A potential surge in car insurance premiums looms as President Trump imposes a 10% additional tariff on all imports from China, effective February 4. While tariffs on Canada and Mexico were initially slated for the same date, their implementation has been postponed until March. These economic measures could significantly impact the U.S. automotive sector, as approximately 60% of auto replacement parts are sourced from Mexico, Canada, and China.
The American Property Casualty Insurance Association predicts a 5% increase in average annual car insurance premiums by the end of the year, reaching $2,435, even without tariffs on Canada and Mexico. However, should these tariffs take effect, Insurify forecasts an 8% rise in premiums by 2025. This escalation is attributed to the expected increase in costs for importing automobiles and auto parts from these neighboring countries.
President Trump's recent directive to elevate duties on aluminum and steel to 25%, along with a proposed 25% tariff on automobiles, pharmaceuticals, and semiconductors, further compounds the situation. These tariffs are anticipated to heighten the expense of vehicles and their components imported from Canada and Mexico, potentially inflating motor vehicle insurance premiums. Over the past year, these premiums have already surged by 12%, as indicated by the U.S. Bureau of Labor Statistics' consumer price index.
"Threats of 25% tariffs on the North American borders — proposed, now delayed — would disrupt more than three decades of free trade across North America and rattle every corner of the automobile business, while proposed 'reciprocal' tariffs would add further price pressure to an auto industry already facing affordability issues," said Cox Automotive.
A specific scenario outlined by Insurify suggests that a 25% tariff on imports from Canada and Mexico could boost average annual full-coverage car insurance premiums by 8% to $2,502 by 2025. This uptick is linked to rising auto insurance costs that started climbing in 2022 and 2023 as more Americans returned to commuting post-Covid pandemic restrictions.
"When people think about tariffs, they typically think about goods they might get from somewhere else," noted Matt Brannon, a data journalist at Insurify. "Many times, we don't think about services like car insurance."
Economists speculate that not all proposed tariffs may ultimately be enacted, suggesting that President Trump might use them as leverage to negotiate concessions from trade partners. His administration has introduced tariffs across multiple sectors within its initial month in office.
"The estimates of tariff impact 'conservative'," remarked Matt Brannon.
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