillbecompletelypassedthroughtocustomers.8Theyalsodonotdirectlyestimatetheimpactonprices.

Importantly,theseassessmentsdonotattempttounderstandtheimpactofthetariffsonawiderangeofoutcomesthataffectthevehiclemarket.Forexample,theydo

notestimateimpactsonUSandnon-USmanufacturerprofitsorhowtariffrevenuescomparetoconsumerwellbeingandproducerprofitchanges.Furthermore,theyignorethefactthatmanufacturersmakestrategicpricingdecisionsinlightofdifferencesinconsumerpriceresponsivenessacrossvehiclemodelsandfueltypes—whichwillhavecompleximpactsonthedemandandpriceofvehiclesregardlessoftheirfueltypeorcountryoforigin.

UnderstandingtheVehicleMarketinLightofTariffs

Theseindustryanalysesprovideasenseofthevehiclepricechangeswemayseeinthenearterm.Buttounderstandhowtheindustrywillbeaffectedinallitsdimensions,it’simportanttounderstandafewkeyissuesabouthowthevehiclemarketworks,includingthestructureofthemarket,preferencesandpricesensitivityacrossvehiclebuyers,theextenttowhichmaterialsandvehiclesareimported,andhowreadilybuyersswitchbetweengasolineandelectricvehicles.

MarketStructure,ConsumerPreferences,andPriceSensitivity

Thevehiclesupplymarketfunctionsasanoligopoly,meaningthesemanufacturerspossessacertaindegreeofmarketpowerduetothelimitednumberofmanufacturersinthemarket.Theabilityofmanufacturerstopassthroughtariffstovehiclepricesdependsonthepricesensitivityofconsumers.Furthermore,whentheychooseprices,manufacturersaccountforhowthepricesofeachoftheirvehiclesaffectconsumerdemandfortheirothervehicles.

See

/research/fiscal-economic-and-distributional-ef-

fects-25-auto-tariffs

.

See

/publications/research/economic_brief/2025/eb_25-

12

.

ResourcesfortheFuture

4

Importantly,thispriceresponsivenesswillvarywithseveralfactors.Forexample,consumerincome:wealthiervehiclebuyerswillbemorewillingtopurchasevehiclesathigherpricesthanlowerincomevehiclebuyers.Becausethevehiclesthatwealthyindividualspurchasedifferfromthevehiclespurchasedbylowerincomebuyers,theamountthatthesetariffsarepassedthroughtotheconsumerwilldependonthetypeofvehicle.Luxuryvehicleswillseehigherpriceincreases,whilebudgetvehicleswilllikelyseemuchlowerpriceincreases.

Theeffectoftariffsonpricesalsodependsonthesubstitutabilityacrossvehicles.Forexample,iftariffscauseamanufacturertoraisethepriceofanimportedvehicle,customerswhowouldhavepurchasedthatvehiclewithoutthetariffwouldbemorelikelytopurchaseadomesticvehicleifitisconsideredaclosesubstitute.Thissubstitutabilityisakeyfactorinhowpriceswillbesetacrossvehicletypes(includingcar/van/SUVandgasoline/electric),domesticvsimported,andnewvsused.

Furthermore,whenthisresponsivenessleadsconsumerstopurchasedifferentvehicles,thesealternativevehiclescouldalsoseepriceincreasesduetoincreasesindemand(thoughlessthanthatofthevehiclessubjecttohighertariffs).

MaterialandVehicleImports

ManufacturerswhosellvehiclesintheUnitedStatestendtoofferablendofvehiclesthatareimportedandmanufactureddomestically.Similarly,forvehiclesthatareassembledintheUnitedStates,mostmanufacturersimportatleastsomeoftheirmaterials.Onaverage,around50percentofthevalueofthevehicleisimported.

However,therearesomemanufacturers(suchasTesla)whoonlyimportmaterialsfromMexicoorCanada(bothcountriesarecurrentlyexemptfromthese25percenttariffs).

Whenvehicleimportsaresubjecttoatariff,manufacturerswhobothimportandproducedomesticallycouldrampupdomesticproductionwhilereducingimports.Thismeansthatthosewhohaveagreaterdomesticpresenceincreasetheirvehiclepricesbylessandwillalsolikelyrampupproductioninresponse.

However,intheshortrun—whichmayspanafewyears—manufacturersarelikelytohaveahardtimesourcingmaterialsfromdomesticsuppliersgiventhelimitedexistingdomesticmanufacturingbase.Inthelongerterm,newmanufacturingplantscouldemerge,particularlyifinvestorshavecertaintyaboutthetariffs.Yet,

withoutanestablishedmanufacturingbaseintheUnitedStates,tariffswillmeanthatvehiclemanufacturerswillfacechallengesinfindingsuppliersthatcanavoidthe25percentimporttariff,andthuswillpaymoreontheirproductscurrentlyimported.

Thesechallengeslikelyexplainwhymanymanufacturershavebeenlobbyingtheadministrationfortariffrelief.

ImportTariffsandtheMarketforVehicles

5

FromGasolinetoElectricVehicles

Thepricesofgasolineandelectricvehicleswillalsolikelybeaffectedindifferentways.Forexample,EVshaveahighershareofimportedmaterialsthangasolinevehicles.

BecausemanyoftheEVssoldinthiscountryusebatteriesimportedfromAsia,thevalueoftariff-applicablematerialsinEVstendstobehigher.AccordingtodatafromtheNationalHighwayTrafficSafetyAdministration(NHTSA),about

65percent(by

value)ofthematerialsinEVsisimported

9,whichisabouttenpercentagepointsmorethangasolinevehicles.

Givenanincreaseinpricesforimportedvehicles,manufacturersmaychoosetorampupdomesticproduction,yettheabilitytodosowillvaryacrossgasolineandelectricvehicles.Forexample,TeslaproducesallofitsvehiclesintheUnitedStates;thus,anincreaseinimportedgasolinevehiclepricescouldleadtomorebuyerspurchasingtheirvehicles.However,giventhelimitedcapacitythatcurrentlyexiststodomesticallyproducebatteriesandthemineralstheyrequire,placingtariffsonvehiclepartswouldhaveafurtherincreaseinthecostofEVsassembledintheUnitedStates.

HowWilltheTariffsAffectConsumersandProducersOverall?

Aboveandbeyondvehicleprices,understandinghowthesetariffsaffectoutcomessuchastariffrevenues,consumerwelfare,manufacturerprofitability,andvehiclemanufacturingisfundamentaltoassessingthewide-rangingimpactsofvehicletariffs.

ConsumerWelfareandTariffRevenues

Oneofthechallengeswithtariffsisthatallvehiclebuyerswillbeworseofffromawelfareperspective.Forimportedvehicles,priceswillrise.Individualswhocontinuetopurchaseanimportedvehiclewillpaymoreforthesameproduct,andthosewhoshifttoadomesticvehiclearealsomadeworseofffortworeasons.First,intheabsenceofimporttariffs,consumerswhopreferimportedvehicleswouldnothave

chosenadomesticvehicle;thus,thesubstituteddomesticvehicleprovidesconsumerswithfewerbenefitsthantheimportedvehiclewouldhave.Second,importtariffs

canincreasepricesonallvehicles,includingnon-importedvehicles(duetoshiftingpurchasingpatternsandthepotentialforincreasingdemandtocausedomesticvehiclepricestorise);thus,individualswhonowpurchasedomesticvehicleswillnotjustbeworseoffduetohavingtopurchasetheirless-preferredvehicle,theymaynowalsobepayingmoreforitthanintheabsenceofatariff.

See

/sites//files/2025-02/MY2025-AALA-Alphabeti-

cal-2.4.25.pdf

.

ResourcesfortheFuture

6

Themagnitudeofthetariffrevenuescollectedonvehiclesandpartsimportedwilldependonthelevelofdemandforvehiclessubjecttothetariffandthetariffrate.Asconsumersshifttowardsdomesticvehiclesandvehiclesproducedwithagreaterpercentageofdomesticparts,thiswillreducetheamountoftariffrevenuesraised.10

ManufacturerProfitability

Theprofitsaccruedbymanufacturersunderdifferenttariffscenarioswilldependonhowconsumersrespondtochangesinprices.Forvehiclesthatfacelowerpriceresponsiveness,eitherduetoahigherincomegrouppurchasingthem,orthosethathavefewerclosesubstitutes,manufacturerswillbeabletopassthroughgreateramountsofthetariff,therebyreducingthenegativeimpactontheirprofits.

Inthecaseofdomesticallyproducedvehiclesthatarenotsubjecttoatariff,manufacturersmayseeprofitincreasesasconsumersshiftawayfromimportedvehicles—bothduetohighervehiclesales,andmanufacturers’abilitytostrategicallyincreasethepriceoftheirvehicles.

ModelingtheResults

Tounderstandhowthesetariffswillaffectthevehicleindustry,weleverageamodelofthevehiclesectorintheUnitedStates.

Thismodel

11,developedbyResourcesfortheFuture,providesinsightsintohowsuppliersandconsumersrespondtochangesinfederalandstatepolicies.Forexample,themodelhasbeenusedto

estimatethe

impact

offederalvehicleemissionsandefficiencystandardsonEVadoption,prices,emissions,andmore.12

Inthisreport,weusethemodeltodemonstratetheshort-termimpactofthesetariffsongasolineandEVsalesandprices,producerprofits,consumerwellbeing,andtariffrevenue.Twokeypolicydesignchoicesincludewhethertoplacetariffsonlyonassembledvehiclesoronvehiclesandparts,andwhethertoplacetariffsonpartsandvehiclesproducedinCanadaandMexico.Toassesstheimplicationsofthesechoices,wemodelthreetariffscenarios:1)onlyimportedvehiclesface25percenttariffs;2)importedvehiclesandimportedvehiclepartsfromnon-NorthAmericancountriesface25percenttariffs(thecurrentsituation,asofthetimeofwritingthisarticle);and3)importedvehiclesandimportedvehiclepartsface25percenttariffs,regardlessofthecountryoforigin.WedescribethetariffsasincreasinginstringencyfromScenarios1to3,whichreflectshowbroadlytheyapplytovehiclessoldintheUnitedStates.These

Forsimplicityandgiventheshort-termaspectofourresults,wedonotassumeanytariffrevenuesarerefundedbacktohouseholds.

See

/topics/data-and-decision-tools/rff-vehicle-market-model/

.

See

/publications/reports/how-would-the-proposed-epa-passen-

ger-vehicle-greenhouse-gas-emissions-standards-affect-new-vehicle-consumers/

.

ImportTariffsandtheMarketforVehicles

7

threescenariosarecomparedtoano-tariffbaseline13thatincludesexistingpoliciesthataffectthevehiclemarket,suchasfederalgreenhousegasstandardsandInflationReductionAct(IRA)vehicleproductionandpurchasesubsidies.

Forthebaselineandpolicyscenarios,themodelpredictssalesandpricesofnewandusedvehicles,aswellasmanufacturerprofits,consumerwellbeing(orwelfare),andtariffrevenue.Thenextsectionreportsthemodelingresults.Baselineresultscanbeviewedintheappendixofthisreport.

Table1.TariffScenarios

TariffsImposedon TariffsImposedon

TariffScenario ImportedVehicles ImportedPartsfromNon-

TariffsImposedonImportedpartsfromNorth

NorthAmericanCountries

AmericanCountries

1

25%

0%

0%

2

25%

25%

0%

3

25%

25%

25%

Changesinvehiclepricesacrossmodelsandfueltypeswillhaveimportantimplicationsforhouseholdbudgets(and,morebroadly,consumerwelfare)andrevenuescollectedbytariffs.Thoughmanufacturingmayadjustovertime,quantifyingtheimpactofthesetariffsintheshortrunwillbekeytoprovidinginformationforpolicymakersandhouseholdsalike.

Results

VehicleSales

Asexplainedabove,weexpectthetariffstoraisevehicleprices,reducingoverallconsumerdemandfornewvehiclesandsales.Acrossallthreescenarios,thetariffssharplyreducethetotalnumberofvehiclessoldperyear.Figure1shows,foreachscenario,thechangeinvehiclesalesinmillionunitscomparedtotheno-tariffbaseline(withpercentagechangesreportedaswell).Theseresultsdemonstratethatvehiclesalesdecreaseacrossallscenarios,withthemoststringenttariffscenarioreducingsalesby1.7million,or10.5percent.

SeeAppendixTableA1forbaselineresults.

ResourcesfortheFuture

8

Figure1.TotalVehicleSales(MillionsofVehicles)

–2.70%

–6.06%

Scenario1 Scenario2 Scenario3

–0.2

Numberofvehicles(millions)

–0.4

–0.6

–0.8

–1.0

–1.2

–1.4

–1.6

–1.8

–10.51%

Figure2demonstratestheseresultsbyfueltype.Hereweshowthatgasolinevehiclesalesdeclinebymore,innumberofunitssoldandasapercentageofbaselinesales,comparedtoelectricvehicles.Scenario3imposesthelargestoveralltariffs,anditreducesgasolinevehiclesalesbythemost:1.6millionunits.

Figure2.ChangeinVehiclesSold,byFuelType

Numberofvehicles(millions)

–0.2

–0.4

–0.6

–0.8

–1.0

–1.2

–1.4

–1.6

–1.8

Scenario1 Scenario2 Scenario3

–3.20%

–2.07%

–3.16%

–2.64%

–6.48%

–11.28%

Electricvehiclesales Gasolinesales

VehiclePrices

Asexpected,thetariffsbroadlyincreasevehiclepricesfortworeasons:1)theyincreasethecostofsupplyingvehiclestotheUSmarket,and2)theyshiftconsumerdemand

tovehiclesthatfacelowertariffs,whichinturn,canraisethepricesonthosevehicles.Themagnitudeoftheoverallpricechangeispositivelycorrelatedwiththetariffamounts.Figure3showsthataveragepricesincreasebyabout4–11percent,or$2,000

ImportTariffsandtheMarketforVehicles

9

to$5,000pervehicle.However,asexpected,wefindthatimportedvehiclesseethegreatestpriceincreases,increasingby$8,800(oralmost19percent)underthemoststringenttariffscenario(Figure4).DomesticvehiclepricesincreasebyanegligibleamountinScenario1,wheretheyarenotsubjecttotariffs,buttheyincreaseintheotherscenarios—bothbecausethetariffsincreasethecostofproducingdomesticvehiclesandbecausethetariffsshiftdemandfromimportedtodomesticvehicles.

Figure3.VehiclePrices

$6,000

US$pervehicle

$5,000

$4,000

$3,000

10.80%

7.40%

4.38%

$2,000

$1,000

Scenario1 Scenario2 Scenario3

Figure4.VehiclePrices,byCountryofOrigin

$10,000

US$pervehicle

$8,000

18.85%

13.16%

14.40%

0%

7%

4%

$6,000

$4,000

$2,000

Scenario1 Scenario2 Scenario3Domesticvehicles Importedvehicles

ResourcesfortheFuture

10

Figure5showshowthesepricechangesdifferacrossfueltypes.Forgasolinevehicles,pricesincreasewiththestringencyofthetariff,regardlessofvehicleorigin.Thelargestpriceincreasesareforimportedgasolinevehicles,whichseeaverageincreasesofalmost$9,500underScenario3.PricesofimportedgasolinevehiclesincreasemorewhenthetariffsapplytodomesticvehiclesinScenarios2and3comparedtoScenario1,asinthesescenarios,producersofimportedgasolinevehiclesareabletopassalongmoreofthetarifftoconsumerswhenthetariffsapplytodomesticvehiclesaswell.

ForEVs,likelyduetobatteryimportscomingfromKoreaandJapan,domesticEVpricesincreasesignificantlywhenvehiclepartscomingfromoutsideofNorthAmericafacetariffs(Scenarios2and3).However,unlikeforimportedgasolinevehicles,pricesofimportedEVsincreasebysimilaramountsacrossthethreescenarios.Thisis

likelybecauseconsumerdemandforimportedEVsisrelativelypricesensitive,givingimporterslimitedopportunitytoincreasepriceswhenconsumerdemandshiftsawayfromdomesticEVs.

Figure5.AveragePriceofVehicles,byCountryofOriginandFuel

$10,000 21.7%25%

US$pervehicle

$8,000

$6,000

$4,000

$2,000

20%

14.9%

16.4%

6.5%

4.2%

7.0%3.9%

2.5%4.3%

0.1%0.1%

4.1%

15%

10%

5%