The Hidden Cost of Trade Wars: Why Your Car Insurance Is About to Get Pricier

Picture this: you're already wincing at the pump, grumbling over grocery bills, and now your car insurance renewal lands like a brick through your windscreen. Thanks to President Donald Trump's tariff war, that premium is about to climb higher, with the average full-coverage policy in the US set to jump from £1,805 ($2,321) to £1,954 ($2,513) by December 2025.

Announced on 2 April 2025, these 25% levies on cars and parts from Canada and Mexico, plus a 10% hike on Chinese imports, are rippling through the auto industry, jacking up repair costs and leaving insurers no choice but to pass the pain onto drivers. Trade wars, it turns out, don't just hit your wallet at the dealership: they're coming for your insurance too.

Parts Pain: How Tariffs Trickle Down to Your Policy

The US auto market leans heavily on its neighbours, with 60% of replacement parts sourced from Canada, Mexico, and China. Trump's tariffs, rolled out on 3 April 2025 for vehicles and slated for 3 May 2025 for parts, are poised to make those bits pricier.

'The 25% tariffs on cars and auto parts from Canada and Mexico will increase premiums by an average of 8% by the end of 2025,' predicts Insurify, an insurance comparison platform. That's because dearer parts mean costlier repairs, and insurers shell out more when your bumper needs fixing or your car's a write-off.

Before this trade spat, premiums were already at record highs, up 22% year-over-year by March 2025, thanks to pricier labour and tech-packed vehicles. Now, with tariffs adding £2,800 ($3,600) to the average imported car's price tag, the knock-on effect is brutal.

Repair shops are warning of delays too, as parts shortages loom, potentially pushing insurers to total more cars rather than fix them.

Insurers React: Rate Hikes on the Horizon

Unlike instant price jumps at the pump, this sting will creep in at renewal time, subject to state approvals, meaning you might not feel it until late 2025. The backdrop's grim: motor vehicle insurance inflation hit 12% in the past year, per a CNBC report, driven by post-pandemic crash spikes and supply chain woes.

Tariffs could add £150 ($192) annually to the average policy, with low-income drivers, already stretched by a £39 billion ($50 billion) auto loan delinquency crisis, hit hardest. Insurers might offset this by tweaking risk models or pushing usage-based policies, but for now, the forecast is clear: higher bills ahead.

Beyond the Premium: A Wider Economic Squeeze

This isn't just about insurance: it's a sneak peek at trade wars' hidden toll. Tariffs are already forecast to lift new car prices by £4,700 ($6,000) and used ones by £1,560 ($2,000), per Reuters, shrinking affordability as US sales dip from 16 million in 2024 to 14.5 million by 2026.

Add in pricier repairs, and drivers might cling to ageing motors, juicing demand for second-hand parts and nudging premiums further. Meanwhile, Goldman Sachs pegs recession odds at 45% if trade tensions escalate, a scenario that could tank consumer confidence and leave insurers juggling more claims.

As of 10 April 2025, this tariff saga's a slow burn, but the heat's building. So, next time you curse your insurance hike, spare a thought for the trade war quietly hiking the tab.

Originally published on IBTimes UK