The new tariffs on imported autos President Trump announced on March 26 will have profound effects on automakers and car buyers. One of them could be the “Cubanization” of the US auto fleet: As car prices rise, buyers hold on to old cars longer, and the average age of the US fleet rises.
Cuba is famous, or maybe notorious, for the antique cars from the 1940s and 1950s that still ply the roads as taxicabs and personal vehicles. That’s not a national sense of nostalgia. When Fidel Castro’s regime seized power in 1959, the United States imposed sanctions that are still in place and effectively keep Western cars and car parts out of the country. So, Cubans have had to make do with what they had prior to the Castro takeover. While it might seem charming to visitors, jury-rigging gas guzzlers with homemade parts in a nation with fuel shortages is an ongoing nightmare for many Cuban car owners.
The Trump tariffs won’t be quite as punishing, but if they stick, they will rattle the whole industry. Trump says that beginning April 3, all imported cars will face a 25% tariff. The current tariff on most imports is only 2.5%. A month later, major components such as engines and transmissions will face the same tariff.
Read more: The latest news and updates on Trump’s tariffs
About half of the 16 million cars sold in the United States are imports, and many components come from overseas, even if the final assembly occurs in an American factory. Morgan Stanley analyst Adam Jonas estimates the tariffs would boost the average car price by about $6,000. And that would apply to domestics as well as imports, since higher prices for one set of products usually allow competitors to raise their prices by a like amount.
Breakdown: An American relic in Havana in 2023. (Rick Newman) · Photo: Rick Newman
Higher prices would depress sales. More people would shift to the used car market, which would push those prices up too, the same as it did when new cars became scarce for a time during the COVID pandemic. Higher prices will stop some people from buying altogether and force them to hold on to older cars longer.
“A strict implementation of a 25% tariff could add further elongation of average car age (the ‘Cubanization’ of the US car fleet),” Jonas wrote in a March 27 analysis. “The impacts are so potentially negative that we struggle to see how such measures can truly remain a ‘permanent feature’ of the US automotive landscape.”
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Keeping more old cars on the road longer also has implications for safety, technology adoption, and fuel prices. New cars usually come with more safety features and better crashworthiness, which help save lives as they become standard throughout the fleet. New safety technology would arrive more slowly if shoppers buy fewer new cars.
A sales slowdown could also disrupt the cash flow many automakers are using to fund development of electric vehicles and other new systems. Most big automakers are trying to manage the tricky transition from combustion vehicles to electrics or other types of powertrains. If sales of profitable gas-powered vehicles drop, that disrupts the funding model for new technology, which would likely tilt production away from innovation.
An older fleet and a lower portion of electrics could also keep oil and gasoline demand higher than expected in the future, which would put upward pressure on prices. “Even as rising fleet fuel economy and growing electric vehicle penetration crimp gasoline demand, higher purchase prices resulting from the tariffs could keep older, less-efficient cars driving longer on U.S. roads,” Clearview Energy noted in a March 27 analysis.
Read more: What Trump’s tariffs mean for the economy and your wallet
None of this takes into account trade partner retaliation, which seems likely at some level. For now, the European Union and other countries that import autos to the United States are holding their fire, perhaps because they think they can reach some kind of deal with Trump in which he lowers the tariffs in exchange for more US production or some other concession. If that doesn’t happen, however, trade partners are likely to follow the familiar script of hitting key US export categories with tariffs of their own.
Investors have been playing a guessing game on Trump’s tariffs — and generally guessing wrong. Overall, Trump has levied higher customs duties than investors expected when he took office in January and shown more willingness to tolerate stock market sell-offs and other adverse effects than during his first term.
That now leaves much of the global auto industry wondering if Trump’s auto tariffs will stick, triggering widespread collateral damage, or fade as Trump gets enough concessions to persuade him to relent.
Don’t bet the car on the outcome.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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