How Trump’s border tax would impact car prices

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Pictured is Jim Lentz, the Toyota North America CEO. Courtesy of Toyota.

One of President Trump’s campaign promises was to charge companies that import products into the United States a hefty tax as a way to increase U.S. manufacturing — a hefty tax as a way to increase U.S. manufacturing — and therefore U.S. jobs. Already, his actions in the White House indicate that he intends to move forward with that plan. This would likely lead to higher prices for all cars — imported or not.

When it comes to autos, a big shift to increased U.S. manufacturing quickly is virtually impossible, due to the complexities of manufacturing the product itself and a design process that can last three years or more. The result is that imported cars will continue to be imported for at least several years and a 20 percent border tax will be passed onto consumers — amounting to sticker prices that are thousands of dollars higher — according to the auto industry.

How this will impact you

What’s more, auto manufacturers rely on parts produced all over the world, and those parts would also face Trump’s border tax. That means that even cars that are said to be built in the United States would also be priced higher, since the cost of importing the parts to produce them would be more expensive.

A 20 percent border tax that was directly passed onto the consumer equates to an additional $2,000 per $10,000 spent.

With the current new car averaging $34,968 — as of January 2017 according to Kelley Blue Book — that results in an additional $6993.60 in cost, bringing the average car total to $41,961.60.

On a five-year new car loan at 3.25 percent (today’s average interest rates), that’s a monthly payment of $758.65 versus $632.22, a difference of $126.43 every month.

Fewer jobs?

Jim Lentz, Toyota’s North America CEO, in a Reuters interview, said this was his biggest fear: “Cost is going to go up, (and) as a result, demand is going to go down. As a result, we’re not going to able to employ as many as people as we do today.”

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Tara Baukus Mello writes the cars blog as well as the weekly Driving for Dollars column, providing both practical financial advice for consumers as well as insight into the latest developments in the automotive world. Follow her on Facebook here or on Twitter @SheDrives.