Canada’s Side of Tariffs, DoD Drones, & The Bond Market Speaks 8/25/26

0:00Trading at Schwab is now powered by Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos, and more. All curated just for traders. Plus, guided learning paths with content designed to fit your unique interests. And no sifting to find exactly what you need, so you can spend your time learning to trade brilliantly. Learn more at schwab.com slash trading.

0:27Eunice Yoon:When you partner with CDW, you get more from your devices with solutions that take modern work to the next level. CDW experts are delivering powerful productivity with Lenovo AI PCs. Helping users block out distractions, access virtual support anytime, anywhere, and share content seamlessly between devices. Make amazing happen. Learn more at cdw.com slash Lenovo. Bring in show music, please. This is Squawk Pod and I'm CNBC producer Cameron Costa. On today's episode, a zinger of an op-ed from legendary investor Stanley Druckenmiller. This was a genuine rebuke of the Treasury Secretary. This is a genuine rebuke of the strategy.

1:19Eunice Yoon:How the billionaire and former hedge funder views Scott Besson's strategy to more than double the Treasury's buyback of government debt. Spoiler, he is not a fan. Everyone wants to raise more revenue. No one wants to do what is necessary. And that is to stop the spending the way it is now. That is the problem. Druckenmiller was once the Treasury Secretary's mentor. And today, he's asking Besant to absorb a lesson that Druck himself learned in his hedge funding career. You can't fight the Fed. Does this mean you can't fight the Treasury? And Druckenmiller brings up, you can't fight the market. That big story, plus the White House's new global sanctions plan against Iran, it's called Operation Outcast, and the tariff tension between the U.S.

2:02Eunice Yoon:and Canada, with the Canadian minister responsible for maintaining that relationship, Dominic LeBlanc. In those final hours last Friday evening, we concluded there was a gap that made the deal impossible. And finally, the Pentagon's multi-billion dollar push into drones, with Chief Technology Officer of the Department of Defense, Emil Michael. These drones can be cheap to manufacture, cheap to produce, and can protect troops, frankly, from the gravest harms of being a troop on troop warfare. It's Tuesday, August 25th, and Squawk Pod begins right now. Stand Becky by in three, two, one, cue it, please.

2:45Eunice Yoon:Good morning, everybody. Welcome to Squawk Box right here on CNBC. We are live from the Nasdaq market site in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. Two days in a row of gains for the Dow. And in fact, after yesterday's close, the Dow was only about 2.4 percent from an all-time high. The S &P 500 and the Nasdaq closed down for two days in a row yesterday, or two out of the last three sessions yesterday. The S &P 500 this morning indicated up by about 32. After yesterday's close, it was about 2.1 percent from an all-time high. And then the Nasdaq is off by about four, four and a half percent from an all time high.

3:19Eunice Yoon:This morning, though, it's indicated up by 300 points. Energy prices, something we've been watching closely, they have climbed in recent sessions. But this morning they are down by about three point four percent coming after some of this announcement of this economic D-Day. Iran now vowing retaliation against a new set of U.S. sanctions. Iran's economy minister telling state television the country is prepared for the economic hit. That followed the Trump administration announcing what it's calling Operation Economic Outcast to isolate Iran's economy after six months of war. Treasury Secretary Scott Besson stopped short of issuing secondary sanctions on Iran's trading partners, saying he didn't want to rattle the global economy.

3:58We believe that a warning shot and a level set of expectations is appropriate. And if people do not want to meet our expectations, then we expect and they should expect that they should will leave the dollar system. Treasury Department did penalize a group of vessels and entities for violating U.S. sanctions policy. Besson said President Trump is making requests to world leaders to stop dealing with Iran and will lay out timelines to halt specific activities. All this, of course, raising lots of questions about what it exactly means to have an economic D-Day at all and just how far this could ultimately go and what those conversations in the fall will look like when President Xi Jinping arrives in D.C.

4:40Because you could have as many conversations as you want with some of the countries in the Middle East. But it's China that's the ultimate story. And the other question is, is this the chip? I don't know if it's a chip that you have to use, but is this the ask that's going to be used rather than every other ask, whether it's on trade, whether it's on tariffs, whether it's on AI? I mean, there's there's a long list of things that this president is going to want to do with China and how you're going to do that at the same time that you anticipate sanctioning them for this. Without any of the sort of ancillary questions, what's happening in Iran is getting dicey right now in terms of the currency and in terms of everything else.

5:25And over the weekend, you started seeing it manifested by not the military types, but by the domestic types where they're feeling it. And that's the piece in the journal today. It was already getting bad and it's going to get much worse. And that's usually a time when things can collapse on their own internally. And that's what we're hoping for. Hopefully we won't have to even deal with, you know, bigger issues with China or other, you know, other countries. Let's keep our fingers crossed. And hopefully this is going to this will do it. Hopefully.

6:02Eunice Yoon:In fact, the U.S. government's moves won't currently impact China, although the Treasury Secretary did suggest the key Iranian trading partner would not be exempt from U.S. penalties. Eunice Yun joins us right now with more on this from Beijing. Eunice, it's good to see you. It's great to hear from you, too, Becky. The foreign ministry, perhaps not surprisingly, was very critical of the U.S. measures, saying that the sanctions undermine the rights of other countries and that the, quote, pressing priority on Iran is to de-escalate and hold talks. The state media has also been citing President Xi Jinping, who has been hosting the King of Jordan here as stressing the need for dialogue.

6:44Eunice Yoon:Now, this is a message that we've been getting from the leadership over the past several days of basically painting China as the responsible global actor, even when it has been criticized, including by the U.S. government, of being destabilizing when it comes to global hotspots, including Iran. So Secretary Besant announced sanctions for 60 entities that included Chinese as well as Hong Kong linked ones. These companies and people are generally associated with middlemen and in trading, finance, shipping, who transport goods, including sensitive technologies. These entities have little known exposure to the U.S., but in some respects, China has gotten off easy because none of the companies on the list are big refiners or major Chinese banks, which is really important to the Chinese.

7:36Eunice Yoon:Now, it's unclear whether or not the U.S. is going to get tougher on China. China accounts for 90 percent of Iran's oil exports. It's a huge trading partner for Iran. But there's also what's also unclear is whether or not China would cooperate because the Treasury actually, in fact, Secretary Besant had announced secondary sanctions just a few months ago on kind of this network of refiners. They're called teapot refiners that are sort of off the books that find workarounds to be able to accept Iranian crude. That when those secondary sanctions were announced, the Chinese government directed those companies to ignore the United States.

8:21Eunice Yoon:So even though state companies like the big ones and especially in the financial industry are very much by and large following U.S. sanctions regulations, but it's like these smaller ones have not. And a lot of that is also because the Chinese were not we're encouraging them to ignore the U.S. rules. I guess, Eunice, we get back to this meeting between Xi and President Trump that's coming up in September. And the potential for pushback from China, if they don't want to go along with this, they still have things like the rare earth minerals to fall back on. We're working on close to a year where we've been at a truce over that that situation.

9:04Eunice Yoon:What's your sense from the rhetoric that you hear in terms of how willing the Chinese would be to use something like that again? I haven't heard from rhetoric just like in official media. Nobody's talking about it. But just in conversations in China circles, people are saying, yeah, just two words, rare earths. You know, the Chinese have all this leverage with rare earths. And from what I do understand, the Chinese side and the U.S. side are both working towards potentially renewing the truce on rare earths curbs because they want that. So so if you suddenly have a situation where the U.S. is going to crack down on the Chinese when it comes to their support for Iran and making kind of this big deal of it, kind of pointing their finger at the Chinese, that the Chinese would find that destabilizing and salting and then potentially use their own leverage, which is to flex their muscle when it comes to rare earths curbs.

10:03There's no talk yet of that meeting in September being called off. Nope.

10:09Eunice Yoon:From my conversations with people who are familiar with these these the planning, it's it's still on course that right now there's the conversations are ongoing and that the focus is the hope that they would be able to renew this this agreement that they had, especially on rare earths. But as of right now, it is still on the books. But Eunice, just so we understand, do you believe that if they do have that meeting in September, it turns into a meeting almost entirely about Iran? Or do you believe it could be a conversation that talks about rare earths, that talks about tariffs and the like, that talks about trade, that talks about artificial intelligence?

10:54I mean, there's a laundry list of things that this administration, I think, wants to get done with China. And the question I'm trying to grapple with is just how forceful the U.S. will ultimately be with China or how interested China will ultimately be in cooperating with the U.S. insofar as it appears that China is already saying it's, you know, it's that it cooperates with Iran and it doesn't want to be disrupted.

11:17Eunice Yoon:Yeah, I mean, it's hard to say. I think that a lot of these topics are being discussed. I mean, I've heard from a lot of different, you know, just in a lot of different conversations with people who are either kind of close to some of the planning, that topics do come up, that there is a hope that you would have a discussion about AI. But the focus seems to be more on making sure that there is a renewal of this truce that the U.S. and China currently have. And so in that way, that the Chinese would have some leverage. If they see that the U.S. really wants to get this renewed, then, you know, you could ask, why would the Chinese kind of go along with what the U.S.

11:57Eunice Yoon:says, or why would they tolerate the U.S. cracking down on them on Iran? Eunice, thank you. It's good to talk to you. We appreciate it. Legendary investor Stan Druckenmiller taking the Treasury Department to task for announcing it's going to increase the size of debt buybacks, a big piece in the Wall Street Journal, an op-ed piece. Druckenmiller said the fall in yields and the quick rebound after Treasury made its announcement last week showed that the market or that it judged the government's campaign not to be liquidity management, but price management. He writes that in the lead up to the government's move, the bond market wasn't being a vigilante, as some would say, others would say vigilante, some would argue, it was being a pushover that had finally begun to clear its throat.

12:47And Treasury moved to quiet even that. You know who Druckenmiller is. They want me to tell you he's a highly respected investor on Wall Street and obviously mentored, if you didn't know, Treasury Secretary Scott Dessent. Both were at Soros earlier in Dessent's career. And then, you know, Druckenmiller had 30 years of, I don't know, 30 percent a year. Some crazy number never had a down year. So he's he's known for being pretty savvy. He called for returning the buybacks to small scheduled operations and above all tackling the deficit as the only way to durably lower long term. He said it even better in the piece.

13:26I just want to read a little bit about I've spent five decades trading on a simple premise. markets aggregate information no committee possibly possesses and prices, how that information reaches decision makers. It sounds like Rick Santelli talking about there's only one arbiter of what's really true, and that is the market. And he goes on to say the long term treasury yield is the most important price in the world. Let me finish. He also says the only way to handle this is fiscal discipline. Every basis point of artificial yield suppression is a subsidy to not dealing with our entitlements. Neither party will run on entitlement reform.

14:11Both have spent the past decade expanding commitments while ignoring arithmetic. And that's the bottom line. Everyone wants to raise more revenue. No one wants to do what is necessary. And that is to stop the spending the way it is now. That is the problem. You know, when this first happened last week, when the buybacks were first announced, there was a lot of talk and a lot of people around Scott Besson who were actually pointing at Stan Druckenmiller and suggesting this is something that Stan would like and bless. Right. And that was not true. And that was not true. Yeah. And I think that this was a genuine rebuke of the Treasury secretary.

14:47This is a genuine rebuke of the strategy and a genuine rebuke of the idea that he even has asymmetric information. In fact, the quote you read, this idea that no committee or the market, the market, the market's telling you what what what what. And I think that this for a lot of people surprised people last night. I don't think so, because of Warsh. And this was this is antithetical to what Warsh is trying to do. And Warsh is a very close. I was going to say the other side of the story is his that it wasn't surprising to me. Well, I would say that last week there were a lot of people who were looking at this and saying that this was a good to the to the supporters of the administration and the supporters of Scott Bessent.

15:28There were all sorts of people who are saying, oh, this is completely in line with with what the sort of Druckenmiller school of economics would do.

15:36Eunice Yoon:By the way, that's probably why he felt like compelled to. And long term, obviously, it's not. Separate himself from it. I asked him if he wanted to come on and talk about it. He did not. I was talking to him yesterday. I did not ask him to come on because I knew I know better at certain points. He said what he what he said, what he wanted to say. I did talk to him because I responded to Elon Musk yesterday. He said there aren't enough humans left on in countries. And I said, I vote for more dogs. Yeah. And I sent that to stay because we're both big GSD lovers. So but I didn't even I know when he wants to come on, he lets us know when he wants to come.

16:13Eunice Yoon:But I think that's a key point. He doesn't want to come on and talk about it. He wanted to separate himself from people who were saying this is this. I don't know if it's a rebuke of the Treasury secretary as much as the policy. They are close friends, have been for a long time. I'm surprised a little bit in that he wants to let, you know, Borsh is the guy right now. And this makes this makes Kevin's job a lot more difficult. But I think he's distancing himself from all of it. From all that. I think what's most interesting is I've been thinking about since last week. you can't fight the Fed, does this mean you can't fight the Treasury?

16:48Eunice Yoon:And Druckenmiller brings up, you can't fight the market. His point is, you can't fight the market. This doesn't sound like Santelli yelling at Leisman every day. And by the way, they're the ones, he and Soros and Besant were the ones who broke the Bank of England and were able to push back on that with the pound trade back in 1992. I think we all know that these are... I still think that if you throw a little bit of a question mark to people that are locked into a trade that at least they got to think about it. But long-term, these Band-Aids never work. And the things are going to, what he's talking about that we're looking at, and that's 40 trillion, I don't know what entitlements are at this point.

17:29You know, the participation rate, 66%. If you stack benefits, you can live at home on$60 ,000. There's plenty of reasons. We're at 24 % of spending. We're not doing it. Neither party has any, I don't know, they don't have the courage to talk about what we need to do. And if they did have the courage to talk about what we need to do, they'd be out of power. Cheese will be next.

17:57Eunice Yoon:Coming up on Squawk Pod, a new Truth Social post from President Trump adding a little something extra to the friction between the U.S. and Canada. Loves to tweak, doesn't he? And we hear from across the border. Canadian minister responsible for U.S.-Canada trade Dominic LeBlanc joins us after the trade talk collapse of last week. We're diversifying our trade relationships around the world. We've signed in the last year 20 deals worth tens of billions of dollars with other economies. So we've been very active in looking at new trading relationships. trading at schwab is now powered by ameritrade bringing you an expanding library of education with even more ways to sharpen your trading skills access new online courses insightful webcasts articles engaging videos and more all curated just for traders plus guided learning paths with content designed to fit your unique interests and no sifting to find exactly what you need so you can spend your time learning to trade brilliantly learn more at schwab.com slash trading.

19:02Quince is all about fewer, better pieces. Their clothes are made with premium materials built to last and designed to become the ones you reach for day after day. Quince specializes in everyday staples that work harder, like their ultra soft organic cotton teas and premium Mongolian cashmere sweaters. They're versatile, timeless, and transition seamlessly from a casual workday to dinner out. Everything at Quince is priced 50 to 80 % less than similar brands. They work directly with ethical factories and cut out the middlemen, so you're paying for high quality, not brand markup. And it's not just apparel.

19:36Quince also brings that same everyday elevation to everything they offer, from hotel quality bedding and bath to kitchen staples, essentials, and thoughtfully designed furniture. Upgrade your everyday. Download the Quince app for app-exclusive offers, or go to quince.com slash squawk. Get free shipping on your order and 365-day returns. Now available in Canada and the UK too. That's Q-U-I-N-C-E dot com slash squawk.

20:02Eunice Yoon:Hey, Chicagoland, the Wayfair store is in your neighborhood at Edens Plaza and Wilmette. Finally, you can feel the fabric, sit on the sectionals and even open the refrigerators. Plus, our in-store designers will help you bring it all together with free one-on-one design support for any project on any budget. Yep, we said free. Oh, and did we mention the cafe? So what are you waiting for? Come see all that's in store. Visit the Wayfair store today at Edens Plaza and Wilmette. Wayfair, every style, every home.

20:35Eunice Yoon:You're listening to Squawk Pod from CNBC. Here's Joe Kernan. President Trump just posting on Truth Social. Loves to tweak, doesn't he? The United States is giving serious consideration to changing the name of Lake Ontario to Lake America in that we We don't expect to be doing much business with Ontario any longer. Thank you for your attention to this matter, President Donald J. Trump. We know that the Doug Ford was back talking yesterday, sort of throwing down the gauntlet. And it's probably not a surprise. I was just on Google Maps and I put in Gulf of because I started to look for Gulf of America or Gulf of Mexico.

21:22It's still Mexico. Well, interestingly, no, they actually now have it as Gulf of America with Gulf of Mexico in parentheses. Well, actually, first it says Gulf of Mexico with parentheses Gulf of America. Right. But if you actually go on the map itself, the little red dot goes to Gulf of America. So anyway, this is all like America, quite silly. We do. I don't I don't know what to say. I can't imagine this helps the negotiations. I mean, you never know. It's a tweak. Right? I don't know if I'd, like we've said in the past, don't take them literally, but take them seriously.

21:58Eunice Yoon:The problem is the reason that the Canadian politicians are pushing back is because this is what their population feels about. They don't like being told these things.

22:10Eunice Yoon:This week, as you've heard, the U.S.-Canadian trade relationship has taken center stage, alongside, of course, the bond market and President Trump's Operation Economic Outcast against Iran. Now, the U.S. and Canada were in trade negotiations throughout last week, but by Friday, the talks had collapsed. Without a deal, tariffs of up to 50 % on 5 % of Canadian exports to the U.S. took hold over the weekend. Canadian Prime Minister Carney claimed last-minute changes to the deal were unfair, And U.S. Trade Representative Jameson Greer told us yesterday that the deal was fair, but Canada just wanted more.

22:49We progressed to a point Tuesday night where we had enough agreement among the parties to announce that we had found a way to a deal. Then we set about to finalize it.

22:58Eunice Yoon:And then in the last hours, I think there were things that the Canadians just, you know, they wanted more. Ambassador Greer wasn't overly concerned with the impact for Americans. This is 5 % of imports from Canada, 0.06 % of our overall consumption in this economy. So there's no possible way it can really affect U.S. well-being. You can actually hear the rest of that interview, including his response to reports of friction between himself and Commerce Secretary Howard Lutnick on yesterday's Squawk Pod, if you scroll down in your episode feed. Let's hear the Canadian side of things. Here's Andrew Ross-Sorkin today with Joe Kernan and Becky Quick.

23:39Joining us right now is Dominic LeBlanc, who's a Canadian minister responsible for Canada, U.S. trade, intergovernmental affairs and one Canadian economy. Good morning to you. Hi, good morning. We could start with the Truth Social post. What's your reaction to that? so we've decided as a federal government months ago not to respond to sort of the daily social media posts of either the president or his cabinet secretaries and so on we're we're focused on doing what we can in Canada to build our economy and to having a constructive relationship with the government of the United States our most important trading partner so I like many of your viewers saw the different posts yesterday, including from some Canadian premiers who would be the equivalent of your state governors.

24:32But honestly, my focus and the prime minister's focus is to build a Canadian economy the best way we can. We think a strong Canadian economy is a valuable partner in North American competitiveness. So we're going to continue to do that. And I'm not trying to duck your question, but we have deliberately not responded as a federal government to some of the stuff that on our side or your side of the border. Dominic, help us understand it. We don't need to relitigate it, but I think we all want to understand what went wrong as you see it during those those talks. There's been a lot of efforts even in the past 72 hours to try to reconstruct what went wrong.