Wall Street’s economist sees 2 ways whose prices could be played – and none is good for the average worker

But on the ground, he warns, the consequences of the renewed tariff wars of President Donald Trump manifest in a way that will strike the highest regular Americans.

“We have not seen any rates for this type of level in the United States for many decades,” he said Fortune On the way to Zurich. “And therefore an involvement of this is that we learn how the prices affect the economy in real time.”

Sheets, who also sat in the former administration of former president Barack Obama as the first economic diplomat of the US Treasury, estimates that American consumers are currently around 30% at 40% of pricing costs, but this number is ready to reach around 60% while companies are lacking space to absorb higher import prices. “Companies can only absorb as much,” he said. “They will have to push more to the consumer.”

Sheets is not alone among the economists of Wall Street by asserting this. Earlier this week, the chief economist of Morgan Stanley, Michael Gapen, argued that companies absorbed success as much as possible, and the prices have indeed been a “capital tax”, at least so far.

This pass is already starting to appear in the data, added leaves, but unevenly. The inflation of goods in several categories has accelerated since the prices came into force earlier this year: audio equipment up 15%, furniture and bedding almost 7%, tools and equipment of around 4%.

Most of them are imported products-things that appear in your household, not your grocery cart, he said.

Slow pressure

Sheets believes that retailers will go through the pricing effects subtly, through key “pricing windows” when they are already likely to increase prices, as during the holiday shopping season and the new year.

Companies can afford to do so, he said, because they have reflected the inventory before the prices were imposed and lowered these cheaper supplies. But this cushion is exhausted.

“We are starting to see it,” he said. “In the spring, it will be more visible in the data.”

The economist said that companies are walking on a fine line: consumers are always “tired” from post-pandemic inflation and are not in a mood to tolerate another wave of prices, but companies cannot continue to eat costs forever.

“One thing you would not want to do is increase your price, make your customers crazy, then adapt to downward prices,” he added. “They therefore carefully consider their ability to cross it and the timing in which they do it.”

The manufacturing mirage

The tariffs in the second way could take place, warned leaves, is by a kind of snake serpent effect: injuring the same American manufacturing base that they are supposed to protect.

“There is a fundamental reality here,” he said. “Salary rates in the United States are relatively high. If you are going to use the American workforce and pay them competitive wages, there are just certain types of manufacturing activities that are very difficult to do profitably. ”

That is to know why so many jobs have moved to China and Mexico in the past 40 years-and why the prices can bring back factories, but in a “very high capital intensity” way: think of the automata, no more workers.

“The companies will say:” I cannot afford to pay us wages for this activity, so I will just automate it completely, “said Sheets. You bring the production, you bring investments, but you do not bring as many jobs.”

Trump, the “Liberation Day”, promised to inaugurate “the golden age” of the manufacture and production of reshaping through his prices. But Sheets argues that it could just accelerate the thrust to automate factories via AI and advanced robotics, which facilitates the management of a factory with fewer people.

“We saw it with the computer revolution,” said the economist. “Some jobs disappear, new ones emerge, but these are not the same jobs.”

A fragile global order

Sheets said that for the moment, most American allies adopt a “wait and see” approach rather than retaliation with their own prices, largely because they still depend on access to the American market.

But he warned that if more and more countries were following Washington prices and begin to arm, the global trade system that is defined in the post-war period could start to fracture.

He compared the situation in the early 1930s, when the Smoot-Hawley prices sparked widespread reprisals and a collapse of world trade which aggravated the great depression. At the time, the world turned inward, and the result was “devastating,” he said. He warned that, thank God, other countries do not follow the head of the United States – so far.

However, Sheets said he thought there was room to rethink – not to abandon – the economic order which is held for decades. The world leaders did it about forty years – in the 1940s, they proposed the IMF and the World Bank, and the 80s and 90s with the development of the WTO.

“It may be time to think more deeply about how we can have an effective global trade system,” he said.

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