Tariff Tolls: Price “Disturbance” & Friction for the NHL 3/5/25

0:00Bring in show music please. Hi, I'm CNBC producer Katie Kramer, today on Squawk Pod. Trump's tariff plans become reality and reaction is stark. From Wall Street to the president's first joint address to Congress. Tariffs are about making America rich again and making America great again. And it's happening and it will happen rather quickly. There'll be a little disturbance. To international borders. There are no winners in a trade war. Former U.S. ambassador to Canada Bruce Heyman joins us on this rough patch for diplomacy. For the United States, the very top of our list in terms of best friends in the world is Canada.

0:43And National Hockey League Commissioner Gary Bettman on the slippery stakes. Canadians love the United States and love Americans, but there's a policy issue that's going on and it's unfortunate. Plus, the markets and many American industries reel on the fears of a large-scale trade war. Robert Frank and Mike Santoli are in with Becky Quick today. All three major averages now below where they were when President Trump took office in January. In fact, the S &P is a few points below the election day close. All that coming up and much more. It's Wednesday, March 5th, 2025. Squawk Pod begins right now.

1:20Stand by in three, two, one. Cue it, please. Good morning and welcome to Squawk Box here on CNBC, live from the Nasdaq market site in Times Square. I'm Mike Santoli along with Becky Quick and Robert Frank. Joe and Andrew are off today. Yesterday, an extremely choppy, erratic day of trading. The Nasdaq swung 3.4 % from its highest level of the day to its lowest. It was a pretty big sell-off, then a very strong rebound. The S &P swung 2.3 % over the session, actually went green briefly late in the day, and then lost that. The Dow moved 1.6%. So all three major averages now below where they were when President Trump took office in January.

2:02In fact, the S &P is a few points below the election day close. So we're kind of testing that level. And really, it was a fascinating action in the stock market because we're in a 6.5 % pullback, high to low in the S &P. And that hasn't happened for a while. Since late summer. Right. Because every time we get to even 5 % down, there's a bounce. Exactly. Has been. We kind of hit some technical triggers. We got almost to the 200-day average in the S &P. The Nasdaq 100 got to a 9.8 % loss from the high. And it felt like there was sort of this automated, let's just buy the mechanical dip. And also some news over the course of the day might have helped.

2:42Maybe some easing of this sort of Ukraine logjam after Zelensky's post. You also had news from Germany. We'll get to that. Treasury yields had been on the decline. They've been pricing in a potential slowdown. You see the 10-year yield is now back up to 4.25, just about. It had gone below 4.2. The two-year is the one to watch in terms of Fed intentions, 397. Still pricing in a little more in the way of cuts. Germany, very interesting action intraday. Two parties hoping to form the country's next government have agreed to create a 500 billion euro infrastructure fund and overhaul borrowing rolls in an attempt to revamp the military and revive growth.

3:22Our Frederick Merz's conservatives and the Social Democrats will put their proposals to the outgoing German parliament next week in a race to pass them before the new parliament takes over. So investors have been cheering this move. They've been calling for Germany to reform its state borrowing limits known as the debt break to free up investment and support the economy. German DAX this morning is flying. German government yields also higher. It's interesting. I think the bond was up by 19 basis points. The euro is up. The currency moves yesterday were really interesting. So normally tariffs are dollar support.

3:56That's right. Right. We saw the dollar weakened yesterday. So some people were saying, look, that's the growth scare. Right. Some people were saying this is foreign investors taking money out of the U.S. market. And some of it now is becoming clear. It was the euro strength that's part of that basket that was causing it. You've got the ECB looking to probably cut rates or maybe cut rates again on Thursday. So you've got rates going down in Europe and you've got government stimulus coming up. could be very strong for the euro markets. It's been something for growth. Yeah, exactly. It's been something that, you know, economists and investors have wanted forever.

4:29It's for Germany's under levered. You know, they're too fiscally constrained on almost any measure. And it's interesting because the cyclical stocks in Europe have been working really well. The banks have been ripping. So it's one of these maybe, I mean, I don't think President Trump was trying to revive non-U.S. economies, but it would help the U.S. as well. If China and Europe go back to the world. It's been luxury and pharma that's been basically carrying Europe. So now to see European defense stocks boom the way they have. Well, just on the commentary out of Germany, too, that they are basically going to do whatever it takes, they're saying, for Ukraine.

5:04So this is what President Trump has wanted, to push them into spending more. We'll see how things take off. But it is certainly being applauded by the markets in Europe. It is still, you have to keep in mind, in terms of our markets, it's still this one of these apprehensive moments where, you know, everyone's sort of waiting for the other one to make the first move and the traders. It's usually like the second mouse gets the cheese, like you don't want to try to buy the absolute low. But, you know, again, six and a half percent drop off the highs. Do you think that's what caused the bounce yesterday?

5:34It was just technical, look, this is a buying opportunity? I think that's the initial reflex. Because it was hard to figure out what drove that bounce back in the midday. I think there's a sense of, OK, we've been sort of psychologically and financially pricing in the tariff move for a while. If you also go from, you know, the highs of the prior day on Monday, when when President Trump basically confirmed that those tariffs were going on, you know, the market was down even more. You know, we're still well below those levels. So you had this sense of, OK, maybe we've priced it in the short term.

6:03Now everybody's on the growth scare bandwagon. We've you know that that might maybe we price some of that. But yes, technical triggers, massive short covering. You look at the most heavily shorted stocks. They always lead the way higher after a pullback. And also just crazy rotation within the market. I mentioned, Becky, when I was on with you guys in the 8 o 'clock yesterday, just to watch to see if the mega cap tech stocks act as defense. And they did. They actually kind of, because they're not tariff exposed and all the rest. So we'll see if that dynamic continues. Look, there's a lot of questions of what's to come.

6:35And still questions about whether the tariffs are really going to be in place. There was commentary that came from Commerce Secretary Lutnick late yesterday, kind of suggesting that there could be some sort of an agreement or deal that is reached today. And so I think there's still this belief among a lot of CEOs, among a lot of investors, that, look, we're not going to have to deal with the tariffs as they've been described. Here's the comments from Lutnick that he made yesterday at Fox Business. He's going to work something out with them. It's not going to be a pause. This is President Trump with Canada and Mexico.

7:07But I think he's going to figure out you do more and I'll meet you in the middle some way. We're going to probably be announcing that tomorrow, that tomorrow being today. So we're waiting to hear what happens. And it was right after the close of cash trading and the futures immediately bounced on that. And so, yeah, if you have this, if you want to make the bet that we're at the moment of maximum tariffs and it gets, you know, kind of negotiated back from there, then maybe it doesn't have that much of a growth effect. I do think it was very interesting. Lutnik, when he was here, the Commerce Secretary on Squawk Box yesterday, was talking about two different types of tariffs.

7:39These are the ones that he was talking about yesterday. It has to do with fentanyl, with both Canada, Mexico, and with China as well. But then the next month is going to be very interesting. April 2nd. April 2nd is when we're going to see what really happens in terms of tit-for-tat with tariffs and how you renegotiate your entire global look at trade. And in the State of the Union last night, President Trump, in talking about that April 2nd tariffs, it sounds like it's going to happen. Not just that, but he is counting on that for revenue to balance the budget. You know, when we heard Commerce Secretary and even Scott Besson yesterday talking about there are three ways we're going to help, you know, basically level the budget here.

8:17It's going to be tariffs. It's going to be the gold card. And it's going to be cutting government. So they are counting on tariffs for revenue. And I'm not sure Wall Street has priced that in to that extent. It can't do all of the things they promise. It can't be a great revenue source and also reduce the trade deficit and also encourage manual. You know what I mean? How many times are you going to count those numbers? But, you know. Just to say that April 2nd sounds like a serious date. The market should really focus on whatever happens with the Mexico and Canada stuff right now. For sure. Let's hear a little bit more about that speech last night.

8:50President Trump delivering that address before a joint session of Congress with key takeaways on the economy. Eamon Javers joins us right now with the highlights from that. Hi, Eamon. Hey there, Becky. President Trump last night declaring America is back. He delivered the longest address to Congress by any president ever. And after two days of sharp downturns on Wall Street in the wake of his imposing tariffs on Mexico and China, the president defended the use of tariffs, saying this is something that he needs to get done for the American people. Take a listen. Tariffs are not just about protecting American jobs.

9:28They're about protecting the soul of our country. Tariffs are about making America rich again and making America great again. And it's happening and it will happen rather quickly. There'll be a little disturbance, but we're OK with that. So you heard the president there saying there'll be a disturbance, but we're OK with that. Perhaps a reference to some of the trading on Wall Street, to some of the disruption he expects for farmers and the auto sector and other industries. The president saying, nonetheless, look, we just have to do this to recalibrate America's trade relationships around the world.

10:05He also talked about the idea of inflation going up, saying that his administration is working to tackle it and blaming the previous administration. Joe Biden especially let the price of eggs get out of control. The egg price is out of control. And we're working hard to get it back down. Secretary, do a good job on that. You inherited a total mess. But as you guys have been talking about, the key for this morning might be the comments from the Commerce Secretary before the speech to Congress by President Trump, Howard Lutnick, suggesting in a television interview that there may be some kind of deal in the works between the United States, Canada and Mexico.

10:48He said they might be announcing something today, saying they might be probably announcing that tomorrow. So that puts a big question mark over the morning for traders, I think, Becky, as you try to figure out, is that Lutnick jawboning the markets? Is that wishful thinking? Or is there a negotiation that's been going on behind the scenes that's ready to bear fruit this morning? We don't know the answer to that. And we're going to be following that bouncing ball through the day today. You know, Eamon, a big part of what he laid out yesterday is what he plans to, the first part of the speech was all about what he has done in the first 43 or 45 days, whatever it's been, for six weeks.

11:25The second part was about what they planned to do. And he reiterated a lot of those promises that he had made on the campaign trail in terms of the taxes. You're not going to pay taxes for overtime. You're not going to be paying taxes for money you earn from tips. You're not going to be paying taxes for Social Security benefits. That is a pretty heavy lift in terms of what it will take to balance those those promises. And they're talking about balancing the budget. Right. So how do you have that kind of revenue cut? Yeah. How do you have that kind of revenue cut and balance the budget at the same time?

11:59Can they get the votes for that in a very, very thin margin in the House of Representatives? And then, you know, on the other side of it is the revenue cuts or the spending cuts, I should say, that they're getting from Doge. They're talking about cutting enormous amounts of spending in the future from Doja. If they can lock those in, maybe that pays for the tax cuts. And then somehow you have to balance the budget on the rest of the federal spending. And that's just a very, very challenging political thing to do, Becky, because every dollar that's spent by the U.S. government has somebody advocating for it.

12:32Somebody benefits from it. Somebody wanted it to happen. It's in there for a reason. And those people will tend to fight when you try to cut it. So politically, how do they do that is an open question. But that is the centerpiece of the rest of the legislative agenda for this president is the tax cuts. Eamon, you know, it was interesting that the president saying there there could be some short term pain, which is a language that that was probably realistic. But also we didn't hear in the first administration. It was interesting also Besson yesterday in an interview saying, look, we're not the Main Street administration.

13:03We are the Main Street administration. We are not the Wall Street administration. So Wall Street may take a hit here is what he was implying. What was your sense from the speech last night in terms of how much this administration may care about market reactions about investors versus Main Street and jobs and manufacturing? Yeah, it's a great point, Robert. My sense is this is a much more populist administration than Trump one was in Trump one. You heard Steven Mnuchin talking about being a mark to market administration, looking at the Dow as basically a barometer for their success. You don't hear that kind of talk from Trump, too.

13:40And the reason is because they're very much embracing this idea of being a working class administration that needs to restructure fundamental structural pieces of the U.S. economy to benefit working class voters. And they're not as sensitive to moves on Wall Street. You know, if you were if you were going to blink, you know, yesterday would have been a good day to blink on the tariffs. Right. Given what we saw on Wall Street, they didn't do that. The president's insisting here in a speech to the country that we're going to have to deal with some short-term pain in order to get the long-term gains.

14:12Except for some of that short-term pain could come in the form of higher prices for Main Street Americans for what they're paying at the grocery stores. So we will see how that goes along the way, too. Eamon, thank you very much. New this morning, social news aggregator Dig is set to relaunch in the coming weeks. Founder Kevin Rose is buying back the site in a partnership with Reddit co-founder Alexis Ohanian. Dig and Reddit were rivals in the early 2000s, but Dig was sold for parts in 2012. The most recent owner is ad tech sales firm BuySellAds. Rose said that he reached out to Ohanian and they started chatting about their old rivalry, which led to a discussion about how they could use AI tools to help solve some of the biggest issues that plague Digg, including curating quality content.

15:04The purchase price was not disclosed, but that's a happy makeup story for you. I wonder if you could see that happening with other rivals in tech today. Yeah, the other kind of disused parts of the early Internet or whatever. Well, I just am thinking of rivals who get to be business partners come back together. Sam Altman and Elon Musk again. Right. We want MySpace back.

15:28Next on Squawk Pod, digging into a trade war. Becky, Robert and Mike speak to the former U.S. ambassadors to Canada, Bruce Heyman, about how President Trump got here. Why Canada? I personally think he's short cash. And I think he's trying to pass this big, giant, increasingly large tax cut.

15:54Welcome back to Squawk Pod from CNBC. Yesterday was day one of promised tariffs by the United States on products from our closest trading partners, China, and 25 % levies on North American neighbors, Mexico and Canada. After months of threats, the numbers are now real, and reaction reverberated from the new Trump White House across corporate America and international politics. Often, politics are personal. Today, the United States launched a trade war against Canada. Their closest partner and ally, their closest friend. At the same time, they're talking about working positively with Russia, appeasing Vladimir Putin, a lying, murderous dictator.

16:44Make that make sense. Stand back, goodbye. Cure, please. That was Canadian Prime Minister Justin Trudeau yesterday as he was speaking about what's been happening with the tariffs. He was announcing 25 percent retaliatory tariffs on$155 billion worth of American goods. Joining us right now to talk about all of this is Bruce Heyman. He is the former U.S. ambassador to Canada in the Obama administration. He's the CEO of asset manager firm Power Sustainable. He's the author of The Art of Diplomacy, Strengthening the Canada-U.S. Relationship in Times of Uncertainty, long-time business leader at Goldman Sachs as well.

17:22And Ambassador Heyman, thank you for being here today. It's good to be here again. So I love hearing your perspective on this because you come at this not only as a former ambassador to Canada, but also a U.S. business person who has done a lot of work on both sides of the border. What do you think is happening here? So let's take a step back just a minute and look at this from the lens of friends, neighbors, allies. When you have friends in your personal life, you know, you think of that list. And at the very top of that list are your best friends. And for the United States, the very top of our list in terms of best friends in the world is Canada.

17:56And it's not just because they have an amazing trading relationship, which they do, but it's everything else that you'd expect from a best friend. They've been there for us in thick and thin in our deepest, darkest times here in New York, 9-11. They were here with the planes being diverted to Gander. They were here in Article 5 under NATO in supporting us in Afghanistan. They were here for us in Iran, helping get our diplomats out. All of these are almost storybook kind of sets of relationships. And so the relationship is based on trust. And so what is happening here this week is a challenge to that trustful relationship.

18:38And so tariffs at this level shouldn't happen. We shouldn't happen because we have an amazing trade agreement that Donald Trump negotiated in USMCA. But it shouldn't happen because of a friendship relationship and a trusted relationship that if we have differences, we can easily deal with those behind closed doors diplomatically. And that's what's not happening. And so as a result of that, this relationship is being challenged in a profound way. Are there is there a trade imbalance, first of all, if you strip out oil? And second of all, are there tariffs that they place on things like dairy and beef and other things that are not reciprocal?

19:19Because that's the case that Donald Trump has been making, that we're getting the raw end of the deal on some of this financially. So think of think of this trillion dollar relationship that we have in which we buy and sell together. And the price of oil moving up and down does have a factor in terms of the level of deficit or surplus between our relationship. But at$50 billion on a trillion dollar relationship, you're talking 5%. It's insignificant in terms of the scheme of things and the challenges that we face globally with larger trade deficits with countries like China. And so in the scheme of things, it's really small.

19:59and taking away oil, insignificant and non-existent. Well, that's what's been so interesting. Why Canada? Like, of all the countries that you would pick on, why do you think this happened? You've got more insight than we do. You know, I just think Donald Trump must have some other issue here. And those issues are either personal with Canada or the whole other issue is, I personally think he's short cash. And I think he's trying to pass this big, giant, increasingly large tax cut in the U.S. And we have a number of Republicans who actually are budget conscious. And so the way to make ends meet for this next tax cut is one doge.

20:42You're going to cut costs, but I don't think you can cut enough costs to make up this large tax cut. And so I think he's looking for revenue. Peter Navarro has told him this is the place. Go put a sales tax, VAT tax, tariff on all the goods that come to the United States. They don't vote for us. that's easy. Let's go get them. And that's why you did China, Canada and Mexico. Those are the three largest trading projects. It's Willie Sutton. That's where the money is. That's where the money is. That's the case. The market better set up and pay attention because if they think that these are temporary or going to get rolled back off, it's not going to yield the money they need if that's the reasoning behind it.

21:17If that's the case. And so it may very well be that the right level is a lower level than where we are. So when you have that as your issue, then you begin negotiating rate and exclusions and other things. What's your sense of Canadians' willingness to kind of just go down this path and, you know, retaliate and deal with the hardship that might come along with that? Because it's been a pretty aggressive front from that side at this point. Look, they're hurt. You know, you take your best friend and you violate that friendship. And they say you should be a 51st state. It's rough, you know. It's rough if you go to somebody and say, this is your spouse.

21:57I want your spouse. This is your country. To do that is deeply offensive to the Canadians. And to slap tariffs on uniformly across the country is also deeply offensive. And we shouldn't underestimate the impact that this is having on the average Canadian. And I would just say to the Canadian public, there are millions of Americans that value this relationship. Two-thirds of our state, the number one export market is to Canada. We have tourism and trade and travel, and we do things together. We do sports together. And we value that relationship. Tens of millions of Americans. And I know this is a difficult moment, and I hope we get through it quickly.

22:39They have an election coming up. It's interesting to see how President Trump has, in a strange way, perhaps helped the left in Canada. What do you see coming up in the elections? How will that affect their economic policy? Well, the polls have moved pretty dramatically once Prime Minister Trudeau said he was stepping back. And so we have a leadership race in the Liberal Party, which will take place this weekend on March 9th. And it looks at a close race between Chrystia Freeland and Mark Carney. And Mark Carney is somebody we know pretty well here as a result of his business dealings at Goldman, as well as Bank of Canada and the Bank of England.

23:16Could that relationship between Carney and Trump perhaps mitigate some of this? You know, it's all together. It's all it's all together possible. I know, Mark, he's talented and he'd be an exceptional person to sit down across the table from any number of people in Washington. That being said, if Donald Trump's short cash and he needs it for his tax cuts, then that's a whole different issue. It's just the retaliatory stuff they talk about. Ontario's Doug Ford, the premier, they're saying that he would charge a surcharge on Canadian electricity exports to the three states that pick it up. Michigan, New York, Minnesota.

23:50I think there's one and a half million Americans that get their power from there. If they want to try to annihilate Ontario, I will do everything, including cut off their energy, with a smile on my face. So, and I'm encouraging every other province to do the same. Quebec, Manitoba, B.C. We all have to act in unison out east. They rely on our energy. They need to feel the pain. And he said they would even consider cutting power off if things get ugly enough. So we'll see how this plays out. Slippery slope, these things, and it's very dangerous. And, you know, I think the negotiations like this should be done behind closed doors.