A majority of Americans are acclimating to the inflationary effects of President Trump’s tariffs. From groceries to clothes, consumers are feeling the brunt of the administration’s tariff policy. As prices rise, more Americans are relying on credit to make ends meet.
While some politicians think price controls, such as interest rate caps on credit cards and small loans, will help solve the crisis, they will only worsen the problem by restricting access to the financial tools families depend on to bridge the gap between stagnant wages and higher living costs.
Instead of addressing the root cause of high prices, politicians on both sides are doubling down on more controls: this time on credit.
Interest rate caps, like those proposed by senators Josh Hawley, R-Mo., and Bernie Sanders, I-Vt., are being sold as consumer protections. However, they will ultimately limit the number of loans issued while simultaneously increasing the principal loan amount: lower interest rates require larger loan amounts or longer terms for lenders to profit.
When governments impose ceilings on interest rates, lenders respond by tightening approval standards or leaving the market altogether. The result is fewer loans, not fairer ones. New Mexico and Illinois learned this lesson the hard way. After adopting small-loan caps, both states saw loan volumes plummet, and lenders fled.
The consumers most in need of credit became the first victims of the new “protections.”
Subprime and deep subprime borrowers would have the hardest time coping with new price controls amid rampant inflation. As the amount of available credits shrinks, the options to avoid economic calamity dissipate. In the most recent year, small-loan lenders collected $2.4 billion in fees nationwide. “Buy Now Pay Later” loans are on the rise nationwide, up 6 percent year over year, as younger consumers fight to stay afloat financially by any means necessary.
Debt and access to credit have long been part of American life: funding cars, homes and education. In our market economy, it has been commonplace for consumers to carry some form of debt. Increasingly, it’s rapidly becoming the only way many families can afford necessities. Debt spirals are real, but imposing one-size-fits-all government-mandated caps on credit is not the answer. Better solutions include teaching financial literacy and offering repayment plans to keep American families from drowning in debt in the first place.
Tariffs are the compounding interest. An invisible consumption tax is added to everything Americans buy, month after month. Unfortunately, much of the consumer debt being piled on Americans is just to make ends meet, week by week. Last fiscal quarter, credit card debt rose $17 billion to a record high of $1.21 trillion. When nearly one-third of Americans in surveys acknowledge they are struggling to afford necessities, the increase in revolving debt is unsurprising.
The role of tariffs in Americans’ further indebtedness is clear from the economic data. Since the start of the year, Amazon has increased prices for consumers by 12.8 percent. Their brick-and-mortar competitors, Walmart and Target, have raised prices 5.3 percent and 5.5 percent, respectively. The latest Consumer Price Index data showed inflation is still incredibly hot at 3 percent. This isn’t the win for the economy we think it is.
It was a core promise of Trump to lower inflation, but his tariff policies have undermined any progress he sought to achieve. We still have not felt the full effect of tariffs on inflation, and very well might not for another year. Between his disastrous tariffs and price control policies sought by the populist wings of the Democratic and Republican parties, Americans are being cornered from all angles.
The trade war our country has waged against the economies of every major nation on the planet must cease. Politicians pushing dangerous price controls and interest rate caps have to understand that they are keeping people from the credit resources they need to stay afloat.
Enough is enough. If America wants affordable living and economic growth, we must stop trying to engineer prosperity through coercion. Citizens don’t need protection from free markets; they need protection from the politicians who keep distorting them.