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

112 Pages Posted: 21 Jun 2022 Last revised: 15 Mar 2023

See all articles by Kristine Watson Hankins

Kristine Watson Hankins

University of Kentucky

Morteza Momeni Shahraki

University of Kentucky - Finance

David Sovich

University of Kentucky - Gatton College of Business and Economics

Date Written: June 2, 2022

Abstract

Captive finance subsidiaries create a channel for trade policy to affect consumer credit. Examining the impact of the Trump administration's metal tariff s on captive automobile lenders, we find that consumers received higher interest rates from captive lenders after the tariff s relative to unaffected non-captive 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.

Keywords: tariffs, captive finance, consumer credit

JEL Classification: F13; L22; G32; H22; D12

Suggested Citation

Hankins, Kristine Watson and Momeni Shahraki, Morteza and Sovich, David, Consumer Credit and the Incidence of Tariffs: Evidence from the Auto Industry (June 2, 2022). Available at SSRN: https://ssrn.com/abstract=4127340 or http://dx.doi.org/10.2139/ssrn.4127340

Kristine Watson Hankins (Contact Author)

University of Kentucky ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

Morteza Momeni Shahraki

University of Kentucky - Finance ( email )

Lexington, KY 40506
United States

David Sovich

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States

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