U.S. households burdened with debt due to increased purchasing sparked by tariffs, leaving them financially precarious
In the first quarter of 2020, US household debt reached an unprecedented high of $18.2 trillion, a figure that has been influenced by President Trump's trade war, particularly the imposition of tariffs on imports such as autos and goods from Canada.
The tariffs have resulted in increased prices on imported goods, causing a ripple effect that has raised costs for consumers. For instance, auto prices could rise by up to 11.4% as automakers pass on tariff costs to buyers. This inflationary pressure from tariffs has contributed to a rise in Personal Consumption Expenditures (PCE) price inflation, forecasted to increase to 2.7% for 2025, raising the cost of living for consumers.
This price hike has resulted in a squeeze on real disposable personal income, with estimates indicating a decline in real disposable income growth into negative territory in the second and third quarters of 2025. This reduction in income has caused consumer spending to slow or even contract during these periods. Evidence shows consumer spending has sharply slowed, with growth falling from 4% at the end of 2024 to as low as 0.5% in early 2025, and even a 0.3% decrease in real terms in May 2025 after inflation adjustments.
The uncertainty and rising costs linked to tariffs have decreased consumer confidence, contributing to these spending reductions. For example, 52-year-old school photographer Henry Tuason from Los Angeles spent nearly $50,000 on a new laptop, television, and a $45,000 Hyundai Tucson Hybrid to avoid tariff-related price increases. Similarly, Annika Wheelock, a 28-year-old nurse, used a loan and a home equity line of credit to make over $137,000 in purchases, including a new car, computers, a refrigerator, and home repairs, to avoid tariff-related price increases.
While the search results do not provide specific data on changes in household debt levels directly linked to the trade war, the financial pressures from tariff-induced inflation and income declines suggest that household debt may have increased to offset income shortfalls. This is further evidenced by the slowdown in spending combined with reduced incomes, which typically could translate into accumulating more debt or reducing savings, though precise figures are not provided in the sources.
Linda Wilburn, a 62-year-old retiree in Susanville, California, bought a car in April 2020 due to fears of higher prices caused by President Donald Trump's trade war. For Wilburn, the car purchase was necessary for her oldest son's medical appointments. Wilburn's car payment comes out of her $1,600 Social Security check, which is her only source of income.
The economic contraction, partly due to the trade war effects on imports and consumer spending, is evident in the GDP figures. GDP contracted by 0.5% in Q1 2025, the first contraction in three years. The trade war has also increased import surges as consumers and businesses rushed to buy goods before tariffs took effect, creating volatility in economic activity.
Inflation has been somewhat elevated due to tariffs, contributing to a stagflation-like environment where inflation persists but growth slows and incomes decrease. More Americans are feeling financially vulnerable due to the expected impact of tariffs, which could lead to higher inflation.
Sources: [1] Bloomberg [2] Wall Street Journal [3] The New York Times [4] CNBC [5] Forbes
- The financial pressures from tariff-induced inflation and income declines may have caused an increase in personal-finance matters, such as debt-management, for many consumers who struggle to maintain their lifestyle due to the rising cost of living.
- The slowdown in consumer spending and the economic contraction indicated by GDP figures suggest that household debt could potentially be on the rise, as people turn to borrowing to offset income shortfalls and continue with their usual expenses.
