Tariff “Chain Reaction” Could Cause Car & Auto Insurance Payments to Rise by $24 Billion

The Trump administration’s new tariffs could make driving more expensive.

According to a new report from Fortune, a tariff “chain reaction” could increase the cost of both car payments and auto insurance payments.

Tariffs were widely expected to raise the price of new vehicles – particularly imported vehicles. However, that increase could spill over into auto insurance premiums via a chain reaction, raising costs even if you’re not planning to buy a new vehicle.

How Tariffs Increase the Total Cost of Ownership

The Trump administration’s latest round of tariffs began on April 3 and are expected to raise the cost of imported vehicles by thousands of dollars.

The tariffs also apply to vehicle components – like the parts needed to repair imported vehicles.

Both of these factors will increase the price of car insurance. Car insurance companies compensate drivers for the cost of repairing and replacing a vehicle after a covered loss. Insurers are expected to raise prices to accommodate this higher risk.

Tariffs Expected to Increase Car Repair Costs Significantly

Most car insurance claims involve repairs – not total replacements.

The latest round of tariffs is expected to significantly increase the cost of car repairs – even if you drive a domestic vehicle.

On March 26, President Donald Trump signed a proclamation assigning tariffs to engines, transmissions, powertrain parts, and electrical components. The Trump administration has also suggested it plans to expand these tariffs in the future.

60% of Auto Replacement Parts in the United States from Mexico, Canada, or China

Tariffs are expected to make car repairs significantly more expensive for a simple reason: most vehicle repair components come from outside the United States.

In fact, according to Fortune, approximately 6 out of every 10 components used in vehicle repairs are imported from Mexico, Canada, or China.

One expert described the average dealership as a “United Nations of parts.”

Certain components simply aren’t manufactured in the United States. Auto body shops that work on import vehicles, for example, often need to import repair components from overseas. Tariffs make each component more expensive.

Auto Insurance Claims Expected to Rise Up to $24 Billion Per Year

Insurers cover the cost of repairing or replacing a vehicle to pre-loss condition. When repair and replacement costs rise, insurers need to raise prices.

The American Property Casualty Insurance Association believes auto insurance claim costs could rise between $7 billion and $24 billion per year as a result of tariffs.

According to Bob Passmore, department vice president of personal lines at the American Property Casualty Insurance Association,  policyholders can expect to see higher insurance premiums within the next 12 to 18 months, as cited by Fortune.

Auto Insurance Premiums Have Already Risen Substantially

Drivers in the United States are already paying more for auto insurance than at any previous point.

In 2023, auto insurance premiums rose 14%. They rose another 12% in 2024.

The Insurance Information Institute initially predicted a 7% rise in auto insurance premiums by the end of 2025. However, that calculation didn’t account for potential tariff impacts.

A separate study by Insurify, meanwhile, predicted tariffs would increase insurance prices by 13% by the end of the year.

All of these increases add up to significantly higher insurance premiums. If you paid around $2,000 per year for full coverage car insurance at the start of 2023, you could be paying $2,886 for car insurance by the end of 2025, assuming the predictions above are accurate.

Homeowners, meanwhile, have seen rates double in the last five years – with even larger jumps in disaster-prone areas of the country. One study found homeowners insurance premiums jumped 23% between January 2023 and January 2024.

Tariffs Increase the Average Purchase Price of a New Car by $3,000

Auto insurance companies don’t just cover car repairs; they cover the cost of replacing a car after a total loss.

According to that same Insurify report, tariffs are expected to increase the cost of a new car – including domestic and imported vehicles – by around $3,000.

Today, the average new vehicle costs around $48,641. Under the new tariffs, that cost is expected to rise to $51,641.

The cost of economy cars could rise even further. One report found new cars under $40,000 “could increase as much as $6,000 per vehicle,” especially on popular models.

“No Cars Are Actually, 100% Made in the United States”

Theoretically, tariffs make domestic goods more attractive to consumers.

Unfortunately, there’s no such thing as a 100% domestically made vehicle in the United States.

Here’s how Edmunds’ consumer insights analyst Joseph Yoon, in an interview with USA Today, explains it:

No cars are actually, 100% made in the United States, with parts sourced from the United States.

Even domestic vehicles heavily rely on parts sourced from other countries, which is why tariffs are expected to increase repair and replacement costs and new vehicle costs substantially.

The General Motors Cadillac-CT4, for example, gets 49% of its parts from Mexico, 36% of its parts from other countries, and 15% of its parts from the United States and Canada before being assembled in the United States.

The Honda Acura ADX FWD, meanwhile, is assembled in Mexico with parts from Mexico (35%), the United States & Canada (30%), and other countries (35%).

Another report by Cars.com found even the most American vehicles use roughly 30% imported components.

The most American-made cars in 2024, per that report, include the Tesla Model Y (assembled in Fremont, California and Austin, Texas), the Tesla Model S (assembled in Fremont, California), the Honda Passport (assembled in Lincoln, Alabama), the Volkswagen ID.4 (assembled in Chattanooga, Tennessee), and the Honda Odyssey (assembled in Lincoln, Alabama).

All of these American-assembled vehicles, however, contain thousands of dollars’ worth of imported components – all of which will become more expensive under the new tariff system.

Tariff Chain Reaction Will Make Driving More Expensive

Tariffs are expected to significantly increase the total ownership cost of a car – even if you’re not planning to buy a new car anytime soon.

With automotive repair and replacement costs increasing, insurers need to raise rates to accommodate the rising risk, creating a chain reaction of higher prices for drivers across the United States.