What 25% U.S. auto tariffs mean for the cost of vehicles in Canada

Update: On Wednesday, April 2nd, President Donald Trump confirmed the 25% tariffs on 'all foreign-made automobiles" will go into effect at midnight on April 3rd, 2025.

On Wednesday, March 26, 2025, U.S. President Donald Trump announced plans to impose 25% tariffs on the automotive industry. Set to take effect on April 3rd, the tariffs will apply to passenger cars and parts manufactured outside the United States, including Canadian-made vehicles, following ‘Liberation Day’ on April 2nd.

The announcement sparked immediate concern for Canada’s auto sector, as the tariffs are expected to devastate the Canadian economy. Canada and the U.S. have a long-standing history of auto trade and, as a result, have a highly integrated supply chain. 

This article will explore what the new U.S. auto tariffs mean for the cost of vehicles in Canada.

What do the 25% auto tariffs include? 

In response to Trump’s announcement, the White House released a fact sheet outlining the 25% tariff implications:

• The tariffs will apply to all passenger vehicles, including sedans, SUVs, crossovers, minivans, cargo vans, and light trucks imported into the U.S.
• It will also apply to auto parts, including engines, transmissions, powertrain parts and electrical components.
• Vehicle importers under the Canadian-United States-Mexico Agreement (CUSMA) can certify U.S. content so that the 25% tariff only applies to non-U.S. parts. CUSMA-compliant parts will be tariff-free until a process is set to tax non-U.S. parts.

How do the 25% auto tariffs impact vehicle prices in Canada?

The auto tariffs will have serious consequences for both Canada and the U.S, as the auto supply chain is complexly intertwined. The outcome will be rising costs for manufacturing, buying, repairing, and insuring vehicles. Let’s break down how each factor contributes: 

Supply chain repercussions

How closely linked is the Canada-U.S. auto supply chain? It dates back to the Auto Pact signed in 1965. Canadian plants are built for the North American market, making an overhaul of the system challenging. As it currently stands, auto parts cross the border up to eight times before vehicle assembly. If the system continues under the new tariff laws, parts could be subject to multiple charges, affecting production costs.

The Canadian Chamber of Commerce stated that the interconnected automotive supply chain between Michigan and Ontario produces 22% of North American vehicles. It also highlighted that the auto sector impacts hundreds of thousands of Canadian jobs. 

As Canadian auto manufacturers adjust to the impact of the 25% tariffs, we can expect reduced production and job losses (hit hardest in Ontario), likely leading to supply shortages and driving up the cost of cars in the country. 

For more information, visit the Chamber of Commerce’s Canada-U.S. trade tracker.

Vehicle prices

In addition to supply chain disruptions, vehicle prices​​ are expected to climb across Canada. The auto-specific taxes will enormously impact price hikes on top of the 25% tariff on steel and aluminum already imposed. 

According to the Canadian Chamber of Commerce, estimates show that a pickup truck could cost up to $8,000 USD more with U.S. tariffs. Research from JD Power also estimated that tariffs and counter-tariffs could raise the average cost of a new vehicle by $6,000 in Canada. 

The result will be a subsequent increase in used car prices. Higher costs for brand-new vehicles will likely prompt drivers to buy used cars instead. As we experienced during the COVID-19 pandemic, more demand for used vehicles drives up their prices, which is then passed onto consumers. 

Also read: What is the total cost of car ownership?

Maintenance and repair costs

As vehicle prices increase, so will the cost of repairing them. The part you need to fix your car will likely cross the North American border and be subject to tariffs. Auto parts, including car engines and transmissions, will be hit with the tax, driving up the costs of maintenance and repair fees for these items. 

Canadian drivers may also face increased labour costs as repair shops try to compensate for the higher auto parts prices. These added costs will be on top of the already rising fees. Research released by JD Power in September 2024 shows that the average cost of having a car serviced at a dealership rose $33 from the year prior and $11 at an independent shop. Not to mention, supply chain disruptions from the auto tariffs may slow down the time it takes for your part to arrive. 

Auto insurance premiums

The tariffs are also expected to raise car insurance rates in Canada. As with any insurance price hike, changes in the market are often a contributing factor.

If what is predicted comes true, the higher prices for new and used vehicles will drive up car values, leading to higher premiums when insurers calculate rates. In addition, the higher prices of parts mean repair costs will rise, too. Insurers will likely adjust specific coverage rates, such as collision insurance, as repairing vehicles becomes more expensive. The same goes for total loss claims–higher auto and part prices can lead to more total loss claims, impacting premiums for all Canadian policyholders. 

However, it may take time before we see this play out. Canadian drivers can secure their cheapest rates before insurance premiums feel the heat. Comparing auto insurance quotes is the best defence against rising costs. 

Also read: 2025 insurance market predictions for Canada

Canada’s plans to retaliate

The Canadian federal government has already rolled out a long list of retaliatory tariffs against the United States. On March 27, Prime Minister Mark Carney stated that Canada will respond to the latest tariffs with additional retaliatory trade actions that will have a maximum impact on the United States and minimum impact on Canada. 

To see Canada’s response to the U.S. tariffs, visit the Government of Canada website.

The bottom line

The trade war between the United States and Canada continues to affect both countries negatively. The new auto-specific tariffs are expected to have immediate consequences that will devastate the automotive industry. Prices to manufacture, purchase, repair, and insure cars will only rise. However, time will tell what the actual implications will be once the auto tariffs go into effect on April 3, 2025. 

Also read:

How U.S. tariffs on Canada could impact you–and what you can do 

How could 25% tariffs impact Canadian mortgage rates?

10 safe driving tips to help lower your car insurance