Flying between Helsinki, Prague, Milan and Geneva to fulfill with purchasers, Nathan Sheets, Citigroup’s prime economist, has a chicken’s-eye view of how tariffs are reshaping the worldwide financial system.
However on the bottom, he warns, the implications of President Donald Trump’s renewed tariff wars are displaying up in methods that may hit common People the toughest.
“We haven’t seen tariffs at these kinds of levels in the United States for many decades,” he advised Fortune whereas en path to Zurich. “And so an implication of that is that we’re learning about how tariffs affect the economy in real time.”
Sheets, who additionally served in former President Barack Obama’s administration because the U.S. Treasury’s prime financial diplomat, estimates that U.S. shoppers are presently bearing about 30% to 40% of tariff prices—however that quantity is poised to rise to round 60% as corporations run out of room to soak up increased import costs. “Firms can only absorb so much,” he stated. “They’ll need to push more through to the consumer.”
Sheets isn’t alone amongst Wall Avenue economists in arguing this. Earlier this week, Morgan Stanley’s chief economist Michael Gapen argued that corporations have been absorbing the hit as a lot as they’ll, and tariffs have successfully been a “tax on capital,” not less than to this point.
That pass-through is already beginning to seem within the knowledge, Sheets added, although inconsistently. Items inflation in a number of classes has accelerated for the reason that tariffs took impact earlier this 12 months: audio tools up 15%, furnishings and bedding almost 7%, instruments and {hardware} round 4%.
Most of these are imported merchandise—issues that present up in your family, not your grocery cart, he stated.
A gradual squeeze
Sheets believes that retailers will go by the tariff results subtly, by key “pricing windows” when they’re already more likely to be elevating costs, similar to throughout vacation procuring season and the brand new 12 months.
Firms can afford to try this, he stated, as a result of they stocked up on stock earlier than tariffs had been imposed and have been drawing down these cheaper provides. However that cushion is operating out.
“We’re starting to see it,” he stated. “By spring, it’ll be more visible in the data.”
The economist stated corporations are strolling a superb line: Customers are nonetheless “fatigued” from post-pandemic inflation and are usually not in a temper to tolerate one other wave of value will increase, however corporations can’t preserve consuming the prices perpetually.
“One thing you wouldn’t want to do is raise your price, make your customers mad, and then have the tariffs adjust downward,” he added. “So they’re judging carefully their capacity to pass it through, and the timing in which they do it.”
The manufacturing mirage
The second approach tariffs may play out, Sheets warned, is thru a type of snake-eating-its-own-tail impact: hurting the identical U.S. manufacturing base they’re meant to guard.
“There’s a fundamental reality here,” he stated. “Wage rates in the United States are relatively high. If you’re going to use U.S. labor and pay them competitive wages, there are just certain kinds of manufacturing activities that are very difficult to do profitably.”
That, he argued, is why so many roles shifted to China and Mexico over the previous 40 years—and why tariffs might deliver factories again, however in a “very capital-intensive” approach: suppose automatons, no more staff.
“Firms will say, ‘I can’t afford to pay U.S. wages for this activity, so I’m just going to fully automate it,” Sheets stated. You deliver again manufacturing, you deliver again funding—however you don’t deliver again almost as many roles.”
Trump, on “Liberation Day,” promised to usher within the “Golden Age” of producing and reshore manufacturing by his tariffs. However Sheets argues that he would possibly’ve simply accelerated the push to automate factories by AI and superior robotics, which make it simpler than ever to run a manufacturing facility with fewer individuals.
“We saw this with the computer revolution,” the economist stated. “Some jobs vanish, new ones emerge, but they’re not the same jobs.”
A fragile world order
Sheets stated that for now, most U.S. allies are taking a “wait and see” method reasonably than retaliating with their very own tariffs, largely as a result of they nonetheless depend upon entry to the American market.
However he warned that if extra international locations comply with Washington’s lead and begin weaponizing tariffs, the worldwide buying and selling system that’s outlined the postwar period may start to fracture.
He in contrast the scenario to the early Thirties, when the Smoot-Hawley tariffs triggered widespread retaliation and a collapse in world commerce that worsened the Nice Despair. Again then, the world turned inward, and the outcome was “devastating,” he stated. He cautioned that, thank goodness, different international locations aren’t following the U.S. lead—to this point.
Nonetheless, Sheets stated he thinks there’s room to rethink—not abandon—the financial order that’s held for many years. World leaders did it about each forty years—within the Forties, they got here up with the IMF and the World Financial institution, and the within the ‘80s and ‘90s with the event of the WTO.
“Maybe it’s time to do more deep thinking about how we can have an effective global trading system,” he stated.
Fortune World Discussion board returns Oct. 26–27, 2025 in Riyadh. CEOs and world leaders will collect for a dynamic, invitation-only occasion shaping the way forward for enterprise. Apply for an invite.
