Trump Tariff Plans Threaten to Worsen Auto Insurance Costs
Washington, D.C. – Proposed tariffs on imported automobiles and auto parts could exacerbate the rising cost of car insurance, according to economists and insurance industry representatives. Former President Donald Trump’s plans for tariffs on auto imports, combined with existing discussions about tariffs on steel and aluminum, have raised concerns about the overall impact on vehicle prices and, consequently, insurance premiums.
Speaking to the potential impact of Trump’s proposals, analysts worry that the proposed tariffs will significantly increase the cost of car insurance.
Trump has suggested a 25% tariff on imported cars, a move that could dramatically increase vehicle prices. Experts suggest this could have a ripple effect, causing an increase in the cost of replacing damaged vehicles and replacement parts, many of which are imported. This, in turn, directly affects insurance pricing.
Paul Donovan, chief economist at UBS Global Wealth Management, told Fortune that higher prices for new cars would also push up prices for used vehicles, exacerbating the situation. “And if you raise the price of new cars and second-hand vehicles, the price of car insurance will also go up,” he said.
Auto insurance costs have already been a key driver of inflation, which remains above the Federal Reserve’s 2% target. As of January, auto insurance premiums had risen 55% since early 2020, according to the U.S. Bureau of Labor Statistics. During that same period, the cost of new cars rose 20%, with used car prices climbing 34%.
Tariffs could further contribute to these increases, particularly with planned duties on steel and aluminum — essential materials for vehicle production. Sam Fiorani, an analyst at AutoForecast Solutions, noted that the complexity of the car manufacturing process, with numerous components and materials, means that raising the cost of key inputs will inevitably increase vehicle prices overall, affecting insurance rates.
While Trump has temporarily delayed imposing 25% tariffs on Mexico and Canada, a 10% tariff remains on Canadian energy imports. A report obtained by Fortune from the American Property Casualty Insurance Association (APCIA) notes the importance of these trade relationships; the majority of imported steel in the U.S. comes from Canada and Mexico, and these countries are fully integrated into the U.S. auto industry’s supply chain.
Donovan highlighted the complex supply routes involved in auto manufacturing. “Now, you know, a product will go through 10-12 different countries before you get the final version of the product,” he explained. “Famously, a car that is made in America will have components that cross the Mexican border 12 or 15 times before it ends up being a ‘Made in America’ car.”
The APCIA report indicated that approximately 60% of auto parts used in body shops are imported from Mexico, Canada, and China. Bob Passmore, department vice president of personal lines at APCIA, stated that tariffs on imported auto parts could raise repair costs, which insurers then factor into their rate calculations. The APCIA estimates that the impact of tariffs on personal auto insurance costs could range from $7 billion to $24 billion.
While the White House did not respond to requests for comment, Passmore noted that consumers would not see immediate effects from new implemented tariffs. “If the tariff goes on auto parts tomorrow, then you wouldn’t see any kind of impact in your auto insurance bill probably for 12 to 18 months,” he said.
