The Tariff Two-Step: Bessent on a Trade War 4/8/25

0:00Bring in show music please. This is Squawk Pod and I'm CNBC producer Cameron Costa. On today's episode, tariffs as a starting point. Do these begin conversations or is that just the market's wishful thinking? Their opening bid could be much higher than it would have normally been. An anchoring technique. Treasury Secretary Scott Besant says we're at the start. President Trump has maximum negotiating leverage right here, right now. And from the White House North Lawn, Secretary Bessent argues we're in a good spot. The response was overwhelming. He decided that it would be a good time to begin negotiating.

0:43Plus, how the president's party is reacting to his trade agenda with Kentucky Republican Senator Rand Paul. It's based on a fallacy. And the fallacy is this, that somehow in a trade, someone must lose. Those big interviews, plus Shopify tells employees, do it with AI. And Apple is tweaking its supply chain. It's Tuesday, April 8th, 2025, and SquawkPod begins right now. Stand Becky by in 3, 2, 1, cue it please. I know. All right, good morning, everybody. Welcome to SquawkBox right here on CNBC. We're live from the NASDAQ market site in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin.

1:29And if you've been afraid of waking up and seeing what the markets look like today after the last three days of action, well, guess what? The sun is rising today. Of course, this comes after a head spinning day on Wall Street yesterday. The U.S. markets saw their highest volume day in at least 18 years, trading more than 28 billion shares yesterday. Well, through all of it, it was a pretty wild ride. You saw some ups and downs and the biggest moves that we have seen since 2015, intraday moves to the upside, to the downside. There was about 2 ,500 points that you covered over the course of that period of the day.

2:07In time, let's talk about what's going on with China because they are now vowing a strong response to President Trump's latest threat to escalate tariffs. According to CNBC's translation, the country's commerce ministry calling that a, quote, mistake on top of a mistake. The ministry is saying if the U.S. insists on its own way, China will fight to the end. Now, the comments coming after President Trump said he'd hit China with an additional 50 % tariff if China doesn't cancel its retaliatory 34 % tariffs on American products. Take a look at President Trump in the Oval Office yesterday talking all about it.

2:44Would you be open to a pause in tariffs to allow for negotiations? Well, we're not looking at that. We have many, many countries that are coming to negotiate deals with us, and they're going to be fair deals. And in certain cases, they're going to be paying substantial tariffs. They'll be fair deals. Now, on the subject of the talks, the president said there can be permanent tariffs and there can also be negotiations. We're going to talk a lot more about all of this, tariffs and everything else, with the man in the middle, the Treasury Secretary, Scott Besson. He's going to join us right here on Squawk Box Live.

3:19So lots of questions for him this morning. You know, yesterday we spoke with Peter Navarro, and his take was that this was not a negotiation. We were going to see that within a matter of hours. You heard that the Treasury Secretary was going to be negotiating with Japan, at least. And we will hear from him where these things stand. But that's been the biggest confusion point on Wall Street is, are these real and permanent? Are they a negotiating tactic? And where do we get there? Depending on the day, depending on which administration official you're speaking to. I think there's the Navarro camp and the Lutnik camp on one side.

3:53I think there's the Besant and maybe even Elon Musk camp on another, which is, say, negotiations. And the goal is to try to get the rates down to as low as possible. The camp that I think we all don't know about is exactly which one President Trump is in, because he's talked about this being a negotiation, and then he's also talked about them being permanent forever. I was going to actually talk about this, but I see it's in the—we actually have it scripted. But then we'll talk after. But speaking of Scott Besson, the Treasury secretary, Politico is reporting that he flew down to Florida over the weekend to encourage President Trump to hone his message on negotiating trade deals or else he would risk a further fall in the financial markets.

4:35and the operative term there is negotiations. Elon Musk also reportedly reached out to President Trump. Washington Post says Musk made direct appeals to the president to reverse course on his widespread new tariffs, but proved unsuccessful. In another development, Senate Majority Leader John Thune told reporters he doesn't see a future for a bipartisan bill introduced last week that would limit presidential power to impose tariffs. We talk to Scott Besson, and we'll see whether he is very forthcoming about what he told the president in Florida or, you know, with President Trump, it's best to, if you're going to, I'm not saying disagree with him, but if you're going to point out to him there are some nuances to what he's doing, it's best to do it in a fairly conciliatory way.

5:27So we'll see. I think he went down and said, listen, Mr. President, no one wants a permanent tariff structure in the United States. And the whole reason you're doing this and really, I think the reason that they settled on that weird reverse engineered formula, which makes everything look worse. So they could their opening bid could be much higher than it would have normally been thought to have been. And it leaves room for negotiation. That's what everybody. An anchoring technique is what he likes to call it. An anchoring technique. But, you know, listening again, Navarro has made the rounds everywhere yesterday.

6:04And he was basically saying, we don't care if it's zero-zero, that there's so many other impediments to free trade in all these places. So I don't know what the end is. I don't know what the end game is zero trade deficits with every country in the world. That's never going to happen because it just doesn't work that way. But I don't, you know, that's where else. implications about what that means. The trade deficit that we run with countries, they often reinvest in the United States through that, whether it's buying treasuries or sending investments here from some other perspective, too. And you saw Larry Lindsay yesterday.

6:36The whole idea of comparative advantage, it's a real thing. And it's what, you know, it's globalization has done some, had some unintended horrible consequences, admittedly. But we're never going to make certain things here. Even if you've got zero tariffs, how are we going to pay workers here$2 an hour? There's going to be places in the world where things are going to be made that we import. And Navarro's point yesterday was they should get rid of things like the VAT, the value-added tax. But, you know, that's a tax that doesn't put us at a comparative disadvantage because everyone there pays it as well.

7:14It's basically a consumption tax. And it's different in every place. So you could spend how long talking to the EU about what they do. You spend six months doing that. You could spend the same amount of time, you know, talking to the UK. You could spend the same amount of time talking to India. Yeah, Japan. And then you take China. You could spend, and we're doing it all at once, and we're doing this brinkmanship with China, which is not going to end well, I don't think. President Xi, you can't push him around like that. Everybody's got to, especially when, you know, that culture, saving face.

7:51I mean, there's, so I don't know how you do it all at once. It's not the only place that's saving face. We need more time for, bring Scott on now and go right to, right to nine o 'clock. Exactly. Apple is planning to temporarily source more iPhones from India to send to the United States in a bid to offset the impact of President Trump's tariffs on China. That's according to a Wall Street Journal report that says Apple is hoping to win an exemption from Trump's Chinese tariffs and currently views the state of play between the United States and China as too uncertain to make drastic changes to its supply chain.

8:25Bank of America analyst Wamsi Mohans told the Journal that Apple could meet about half of this year's U.S. demand for the iPhone if it directed all India-made phones to the United States. By the way, Apple lost another 3 percent yesterday. It is down close to 19 percent over the last three days, which Goldman Sachs says is its worst three-day stretch since 2001. Just two points on this, because I think it's illustrative of the situation. It's not that Apple is going to ultimately move its manufacturing back to the United States. It's just going to choose whether it's going to do it in China or whether it's going to do it in India or whether it's going to do it somewhere else.

9:05And then the second piece is the game of chicken we've all been talking about, which is if If you're Tim Cook and you don't know whether this is going to go on for six months, a year, two years, you don't know whether the courts are going to get involved and say that the president doesn't have the power to do this. You don't know whether Congress is going to turn around and ultimately say we don't like this. You don't know if after the midterms somebody else is going to turn around and say we're not doing it this way. And so if you were going to make the bet to bring your business back here or even to take it from China to India or whatever it's going to be, there's so many sort of uncertain decisions there's no decision you would make today you would wait this out and say you know what if it costs me marginally over the next two years that's a it's a better bet to wait to figure out what's gonna happen even if i'm wrong than necessarily anything else and that that unto itself is a form of paralysis a form of paralysis is is not good The whole question, why would zero tariffs on our side and our trading partner side, why would that cause everything to be built here?

10:11And the answer is it wouldn't. That's what I mean. So if that's the end result, and not only that, it's one year, two years, three years, four, I don't know how long it takes to do that supply chains and retrofit factories and everything that they want to do. Oh, something like this for an apple to come here is something that would be three to five years. Yeah, but just zero, zero. doesn't get you there. There'd be no, you'd still build it over there. You'd just be able to sell it. It might even make it easier to build it over there. And what is your point? That the labor costs would never be here?

10:42I'm saying it's not clear that you bring it here. Why would Apple never bring it here? There's not even the labor market at this point. Now they're saying that the laid off federal workers are going to be the manufacturing workers. Right, because they have tooling precision skills. Exactly. Exactly. So, no, all I'm suggesting is - Why wouldn't Apple? What's your point on why Apple wouldn't move manufacturing back here? Well, because of labor is one of the costs, but the other thing is, I'm saying it's a five-year bet. No matter what you're doing - But they're not moving here. You said they'll move to India or somewhere.

11:17They'll move to India or these other places. Why not here? Because the costs here are too high. Because of labor. That's a huge component part. If you could do it here, you would, but you can't pay people what you pay the hourly rate. But they already have some operations in India that, you know. They've already invested in factories. Yeah, but what is it per hour in India? The factory. But there's also just the cost of actually building the factory. Which, by the way, is why the UAW is so excited about this. But if you're going to build it in India or build it in here, the cost would be... But that's why the UAW was so excited about this, because labor costs, they have been the ones who have borne the brunt of it.

11:52if it's$70 an hour on average here versus$8 an hour in Mexico. Well, they get it coming one way and they get hit going the other way with all the parts. E-commerce company Shopify changing its approach to hiring in the age of artificial intelligence. In a memo to employees, the company's CEO said that before asking for more headcount in resources, workers will be expected to prove why they can't get done what they want by using AI. He laid out a thought experiment for staffers. What would this area look like if autonomous AI agents were already part of the team? He said asking that question, in his words, can lead to really fun discussions and projects.

12:36According to the memos, Shopify will also factor AI usage into peer performance reviews. So here's the work you have to get done. You can't get it done by yourself? Tell us why you can't just use AI for it, because that would be a really fun thought experiment. Wow. Meantime, we have some news just out from Meta. It's launching teen accounts for Facebook and Messenger that follows the launch of teen accounts on Instagram that took place last fall. The accounts will have guardrails in place to prevent teens under a certain age from, quote, going live. And we'll have a feature that blurs images and direct messages that are suspected to contain nudity.

13:13So some new features that hopefully will make things a little bit better. Kind of wish they had had these features along the time ago. Yeah, from the beginning. And by the way, it's going to be half the pictures you ever see. Half the pictures you ever see because some of them they're posting themselves with far too little clothing on. I hate when that happens. Flur. Tees will be next. Coming up next on Squawk Pod, the art of the deal. Treasury Secretary Scott Besson says President Trump's tariff rollout is kicking off global conversations that could impact policy. I think you are going to see some very large countries with large trade deficits come forward very quickly.

14:05Welcome back to Squawk Pod. For now, the U.S. stock markets appear to be stabilizing after initial shock at the rollout of the Trump administration's tariff policy. This is in part thanks to some indication that President Trump is using tariffs and sky-high percentages as an opening tactic for negotiation. On the day after the Dow Jones Industrial Average posted its largest intraday swing ever recorded, market watcher Tom Lee of Fundstrat said the fear might be overblown. I think markets overreacted to the downside. And yesterday, it does look like the messaging has switched. You know, the president has moved towards to letting people know they're negotiating.

14:51And I think that's a return or a quiet return of the Trump put, because I don't think they want markets to continue to have this heart attack. As tensions continue with nations around the globe, markets are hanging on any indication that the president will soften his tariff plan. So we go to the source. This morning on our TV broadcast, Treasury Secretary Scott Besant joined us from a very busy White House North Lawn. Don't look away, because on any given moment, things could change. And we're joined now, I'm very happy to say, by Treasury Secretary Scott Besant this morning. Mr. Secretary, it's a pleasure to have you on.

15:33It's been a while. It's good to see you. Good morning, Joe. Market is trading higher today. And we did see what was welcomed yesterday, and that is a bounce from some of the lows and even a higher close on the NASDAQ. One of our guests, Mr. Secretary, earlier mentioned the resumption of the trade put. And not coincidentally, it coincided with your trip to Florida over the weekend where reportedly you were stressing that the market needed to hear that negotiations about these tariffs were in play. Lo and behold, we did see a bounce. Is that a fair assessment? Do you think that's what happened? Well, it's not a fair assessment of what happened over the weekend.

16:18I went down to see President Trump, as I do many weekends, and I can tell you, it's all President Trump's decision. And he had a view on, after Liberation Day, that we should go into quiet mode and let our partners think about the shock and awe that he presented. And over those following few days from April 2nd, we had the I think we're up to 70 countries contact the White House for how to come and negotiate. So, you know, I would say that the negotiations are the result of the massive inflow of inbound calls to come and negotiate had nothing to do with the market. I think the market took some solace, though, in kind of a change in the perspective.

17:09just last week we were hearing no negotiations. Now we're talking about, you mentioned 70 different countries. Japan, I guess, was early in terms of placing a call to the White House. And now in earnest, you and the U.S. Trade Representative are going to begin negotiations with Japan. I think that some of the stability in the markets, there's no doubt that's what I think helped massage the markets to some extent. Well, look, Joe, my advice on April 2nd to our trading partners was not to panic, don't escalate, and then we will see where President Trump is after a period of days or weeks. The response was overwhelming, so it was after a period of days.

17:56And he decided that it would be a good time to begin negotiating. The Japanese were very good actors. He had the president had a very good call yesterday with prime minister with the Japanese prime minister that led to these negotiations. And look, the Japanese are military partners. They're economic partners. We have a substantial imbalance with them. And I'm sure that they are as anxious as we are to get this remedied. Mr. Secretary, we spoke yesterday with Peter Navarro, and he described his view on these things as it's not enough to get to zero tariffs. You have to take down all the non-tariff barriers that exist as well.

18:41His proposal, as he's written about today, is to get rid of the VAT, the value-added tax on top of a lot of other things, that that is what it would take for us to reach any sort of a settlement with Europe. Are you in the same frame of mind as Peter Navarro is when it comes to that? Becky, I think everything's on the table. So they're tariff, tariffs. The academic literature shows that it's actually the non-tariff barriers, which are both harder to quantify and harder to, you know, they're more insidious because they're hidden, they're obfuscated. So tariffs, non-tariff barriers, currency manipulation, and then subsidies to both labor and industry.

19:22So everything's on the table, Becky. Meaning that it would take all of those things for us to reach any agreement that would make any sense? I mean, the value-added tax isn't directed at us. It's a tax that every manufacturer, including those that are based in Europe, pay as well. It's more the equivalent of a sales tax like we impose here. Well, again, I think there's going to be a lot of back and forth. President Trump is going to be personally involved in the negotiations. and we will see what our trading partners offer. For instance, there is talk of a big energy deal in Alaska where the Japanese and perhaps the Koreans, perhaps the Taiwanese, would take a lot of the offtake and provide financing for the deal.

20:15So that could be an alternative for them to come forward with that because not only would that provide a lot of American jobs, but it would narrow the trade deficit. So, Becky, everything's on the table. Mr. Secretary, though, help us just understand this. And maybe it's a very nuanced answer because there's sort of a different component parts to this. So the president said yesterday with Netanyahu, quote, that these tariffs can be permanent tariffs and there can also be negotiations. We also had Peter Navarro, as Becky mentioned, and you just talked about saying that the whole goal of this is to bring manufacturing back to the U.S.

20:53And then there's been the discussion of trying to raise revenue as a function of the tariffs. All of those different ideas, to some degree, oddly enough, are at odds with each other. Meaning if you're successful at creating revenue from the tariffs, you're not bringing jobs back to America necessarily. though that could be an offshoot of what happens. I'm trying to understand from your perspective, whether these really are negotiations, they're not negotiations, what success at the end of the day actually looks like? Well, Andrew, a lot to unpack there. And let's just go through it piece by piece.

21:35That if we put up a tariff wall, the ultimate goal would be to bring jobs back to the U.S., but in the meantime we will be collecting substantial tariffs. As I said, I believe on this show that if we're successful, tariffs would be a melting ice cube in a way because you're taking in the revenues as the manufacturing facilities are built in the U.S. and there should be some level of symmetry between the taxes we begin taking in with the new industry from the payroll taxes as the tariffs decline. Let me ask you a separate question and maybe you can speak directly to the CEOs and business leaders who are watching this broadcast along with perhaps policy leaders and others who are frankly running other countries.

22:28I've talked to a number of them who say, you know what, I'm going to sit back and just watch all this play out. I'm not going to make any decisions about whether I'm going to bring manufacturing back to the U.S. or frankly, how much I need to negotiate with this administration. This is now other countries just yet, because depending on how the markets play out, depending on what you think is going to happen in Congress, depending on what you think is going to happen with the courts, all sorts of other things could happen first before I would need to make an actual decision as to either negotiating over the tariffs themselves or if I'm a business investing back in the U.S.

23:04because who knows what's going to happen not just in six months from now but in two, three, or five years from now when maybe my plant would actually come on board or online. Yes, so Andrew, I think that may be what some of the countries are saying in public, but I can tell you I've seen the call list at the White House and it's substantial. We were having a discussion last night about which countries to prioritize and I think you are going to see some very large countries with large trade deficits come forward very quickly. I think we can, you know, if they come to the table with solid proposals, I think we can end up with some good deals and, you know, part of the calculus on that may be that some part of the tariffs stay on.

23:57And I actually think, as I said, that over the weekend, President Trump has maximum negotiating leverage right here, right now. And I think it would be a mistake for anyone to think otherwise. And many of, as I said, many of our trading partners, have queued up and they have kept their cool, they have not escalated, and they will get priority in the queue. I think it was a big mistake, this Chinese escalation, because they're playing with a pair of twos. Traditionally, if you look at the history of the trade negotiations, we are the deficit country. So what do we lose by the Chinese raising tariffs on us?

24:53We export one-fifth to them of what they export to us. So that is a losing hand for them. What about the business leaders who are watching right now who are thinking to themselves, am I supposed to actually make a commitment right now to bring manufacturing back to the U.S., or should I let this ride and watch all of this play out first before I make any kind of decision? Well, Andrew, as you know, unlike we financial market operators, business leaders, they have substantial lead time. So I am sure that they are putting together plans for what they would like to do when we finish these negotiations.

25:33So I think, again, they're not going to snap their fingers, find a greenfield site and build a factory. But I am sure that the planning has already started in boardrooms because I spent the weekend talking to CEOs and investment bankers. And that's exactly what's happening. Mr. Secretary, the actual tariff rate on Japan is 4.3 percent. The number that President Trump's chart used was 46 percent. There has been a lot of conversation about how some of the numbers were arrived at. and using that formula, which puts a lot of weight on trade deficits to try to take into account all of the other protectionist policies.

26:16But was there, I mean, there was kind of a lot of blowback on that formula. Do you think that that accurately represents what we're talking about? or was it an actual intentional effort to make things look worse in terms of the protectionism so that the United States, so President Trump could start at a much higher level for the retaliatory tariffs? Well, Joe, a couple of things. I think if you look at the actual numbers, President Trump cut those in half. So, you know, if we wanted to create a canard to have a large negotiate, a non-credible or, you know, a very extended negotiating position, we would have started from the actual number.

27:03And I believe that by cutting it in half, then we have shown some willingness. President Trump believes in trade. He wants to have fair trade for the U.S. I wasn't involved in the calculations of the numbers, but what I can tell you is that we can see from these huge surpluses that some of these countries have, they've accumulated these gigantic surpluses over the years. That has to tell all of us that there are imbalances. And again, whether those imbalances are from the actual tariffs or non-tariff barriers, currency manipulation, or the state-favored funding, it's very difficult to disentangle.

27:49But those big surpluses tell me that there is a large imbalance, and President Trump is committed for the American worker to fixing those imbalances. We're going to let you go, Mr. Secretary. I just wanted to shift a little bit to the notion that maybe in trying to extend the tax cuts from the 2017 bill, that maybe the top rate, that there's some openness with Republicans to raising that, letting that go back to over 39 or even 40 percent. And I don't know whether the president has signed off on that or whether he's amenable to it. I don't know whether you would be amenable to that because it would raise the taxes on all kinds of small to medium sized corporations if it went back there.