Duty free is looking way more appealing right about now.
Update: The Trump Administration announced on Wednesday afternoon a one-month delay to tariffs for the auto sector. White House Press Secretary Karoline Leavitt said, “The reciprocal tariffs [on automobiles] will go into effect on April 2, and [President Trump] feels strongly about that no matter what—no exception, exemption.”
Tariffs proposed by the Trump Administration earlier this year took effect on March 4. The tariffs are taxes paid by American companies that import certain goods from Canada, Mexico, and China, to the tune of 25% of the value on imports from Canada and Mexico, and 20% on imports from China. Energy imported from Canada is taxed at 10%.
But what—if any—impact can travelers expect from the tariffs? The tariffs are levied on durable goods imported into the country, like cell phones, electronics, and appliances—the cost of which doesn’t typically affect the value of a domestic or international leisure trip.
The effects of the tariffs also may not be immediately felt, because travel companies have often prepaid or stockpiled certain items, or can wait out replacing them until the tariffs are amended or lifted.
Rental Car Prices Might Increase
Rental cars are one travel expense that could see increased pricing, as the U.S. imports a significant number of automobiles each year from either Canada or Mexico, and they’re among the products to which tariffs will apply. Mexico is the single largest foreign source of automobiles imported to the United States. Even cars built domestically could see price increases because many of their parts are imported from Canada or Mexico.
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Rental car companies, however, are used to these fluctuations. The cost of a rental car skyrocketed immediately following the pandemic because many rental car companies sold off their fleets when demand for rental cars plummeted, then had difficulty acquiring new vehicles when demand quickly returned and they faced a production shortage from their auto suppliers.
Rental car companies also work on a specific calculus. They borrow money to buy fleets of cars, which they rent while they’re new, then sell on the used market when they’re still worth a good amount of money. So rental car prices are determined by supply vs. demand, but also by how cheaply the rental companies can borrow money, how easily they can obtain new cars, and how much their existing fleets are worth on the resale markets. A boost in demand for used cars (because new ones are more expensive) could shrink rental fleets and raise rental rates. But if car rental companies expect borrowing costs and fleet acquisition costs to increase, they may hold onto their existing fleets longer.
Will Flights Cost More?
Tariffs on aluminum and steel could also raise costs for the airline industry. The purchase price of new aircraft is often locked in years in advance, but the cost of replacement parts could increase, like it did when the George W. Bush administration introduced tariffs on imported steel in 2002. That move increased maintenance costs for airlines, piling onto decreased air travel demand and increased security costs that pummeled airlines in the aftermath of the terrorist attacks of 9/11.
Increased airline costs don’t necessarily parlay into an increase in airfares—passenger demand is a much better indicator of which direction airfares will go. Demand for air travel still remains relatively high but could soften if consumers face higher costs elsewhere in their budgets.
Overall U.S. consumer confidence fell in February in its biggest decline since August 2021, and continued drops could ultimately depress air travel demand. Sustained drops in travel demand could actually lower pricing for some travel itinerary components as suppliers could work to entice consumers with newly tightened travel budgets back on the road.
One Way Travelers Can Escape Tariffs
International travelers may want to take a second look at some items in the duty-free shop they might have breezed past just a few days ago. Duty-free stores could also see a burst in sales of made-in-Mexico spirits like tequila and mezcal, or whisky brands bottled in Canada, which are also subject to the tariffs. Alcohol is particularly susceptible to tariffs because some types, like Tequila, are specialized products that can’t be replicated outside their country of origin.
Tequila, which comes from the distilled juice of the blue agave plant, can only be sold as Tequila if it’s produced in one of five Mexican states—so tequila lovers have no choice but to pay the tariffs—unless they go to Mexico or another country to buy the tequila and bring it into the country themselves (the tariffs don’t apply to personal duty-free allowances for US citizens returning from abroad). There are still limits on alcohol imports in personal allowances, however, and US citizens should check with Customs and Border Protection for their allowable limits.
