Tariff Pass Through in the US Automotive Market: A structural analysis

• In Event: Innovation, competition, and tariffs: insights from EV value chains across batteries, vehicles, and charging infrastructure

Abstract

Interventionist trade policy has re-emerged as an important force in the US and global economy. The automotive industry has received much attention as an example of an industry where tariffs could have a large impact. We study how these policies and input‐cost shifts are transmitted to prices, costs, firms’ sourcing  choices, and the distribution of consumer welfare. We estimate a random‐coefficients (BLP) demand model on 2015–2024 registrations linked to vehicle attributes and AALA parts‐origin shares, recover marginal costs under Nash–Bertrand pricing, and identify cost pass‐through using exposure to foreign parts interacted with real‐exchange‐rate shocks. Using these primitives, we run counterfactuals analyses of the 2025 automotive tariffs on imported vehicles/auto parts to assess impacts on vehicle prices, pass‐through, manufacturer profits, quantities, and consumer welfare in the short run.

Authors

• Luke Michael Heeney, Massachusetts Institute of Technology
  Presenting Author

• Christopher Knittel, Massachusetts Institute of Technology
  Non-Presenting Co-Author

• Jasdeep Mandia, Massachusetts Institute of Technology
  Non-Presenting Co-Author