Bessent Warns Iran’s Trade Partners to Cut Ties or Face Sanctions

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2:20That's the latest from Treasury Secretary Scott Besson. He announced what he called a, quote, unprecedented U.S. campaign to sever Iran from the global economy, warning that any country doing business with Iran risks facing U.S. sanctions. Quote, we are launching an economic onslaught against Iran's financial connections around the globe. The Treasury Secretary said at a press conference in Washington, here's a little more of what he had to say. Every country, every entity should know that they should be prepared to face U.S. sanctions. And no one is above this. We are going to hold everyone accountable.

2:59And this is economic asphyxiation of this regime. And, Jennifer, as I said, no one should test our resolve. That was the Treasury Secretary just in the last hour live from Washington at a press conference. I promised this would be the focus, the first part of our program. And indeed, that's what we're doing with just a fantastic roundtable joining us from pretty much all over. We've got Ira Jersey, Bloomberg Intelligence Chief U.S. Interest Rate Strategist. Mike McKee is Bloomberg TV and Radio International Economics and Policy Correspondent. And Nancy Cook, Bloomberg News Senior National Political Correspondent.

3:35Nancy's in Washington. Ira's at Bloomberg Intelligence Headquarters in Princeton. And Mike's out there in Wyoming getting ready for the Jackson Hole Economic Symposium this week. Nancy, I want to start with you because Iran has had sanctions on it for close to 50 years. How is this, quote, economic onslaught going to be any different than the sanctions that it's faced? Well, what was interesting to me was just the timing of this announcement. You know, Secretary Besant is making this announcement with about 70 days to go to the midterms. The Trump administration, I think, privately is pretty worried about its economic agenda.

4:08and the drag that the economy, that the drag that the war in Iran is causing on the economy. So I think that they're looking for ways to be proactive and show that they're trying to bring gas prices down and sort of make the economic conditions more favorable to voters. And that's why I think you're seeing the Treasury Secretary talk about sanctions today, even though we're still looking for a lot of details about what exactly those will look like. So we're awaiting some of those details. Hopefully we'll get those details in the coming days. Mike McKee, I want to bring you in here and sort of ask you a question that follows with what Nancy just said.

4:40And it was also one that was shouted at the at the Treasury Secretary as he left. Why? Why these sanctions now and not six months ago? Nancy spoke to the politics of this. But is it also, in your view, indication that the military part of the war didn't necessarily work or is not working? Well, the military part of the war worked to an extent, but it hasn't brought Iran to the table. And so at this point, they don't have very many options to go on from here to try to get the straight open and oil flowing again. This is one of the few that they have that might not lead to military activity, although my guess is that the Iranians would respond militarily to any serious impact on their economy.

5:26The other question that stood out was Scott Besson asking, why would I want to blow up the global economy? A good question. And there is a chance that something like that could happen if they sanctioned all the people who are cooperating in one way or another behind the scenes with Iran, because you have the Chinese, a huge participant in trade with Iran's behind the scenes. You have India and you have many other countries that are allowing trade to go one way or another behind the scenes with Iran. And so there is a the potential for a huge impact on Iran and the global economy. But we didn't get enough detail from Scott Besson today to know whether they really mean it, whether they'll go ahead with it and what it would take for a country to end up in violation.

6:18And Ira, I want to go to you because there's been a lot of focus as of late on the bond market. And of course, today we do see yields falling, but that doesn't really take into account all the whiplash that we saw last week. So talk to me about what you're seeing right now in the bond market and whether or not there's any conviction behind today's move. Yeah, I think today's move is just a little bit of bottom fishing here, you know, particularly before maybe we'll get another announcement from Scott Besson later this week, because he did mention that there'd be some type of details as far as the size of the buybacks that were announced last week.

6:51And so there's a little bit, I think, of kind of follow through on that. Now, I don't think it'll be sustained. I mean, at the end of the day, you really need a huge number and amount of buybacks in order to really change the trend of the bond market, because ultimately fundamentals are going to rule. and fundamentals right now suggest that we should probably be somewhere near 5 % for a 30-year bond deal, just where the economy and inflation are. I expected more from him on the bond market, or at least more questions on the bond market, given what we saw last week. He did sidestep that question that you referenced.

7:28And he just said that auction sizes would be announced at the next quarterly refunding announcement. But you actually think that we'll hear from him later this week on this, rather than waiting for the next quarterly announcement? Well, he did say last week that he would have more information this week. But remember, the way that the buybacks work is on or about the ninth day of every month. They come out with a statement for what they're going to do for the next month. And so we're kind of in the middle of that cycle right now. That's why the buybacks that were announced last week, they go into effect coming September 9th.

8:01But that's when they start. So they'll make an announcement on or about sometime before then. And then the first buyback will be, you know, the 10th or 11th or 12th, something like that. You know, maybe they'll wait until right after the 30-year auction in September in order to buy back some of the off-the-run bonds, which is what they're doing in this buyback program. Nancy, I want to bring you back into the conversation. Bond yields aren't typically something that we're talking about when we think about voters. But what does this tell you about the fact that now we're seeing this in mainstream news and you're seeing voters actually starting to care about the bond market?

8:37Well, I think it just shows the extent to which the economy is on voters' minds in this election. I think a lot of people voted for Trump for a second term because they were attracted to the idea of him as a businessman turned politician. People were very dissatisfied with President Biden's handling of the economy and inflation. And I think that they wanted someone who they thought would put the focus more on the economy. You know, I talk to Republican voters all the time and all of these, you know, primary states that are having midterm elections in November. And there's a real sense that Trump has taken his eyes off the economy for all these other priorities, be it the war in Iran or redecorating the White House.

9:15You know, there's just a lot of things that are consuming his attention, whereas I think a lot of his MAGA base really assumed that if he got back into power, he would be a huge steward of the economy. And voters, even Republicans, feel like that hasn't necessarily been the case. Well, Mike, I actually want to talk to you. There's been so much focus on the economy as of late. We do have Kevin Warsh expected to speak at Jackson Hole on Friday. Talk to me. What do you think that Warsh, does he actually need to address what's going on with the Treasury on Friday? Is that something that you anticipate him actually mentioning and calling them out directly?

9:52No, I don't think he will go anywhere near that right now, particularly when you see what Scott Besson did today in not laying anything out. I'm sure the two of them have talked to each other privately about this situation, but it wouldn't do Warsh any good to talk about it at the Jackson Hole Symposium. He's got enough problems with credibility with the markets these days and their belief in whether he's serious enough about bringing down inflation. And I think he'll focus on that. And it's a tightrope enough for him to walk there because he doesn't want to give any forward guidance. And he's tried to say as little as possible.

10:30It would be very interesting to hear his view on this new operation twist from the Treasury because it does make the Fed's job a little bit more difficult. And if they did start buying even more 30-year treasuries, that might force the Fed into raising interest rates, because a lot of the Fed officials have cast their votes against raising rates because the economy is tight enough now. Interest rates are high enough right now. If they start going down too much, then the Fed would have to get involved. And of course, Besant and Warsh have talked about the idea of a new Treasury Fed accord that this might be part of.

11:14But it's too early for that really to come up here. OK, we'll have to wait and see if we get anything on that. Mike, I want to stick with you and go back to what we heard and where we began the conversation with Nancy and this this being political and this being the plan to sever Iran's access to the to the world economy. Nancy talked about this being, you know, just ahead of midterm elections. Inflation is certainly top of mind for voters. The question that I have, is there anything in terms of sanctions or at least choking off Iran from the world economy that will bring prices down here in the U.S.?

11:45Like, is that going to make gas cheaper? Is that going to make beef prices cheaper? No, it wouldn't appear that would be the case, because obviously, if you shut off all oil going through, including the illicit dark oil that transits to China and India, then oil prices are going to go up and that's not going to play well with the American people. And there are a lot of other products that have been stuck in the Gulf there that haven't gotten out that are already starting to cause problems on the horizon. You're seeing more and more stories about how food prices may be going up because of the lack of fertilizer and because a lot of the crops can't get out of Ukraine, can't get out of the Middle East.

12:27And so there's a lot in there that doesn't suggest it's going to help the American consumer too much. I suppose the argument the president is making is that people will care about whether Iran has a nuclear weapon. And I think people do in the back of their minds, but I don't think that's going to be front and center when they go into the voting booth. And Ira, we've been continuing this conversation about affordability, about the economy. We know that both Goldman and Wells Fargo are essentially saying, Don't expect these buybacks to actually bring down those long-term rates substantially. So talk to me about that.

13:01How are you taking away, what are you taking away from the fact of how the Treasury is anticipating orchestrating these buybacks and the method that they're going about it? Yeah, I mean, doing an operation twist, you know, the biggest thing that it's going to do is help liquidity a little bit and then really hurt volatility, right? So I think that one of the things that any kind of buyback like this does, and you saw the same thing during the quantitative easing period, is it really reduces intraday volatility. And one of the reasons for that is you know that if you're buying long-term debt and you're a primary dealer, you're going to have an outlet for at least a portion of that debt.

13:36So it really helps balance sheets and helps liquidity. And that was the whole point of starting these buybacks in the first place a little over a year ago. And I think that at some level they've worked. I'm not sure they're always necessary, but certainly to be regular and predictable like Treasury wants to be, they'll continue to do these types of little buybacks. Will it get interest rates lower? Will it help your 30-year mortgage rate, which is really based more on the 10-year? I don't think so. And if it does, it's five basis points or 10 basis points. Probably not much more than that. I agree with my fellow strategists when they say that.

14:10I want to hear if you agree with Mike McKee, because Nora asked you about what this means for what we hear from the chairman of the Fed come Friday in Jackson Hole. I'm curious about intervention to bring down long term borrowing costs and how, in your view, it could complicate the messaging and at least the way that market participants are interpreting the messaging on Friday. So, yeah. So I think Scott Besson is, you know, he's already said at the last press conference, he's going to talk about the big questions and lay out some big questions. So I doubt that he's going to talk much about the markets or really about the future of policy, because like Mike said, he doesn't really want to he doesn't want to give forward guidance.

14:48Now, I think it is kind of odd because he put Mervyn King on the communications task force that he has. And I, you know, Mervyn King has an interesting take on what the markets want and something that central banks should give. And that's what is the reaction function? So, you know, if there's four or five different scenarios that are realistic that could be the outcome for the economy, where then would the what steps would the Federal Reserve take under each of those scenarios? And I think that's something that would really behoove Kevin Warsh maybe to say, look, we're looking into this. We're looking about how to communicate this.

15:23I think the market participants would actually like that. And because if you tell us that, then we can forecast. Right. If you don't tell us what your reaction function is, we're going to guess what you're going to forecast. And that just creates volatility and uncertainty. And that's not something that the Federal Reserve wants. Nancy, the focus really right now as we headed to the midterms is the voter. It's on the voter and the Trump administration. Tell me, do you think that the administration risks voters actually hearing Treasury intervention and thinking that something may be wrong? There's been so much focus on borrowing costs, so much focus on gas at the pump.

15:57What do you think that the voter is thinking in this moment? I think that the average voter isn't really paying attention to things like, you know, Treasury intervention or the bond market, you know, what they really are paying attention to is their own pocketbooks, you know, is the price of gasoline going down? You know, when they hear Treasury intervention, they probably think that the Trump administration is trying to do something. But honestly, unless the evidence shows up in their own pocketbooks and their grocery bills go down and gas goes down and they're feeling more secure in their jobs or they're feeling like their wages are going to go up next year, it's really not going to matter to them.

16:32And so, you know, the Trump administration has made a number of efforts to try to bring down costs or show that they're working on it. And this, to me, is just the latest example. But I don't think voters are going to buy it until they see it themselves. Well, we appreciate the three of you joining us. And there will be plenty of conversations with all of you before we get to those midterms in November. A big thank you to Nancy Cook, Bloomberg News senior national political correspondent in Washington. Also, Michael McKee, Bloomberg TV radio and international economics policy correspondent out there in Jackson, Wyoming.

17:04And of course, Ira Jersey, Bloomberg Intelligence Chief U.S. Interest Rate Strategist out there at Bloomberg Intelligence Headquarters in Princeton. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

17:34if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com by selecting Work Mode, available on Plus and Pro plans. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same, the thrill of closing a deal.

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18:46Country music. Hockey. Sex. Of bugs. Regardless of whether we're looking at science or not science, we bring a rigorous curiosity to get you the answers. And hopefully make you see the world anew. Radio Lab, adventures on the edge of what we think we know. Wherever you get your podcasts. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Well, let's go to Canada because Prime Minister Mark Carney said his government is still working on options for retaliating against President Trump's new tariffs on Canadian goods.

19:25but added that he's willing to continue trade talks if the U.S. adopts the, quote, right attitude. The discussions with U.S. negotiators revealed that the president, President Trump that is, wants to destroy Canada's major industries, steel, aluminum, and autos with unfair terms. This according to the prime minister. Here's what the prime minister said earlier, speaking from Quebec. The goal of our trade negotiations with the United States has always been to get the best deal for Canadians. means never a deal at any price or in any time frame. Well, we made progress. We did make some progress in recent weeks.

20:02In the end, that momentum reversed and we could not accept what the U.S. had offered, nor could we give what they asked. That was Prime Minister Mark Carney earlier speaking from Quebec. The Prime Minister's comments came hours after President Trump pledged to hike tariffs on Canadian autos to 50 percent starting on January 1st. The current rate is 25 % but applied only to non-U.S. content and finished vehicles. I want to bring in Melissa Shin, Bloomberg News Toronto Bureau Chief. She joins us from Toronto. Melissa, how would you describe the state of negotiations right now? Yes, I mean, it has been quite the past couple of days.

20:40You know, last Wednesday, it seemed that we would have a deal between Canada and the U.S. And then as of Friday, you know, those talks fell apart seemingly at the 11th hour. And so now the feeling here in Canada is very much of defiance, ready to hit back against the U.S. and kind of digging in for a fight. How long could this fight go on? So according to reporting from our colleague Josh Wingrove, there is openness to resuming the discussions. But Canadian officials are also getting ready for something that talks not resuming until after the midterms or even until President Trump leaves office.

21:28So, you know, earlier today, you played that clip of Prime Minister Carney. He did say that Canada is open to returning to the negotiating table if Canada is treated with respect. And we did also hear from Vice President J.D. Vance and Treasury Secretary Scott Besson, both of whom sort of hinted that under the right conditions, talks could resume. So, you know, hope is not lost, but certainly there are, you know, it's not anything scheduled or immediate at the moment. And does the threat of 50 percent tariffs starting on January 1st, that's months from now, that is after the midterm elections.

22:08Does that buy time for these two countries to actually work out a plan before then? It does seem to. And the thought is that given all that time, there is this understanding of how important the auto industry is to both countries and how much of an effect putting those tariffs on Canadian autos would have on both countries and on the U.S. So potentially that is the thought. We never know what's what's in President Trump's head. But yes, we did observe certainly that there is quite a bit of time before that could take effect. But also anything can happen. Melissa, that headline 50 percent tariff number sounds economically seismic, but the measures cover only about five percent of Canada's exports to the U.S.

22:54And that doesn't even count some of the strategically important products like energy, critical minerals. How much damage is this likely to cause and where will it be felt most sharply? Yes. So let's just make sure we're talking about the 50 percent tariffs that came into effect on Saturday. And so, yes, that actually affects sort of a wide variety of Canadian goods, but not big, big sectors in and of themselves. So wigs are among them, hockey sticks, plywood. And so it's sort of it's a very interesting list. And that makes it very difficult to kind of it's not a huge number in and of itself. The one estimate from a University of Calgary professor is that it will be about 90 ,000 jobs that would be affected, which is 0.4 percent of the working population.

23:45And so that would only be if the tariffs were to continue for quite some time. So but it's a lot of small businesses. It's very hard to help those small businesses because, you know, you don't necessarily know who they are. And some of the supports that have been out there have really been aimed at large sectors like autos, like steel and aluminum. Well, talk to me a bit about the political support for Kearney. I mean, is it something that you think is durable, especially when we start to see economic costs rise? It's a great question. And just to sort of bring it back a little bit, you know, as soon as the threat of tariffs against Canada came into effect early last year, and as well, the commentary about Trump annexing Canada, making it the 51st state, that's when Canadians really started to listen and started to, you know, boycott products, limit or eliminate travel to the U.S.

24:40whenever possible. So this movement that Canadians have been doing has been happening for more than a year now, about a year and a half. And that is waxed and waned, of course, as also the talks of waxed and waned. As of now, there was a flash poll done over the weekend that found about three and four Canadians support the direction that Mark Carney, Prime Minister Mark Carney is going in. But to your point, if the economic pain continues for quite some time, you know, the cost of living is expensive here as it is in the US. And at some point, it is sort of important to look at the pocketbook effect.

25:19And it can be sometimes more expensive to buy local or to spend money within Canada. And so it just really will depend in terms of the reaction, how long this pain goes on. We should note too, Prime Minister Mark Carney did serve as the chairman of the board of directors for Bloomberg LP starting in August of 2023. He left that position when he ran for prime minister. I just want to point to, in the last minute that we have, a post on social media that the president posted earlier today. He said, Canada has been ripping off the United States of America for years. Their ridiculously high tariffs on our farmers and farm products has made life impossible for these great American patriots and has long created a$60 billion deficit between our two countries.