As the U.S. ramps up tariffs on imports from countries like China, Canada, and Mexico, a new financial consequence is emerging: an accelerating rise in consumer debt.
An exclusive new study from The Kaplan Group explores how the cost of tariffs is being passed down to consumers, leading to increased credit card usage, higher debt burdens, and growing risks of default.
Drawing from data from the Federal Reserve, Bureau of Labor Statistics, and Peterson Institute for International Economics, this exclusive study links rising consumer prices to a spike in revolving credit.
- The study examines data such as the Consumer Credit Report, Consumer Price Index, and estimates of tariff costs.
Consumer debt is rising fast. Prices are increasing. And credit card APRs are higher than they’ve been in decades.
- When households are forced to borrow just to cover basic needs, the entire financial system becomes more fragile, with low- and middle-income families particularly at risk.
Tariffs might be designed to protect domestic industries, but they also act as a stealth tax on consumers—especially the ones who can least afford it.
Key Findings From the Study
- Average U.S. households could pay between $1,200 and $3,000 more per year due to tariffs.
- Credit card debt is rising, with revolving credit growing at an 8.2% annualized rate as of January 2025.
- Credit card interest rates have climbed above 22%, making new debt significantly more expensive.
- Inflation hit 3% from January 2024 to January 2025—before full tariff impact kicked in.
- The auto industry is especially vulnerable, with rising prices and increasing loan risk.
- Economists warn of a potential 2025 recession if debt and spending trends continue.
Rising Costs Mean Rising Debt
Tariffs are already raising prices on consumer staples like foods and beverages, and will soon begin affecting other goods such as housing materials and cars.
- At the same time, inflation is pushing prices up across the board, and interest rates remain elevated as the Fed attempts to keep inflation in check..
- Because of this, a growing number of consumers are reaching for their credit cards—not for luxuries, but for basics. And they’re paying steeply for the privilege.
In January 2025, revolving credit (primarily credit card debt) jumped at an annualized rate of 8.2%. With APRs above 22%, that debt is harder than ever to repay.
Tariffs not only increase the direct price of goods, but also compound costs when consumers finance those purchases on credit cards.
- In a low tariff scenario, the average direct cost to households is around $1,200, but when paid using a credit card with a 22% APR, the cost rises to over $1,400.
- In a high tariff scenario, the direct cost climbs to $3,000, but the total cost with interest balloons to nearly $3,700.
This compounding effect turns a one-time cost increase into a long-term financial burden.
- For families already relying on credit to cover rising expenses, the combination of tariffs and high-interest debt can rapidly snowball into unaffordable monthly payments.
Debt + Inflation = Risk of Recession
Rising consumer debt, combined with tariff-driven inflation, could reduce household spending—the primary engine of the U.S. economy.
- When consumers are forced to devote more of their income to paying off high-interest credit card balances, they cut back on discretionary spending.
- This directly impacts industries like retail, travel, dining, and entertainment, which depend on steady consumer activity.
If the pattern continues—higher prices, more borrowing, and tighter wallets—consumer demand may contract across key sectors.
- Economists caution that this feedback loop could significantly slow economic growth and tip the economy into recession by late 2025.
When millions of households reduce spending at the same time, the entire economy feels the slowdown.
A Sector In Focus: The Auto Market
Tariffs on imported vehicles and auto parts haven’t impacted consumer prices yet, but buyers will likely begin to feel the effects within a few months—and at a time when borrowing costs are already high. But rather than leading directly to a surge in defaults, these conditions are more likely to suppress consumer demand.
As new cars become increasingly unaffordable, many consumers—especially lower-income buyers—will turn to the used car market, driving up prices there as well.
- This creates a squeeze for those who can least afford it: families who depend on a functioning vehicle will now be priced out of both new and used options.
The consequences go beyond individual households.
- A drop in new car sales could lead to production slowdowns, layoffs at automakers, and ripple effects across the broader auto supply chain—from parts manufacturers to shipping and sales.
When people can’t afford cars, they stop buying them. And when they stop buying them, it’s not just dealerships that feel it—it’s the factories, the parts suppliers, and entire local economies built around those jobs.
What’s At Stake
Tariffs, inflation, and credit dependency may soon create a feedback loop that could push the economy toward recession.
- Consumer spending powers the U.S. economy, but if more households are using credit to survive—and struggling to pay it back—that spending may soon slow.
What’s Next
If the debt burden continues to rise, the federal government may need to rethink the long-term tradeoffs of tariff policies.
- Policymakers must weigh short-term political gains against long-term financial strain on American families.
- In the meantime, financial institutions should be preparing for an uptick in delinquencies—particularly in sectors where consumers are already stretched.
- For consumers, navigating these rising costs and borrowing pressures will require close control of credit use, cutting back on discretionary purchases, and potentially refinancing existing debt.
Tariffs are no longer just a trade story—they’re a household budget story. And the longer we delay action, the harder it becomes to unwind the financial pressure consumers are under.
Methodology
This study used data from:
- Federal Reserve G.19 Consumer Credit Report (Jan 2025)
- Bureau of Labor Statistics Consumer Price Index (CPI) data (Jan 2024–Jan 2025)
- Peterson Institute for International Economics (PIIE) tariff cost estimates
The analysis tracked inflation trends, interest rates, and credit usage to assess how new tariffs affect borrowing behavior. It focused on revolving credit patterns, auto loans, and the cost burden placed on consumers due to rising prices and interest rates.
