- Increased price: The tariff increases the price of imported cars, making them less competitive in the market compared to domestically produced cars or cars imported from countries without tariffs.
- Reduced affordability: With the increased price, some consumers may no longer be able to afford imported cars, leading to a reduction in demand.
- Shift in preferences: The price increase can lead consumers to consider alternative options, such as domestically produced cars or used cars, shifting demand away from imported cars.
- Trade diversion: If other countries impose retaliatory tariffs on the importing country's goods, it can lead to trade diversion, where imported cars are sourced from countries without tariffs instead, further reducing the demand for imported cars from the country that initially imposed the tariff.
Overall, the combination of increased price, reduced affordability, shift in preferences, and potential trade diversion contributes to a reduction in the demand for imported cars when a tariff is imposed.
