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Consumer Credit and the Incidence of Tariffs: Evidence from the Auto Industry

Author

Listed:
  • Kristine W. Hankins
  • Morteza Momeni
  • David Sovich

Abstract

Captive finance subsidiaries create a channel for trade policy to affect consumer credit. Examining the impact of the Trump administration's metal tariffs on captive automobile lenders, we find that consumers received higher interest rates from captive lenders after the tariffs relative to unaffected noncaptive lenders. Further, we document a disparate impact on low-income borrowers and in areas with less lending competition. Our results suggest that tariffs may impact not only the price of goods but also the financing terms of purchases. Thus, focusing solely on directly affected product prices may underestimate tariff pass-through significantly.

Suggested Citation

  • Kristine W. Hankins & Morteza Momeni & David Sovich, 2026. "Consumer Credit and the Incidence of Tariffs: Evidence from the Auto Industry," American Economic Review, American Economic Association, vol. 116(2), pages 627-673, February.
    • Handle: RePEc:aea:aecrev:v:116:y:2026:i:2:p:627-73
    DOI: 10.1257/aer.20230432
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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