(Bloomberg) --Auto insurance is poised to become even more expensive under President-elect Donald Trump's plan to impose new tariffs on top US trading partners.
About 60% of replacement parts used to repair cars in the US are imported, mainly from Mexico, China and Canada, said Bob Passmore, a vice president for the American Property Casualty Insurance Association. New tariffs would increase the cost of parts, which account for about 40% of the average total repair bills borne by insurers, and would prompt them to eventually increase rates, he said.
"A broad tariff on auto parts would create a problem — it would definitely have an impact," Passmore said in an interview. "Ultimately, the cost of claims is the primary driver of what we pay for our insurance."
Trump announced Monday that he would impose additional tariffs of 10% on goods from China and 25% on all products from Mexico and Canada. Such levies would dash consumer hopes for a stabilization in car insurance premiums amid lower insurance losses this year, after several years of increased pricing.
In 2023, the average premium jumped about 20% on average, according to the Insurance Information Institute.
"We've dealt with inflation in auto parts and skilled labor since the supply-chain tightening during Covid," said Jerry Theodorou, director of the finance, insurance and trade policy program for R Street Institute, a nonprofit public-policy research organization. Those subcomponents of inflation have abated only recently, he added.
Ripple effects from potential tariffs could weigh even more on the budgets of car owners, as longer repair times may force them to rent vehicles.
"Sometimes, a lot people don't carry rental-reimbursement coverage, and so they pay from those out of their own pocket," Passmore said.
To soften the blow to consumers, the US could seek alternative supply-chain options, potentially in Brazil or Ecuador, though it will take time to compensate for the lost business with China and Mexico, according to Theodorou.
Still, it remains to be seen whether Trump will eventually follow through on his threats.
"We need to distinguish between rhetoric and reality," Theodorou said. "Trump was unpredictable in his first administration."
Trump's transition team didn't reply to a message seeking comment.
