Do tariffs affect the cost of car insurance?
Proposed tariffs on goods from Canada and Mexico and increased tariffs on China could significantly increase the cost of car insurance in the U.S. The U.S. imports around $56 billion in auto parts from Mexico, Canada, and China, according to the Observatory of Economic Complexity (OEC). While many car parts come from those countries, there are also tariffs on steel, aluminum, and semiconductors, all used in car manufacturing. The cost of car insurance will likely rise indirectly due to the increased claims cost of repairing or replacing vehicles, potentially creating a significant financial burden for car owners.
“The primary driver of what we all pay for auto insurance is the cost of the claims. So, to the degree that tariffs increase the cost of anything that insurance products pay for, such as building materials costs, the cost of auto replacement parts, repair costs, and new cars, that will increase loss costs and create upward pressure on insurance premiums,” says Bob Passmore, department vice president, personal lines, at the American Property CasualtyLiability or loss resulting from an accident. Insurance Association (APCIA).
“The tariffs could also disrupt supply chains, not just for auto repairs, but at a critical moment of rebuilding from recent catastrophes, including Hurricane Helene and Milton and the unprecedented California wildfires,” he says.
While there is no tariff on car insurance, tariffs on car parts and materials could eventually increase insurance rates as insurers pay more to repair or replace vehicles.
What are tariffs?
A tariff is a tax on goods from another country that helps regulate trade. The tax is typically a percentage of the cost of the item and is paid to U.S. Customs by the company that imports the goods.
The U.S. government, usually the president, decides which countries and goods receive the tariffs and the amount. Tariffs are used for various reasons, such as increasing domestic sales, raising government revenue and as political bargaining tools. Tariffs can also stimulate the economy by encouraging citizens to buy items made in the U.S.
However, tariffs also increase the cost of imported goods. The increased costs of the goods and associated products can cause the cost of other items, such as car insurance, to increase indirectly.
How do tariffs work?
The government can implement a tariff on specific goods, like steel, or against all goods coming from a specific country, such as China.
Because importers have to pay the tariff, their cost of doing business increases. Typically, the company passes those increased costs on to the consumer.
For example, let’s say a car dealer imports a vehicle that costs $40,000, but a 25% tariff is introduced. That vehicle now costs the dealer $50,000 to import. Instead of losing the $10,000 because of the new tariff, the dealer will increase the selling price by $10,000.
Other associated costs, such as vehicle parts and insurance, increase secondarily. In the example above, car insurance rates on that vehicle would also rise since its value is higher.
Who pays tariffs?
Although it's a process of costs trickling down, consumers ultimately pay tariffs. Companies importing goods pay the tariffs and then raise their prices to recuperate those costs. That means the amount a consumer pays when they buy an item is higher to cover the tariff.
Why would tariffs increase the cost of car insurance?
While tariffs wouldn’t directly increase car insurance rates, they would have a substantial indirect effect. U.S. auto manufacturers buy parts and materials from countries like China, Canada and Mexico, and tariffs would increase the cost of importing those necessary components.
For example, if the cost of vehicle replacement parts from China increases, then repair costs rise. This means the insurer has to pay higher costs when dealing with a repair claimAn insurance claim is a request you make to your insurance company for coverage after your car is damaged or you have an accident. You can file a claim online, by phone, or in writing.. The same would be true if your vehicle is totaled in an accident. Tariffs increase the cost of new and used vehicles, and the insurer would pay more to replace a totaled car.
Car insurance companies don’t immediately raise rates to compensate for higher repair costs, but drivers can expect rates to increase once the insurer determines that claim costs have risen. Drivers will see increased rates when their policies renew or they shop for a new policy.
How much could tariffs increase car insurance rates?
It’s hard to nail down the amount by which car insurance rates may increase due to tariffs. There are many factors to consider, including the amount of the tariff, how long it will be implemented, and which country receives it. However, there are estimates.
“Proposed 25% tariffs against imports from Mexico and Canada threaten to increase automobile insurance claim costs in the United States by $7 billion to $24 billion, according to the American Property Casualty Insurance Association. Insurers will necessarily pass these costs along to policyholders. I estimate that the associated increase in premiums will range from $35 to $120 per vehicle per year,” says Robert P. Hartwig, clinical associate professor and director of the Center for Risk and Uncertainty Management for the Darla Moore School of Business at the University of South Carolina.
“This increase will be in addition to increases due to other factors, such as the cost of labor and increases in the price of domestically manufactured parts. Tariffs imposed on Chinese-manufactured parts and separate tariffs on imported steel and aluminum (sourced from all countries) will still push up premiums. Tariffs – taxes – are the last thing inflation-weary drivers want or need. According to the U.S. Bureau of Labor Statistics, auto insurance premiums were up 11.3% in 2024. Presently, there is little relief in sight for motorists,” he says.
While past rate increases may help make up the cost difference, it’s unlikely that insurers will absorb the expense.
Will tariffs also affect home insurance rates?
Homeowners insurance rates have significantly increased in the last few years due to inflation and a record number of climate activities, such as wildfires and hurricanes. Unfortunately, proposed tariffs may also impact already costly rates.
Tariffs affect home insurance rates similarly to car insurance. For example, tariffs on steel and aluminum increase the cost of building and repairing homes, increasing insurance rates due to the increased cost of homeowners insurance claims.
Tariffs may also affect rates by causing supply chain issues. As costs rise, home builders may look for other sources for the goods they need. This delay can impact home costs and increase insurance rates.
Are there tariffs on imported cars now?
Currently, there are no tariffs on imported cars from Mexico or Canada. However, President Trump’s proposed tariffs are 25%, a substantial increase. Additionally, China's tariffs on all imports, including vehicles, have increased by 10%.
The U.S. currently charges a 10% tariff on vehicles imported from the European Union, despite the 2.5% tariff the E.U. charges on American cars.
However, starting in April 2025, tariffs of around 25% on all imported cars are proposed. If this tariff is added, the cost of imported vehicles will dramatically increase.
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