Tough Medicine to Swallow 4/7/25

0:02I'm CNBC producer Katie Kramer and this is Squawk Pod. Sometimes you have to take medicine to fix something. President Trump says take your medicine. The White House's tariff policy sparking a global market meltdown. We're looking at much greater odds of a recession, not just here but globally. Sending major indices here in the U.S. into bear market territory. This is a true man-made disaster. And dividing Wall Street and Washington on what to do next. I don't know how you could kill an economy in four days. How long have we been liberated? The president's senior trade advisor, Peter Navarro, joins us on the market whipsaw.

0:41We will hit 50 ,000 on the Dow, and we're going to have a broad-based recovery in the S &P 500. The market's trying to find its bottom now. The thing I would say to retail investors is don't get panicked out by all of this. And what's the point of the policy? It brings home our domestic manufacturing. I mean, that should be patently obvious to you. That's the whole point. That takes years. We bring here. Are we asking people to be patient for years? That's another one of the debates. How long will this take? It's Monday, April 7th, 2025. Squawk Pod begins right now. Good morning, everybody. Welcome to Squawk Box right here on CNBC.

1:24We're live from the NASDAQ market site in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. And it's a Monday morning and there is lots of red. Rainy Monday. Rainy Monday, but that's the best part of the news that you're seeing this morning. If you take a look at the US equity shares. As of Friday, we had closed at down 17.5 % for the S &P 500. The Dow down by 15 % as of Friday's close. But you did see the NASDAQ, the NASDAQ 100, the Russell 2000 and the Dow Transports all closing in bear market territory already on Friday. You really saw some pain inflicted both on Asian and European markets overnight.

2:02The volatility index up another 17 % to 53%. We were at 20 a few days ago. A week ago, we were trading at 20%. You saw big gains in that. At this point, up 231 % for the one-year period. We haven't seen 53 % in a very long time in terms of what the volatility, the fear factor is showing us. As I mentioned, markets in Asia plummeting overnight. The hang sang down more than 13%. Japan dropping about 8 % to an 18-month low. Earlier in the session, Japanese futures were suspended after they hit circuit breakers. And then energy prices adding to last week's steep losses as well. You're now looking at WTI below$60 a barrel.

2:41So$59.81 for the year. It's down 31%. I guess the upside to that is you're going to get cheaper prices at the pump. But all of this signaling the market's idea that we're looking at much greater odds of a recession, not just here but globally. Bitcoin actually dropping below 80 ,000 right now. It's at 76 ,470. 74 for a while. It's a market phenomenon at this point, not economic, but it's getting awful close. And you look at junk bond spreads as well. That journal has a good piece on when you'll start to see the markets indicating that this is spreading to the economy. Well, that's the question.

3:18I think there's a real issue about contagion. And it's possibly, by the way, a day away at the rate we're going. Well, normally the dollar goes up when there's scariness like this, and it's not. I don't know if that's a reflection of the dollar or a reflection of... The flight to quality has gone to treasuries. It has not gone to the dollar like the typical would. At some point there are going to be investment firms that are going to blow up, that are on margin. There are going to be private credit operations that are going to run into trouble that won't be able to provide credit to small businesses and large businesses.

3:50And that's when it starts to go to the economy itself. Well, by the way, by default, this is already forecasting what we all think is going to happen in the economy. But yes, is this already going to impact the economy? Do you think that retirees who are watching the broadcast right now are running out to buy a new anything right now? No. I've got a daughter graduating next month. What's the job market look like? What are companies going to do? Everybody's freaking out of their minds. And so this is a true man-made disaster. It is. It's self-inflicted, and they got too cute by a factor of about 10 with the way they calculated the tariffs, because the tariffs are not nearly as high as what that weird equation brought.

4:36And it allowed them to make an offer that seemed reasonable, like a half, which really wasn't a half. It's much higher than that, and that allows them, I think, to pretend that they're giving a little when they're really just getting this. It shouldn't be over. But here's the next problem, if you're the administration. The longer this goes on, the harder it actually is to make a good deal, meaning to actually walk away with a win. Because if you are a foreign country today, if you're President Xi today, who, by the way, has a lot more patience than I think we do, who sits around and actually says, this guy is not only going to be under pressure from us, he's under pressure from his own people.

5:18He is, but we're still in a much stronger position than anyone we're trying to extract concessions from. And they're going to get— I'm not— They can try to wait us out and say, wow, Trump's under—I don't know how much pressure Trump is under. We just don't want to be the king of the losers. You don't know how much pressure Trump's under? I think that we are about to come to a point where, you know, he hasn't been under pressure, in part because he's scared everybody from talking out loud and saying bad things about him. He's going to get Republicans in Congress. But I think right now you're about to start to see the damn break when it comes to Republicans in Congress.

5:51Right. I think business folks. There are already seven senators, Republican senators. This is where you start that they would sign on to. Business folks who have been too scared to say anything, I think you're starting to hear from them. This is where you trot out the Vietnam or we had 50 calls over the weekend. But there's also some people saying that they weren't that nice about the 50 calls that they got. And they're saying, no, that's not enough, that they're still standing tough. Maybe that changes, though. If you were to see, or, you know, what Ackman suggested, take 30 days, take 90 days before you put, that would be a, that might be.

6:22To negotiate before you put these things in. Before you put them on. By the way, that strategy to me, separately, is probably going to create just as much uncertainty. Because all of a sudden we're going to be, the same way that we sit with this TikTok deadline, you know, every 75 days. And you know that there's another 75 days to go. So if you announce that there's a 90-day moratorium, the markets may like it marginally, but they're not really going to like it that much because they're going to say, okay, now we have another 90 days of this. Things to keep in mind, just in perspective, on an absolute level, these numbers aren't really that scary.

6:57It's giving back about two years of really big gains, admittedly. This would be one of the fastest entries into bear market in history. And with no exogenous event. If we open it with no other thing that's causing it, if you're looking at today's losses, if they continue at the levels we're looking right now, but you're also looking at the S &P having the biggest losses they've seen since 1987. It's quickly over three days. But just to put it in perspective, again, we were sweating getting up above 4 ,000 and we're already about to retest the Mike Wilson 3 ,000 retest of the lows in the worst case scenario.

7:35We're breaking under 5 ,000. We're going to get back in the fours today. We're going to get back in the high four, 4 ,900 or so. One of Jeremy Grantham's accolades, and Jeremy Grantham, he's always, you know, the world's always in him. But this guy says we're still 30 to 40 percent overvalued in the S &P, regardless of tariffs. Is this a defense of tariffs? I'm sorry? Do you want someone to defend the tariffs? No, I just didn't understand. this idea that we're like suggesting well everything's no i'm not suggesting everything's okay i'm saying to keep it in perspective the pandemic low is 2300 no one wants to go back there when we were had two octobers in 2022 and 2023 where we were worried about going back to the lows that was down at we were trying to get through 4 000.

8:23these this is two years of outsized gains and giving it all back in three days and no one's saying that it's pleasant or anything i'm I'm just saying, as far as perspective goes, just have some historical perspective before you, you know, talk about it. RUTH BROCKENMILLER had said before that he was in favor of up to 10 percent tariffs. Yeah, not above that. RUTH BROCKENMILLER, But not above that. He posted that on X yesterday, saying that he's not in favor of tariffs at these levels, not above 10 percent. The historical, the only historical context I think you actually need is what we talked about on friday which is that global trade in 1930 dropped by 60 percent in 12 months that's all that's the only that's the only historical context that actually matters port of los angeles i think there are estimates that it will lose 15 of trade this week if these tariffs hold by the way that was very interesting because the longshoremen out there are saying this is going to be worse than cove it was very interesting because you have that union on one saying this is going to be worse than COVID.

9:24And then you obviously have the UAW and others who are standing there in the Rose Garden clapping. I don't think, I don't know how you could kill an economy in four days. How long have we been liberated? We've been liberated since, was that Wednesday? Tuesday or Wednesday? Last week. That's what I say. It's still a market for, and you know, markets are, 90 % of the time it's not based on anything other than how investors are feeling in terms of sentiment. And it can overshoot by 50%. In the long term, it's a weighing machine. In the short term, it's a voting machine. And the market is voting that they don't like this at all.

9:58They think it's safe. I don't. And six months from now, we could be in a recession. But the jobs number was great on Friday. Which is why you're not going to get rate cuts. The market is now anticipating five rate cuts this year. I don't think that's going to happen either. Inflation is a bigger problem right now than the jobs market is. Is what? Inflation is a bigger problem than the jobs market at this point. I don't think we're going to get inflation. If you look at oil at 59 or whatever, mortgage rates, interest rates. I'm just saying the latest reads on inflation are a bigger problem for the Fed.

10:25They were. And there'll be one-time price increases from tariffs. If they stay, I think, you know, this is so fluid. We've seen how they, we've got Navarro on today. I'm sure he'll be as strident as ever. Let's talk about that because President Trump, by reacting to the stock market declines, he spoke with reporters on Air Force One last night, returning to Washington from Florida. I don't want anything to go down, but sometimes you have to take medicine to fix something. And we have such a horrible, we have been treated so badly by other countries because we had stupid leadership that allowed this to happen.

11:05President keeping his focus on U.S. trade, the trade deficit with other countries. That's what he's talking about, saying if nations want to talk, he's open to it. But otherwise, He says, why would I want to talk? Now, over the weekend, China's foreign ministry is saying, quote, the market has spoken. When it comes to tariffs, President Trump reacted to that message. We have to solve our trade deficit with China. We have a trillion dollar trade deficit with China. Hundreds of billions of dollars a year we lose with China. And unless we solve that problem, I'm not going to make a deal. Now, I'm willing to deal with China, but they have to solve their surplus.

11:42Separately in a post on his social media site last evening, Trump saying we have massive financial deficits with China, the European Union and many others. The only way this problem can be cured is with tariffs, which are now bringing tens of billions of dollars into the USA. They are already in effect. And he says they're a beautiful thing. I would suggest they do not offset what's happened in the marketplace thus far in any way, shape or form. And by the way, worth noting that, you know, President Vietnam apparently told the president that he was prepared to go to zero. And he said, you know, I'll call you back.

12:16So it's unclear, you know, what the goal is, what's going on here. It's what's the goal. What's something? I mean, it's it's really I don't know what else to say. I think we all know it is creating cracks even within the Trump administration. You saw Elon Musk's comments over the weekend on X. He went after Navarro for pushing these policies. He told Italian politicians that he would be in favor of zero tariffs, total free trade. There are very few people who think that this is a good idea. Very few. I told you, the calculation that they used to somehow get countries that don't even have tariffs against us to somehow put it up at like 40 and 50 percent because it's this minus this divided by this with the trade deficit.

13:04that got to numbers that are, I don't know if anyone really thinks that that's how you gauge the protectionist policies of another place. But that's what they're using. I think to use non-serious analysis on something as important as this, it's almost frivolous. And I don't think this is a time for non-serious. I think they're learning that this is, you know, you can't be non-serious on defense issues, signal gate. You can't be non-serious about this. And they better get serious quickly. What I don't know is whether you can put the toothpaste back in the tube. Not that he can't tweet out in 10 seconds from now, if he so chooses, the tariffs are off, which I can't imagine is something he's going to be doing.

13:46But that whatever has just happened here, I think, has actually had a fissure around the world longer term. And I think people haven't even figured that part of this out. It's the breaking of trust with allies. I still think they're going to, no way that they can ignore the biggest economy and biggest trading partner if they have to hold their note. I mean, I think it's interesting. It's not over the short term, but longer term, the alliances that it builds and the places that people want to do business. I don't think it's permanent damage. I don't. I think the arrogance of that, to be honest, not about you.

14:21I'm saying the arrogance of this. Of thinking that they need it. Of anybody who thinks that somehow just because, you know, I like to believe we're exceptional. But the arrogance to think that just because of our size and scale that everyone's going to have to always hold their nose to play with us, I think is a very bad strategy. And add in that they have some culpability. They've got some culpability in why this is happening in the first place. There are better deals that could be struck. There's a better way to go about doing it. If you could get to zero with everyone, it'd be a better place.

14:48Eat your vegetables. Look, did you hear that? If you have a sickness, you need medicine. So if you have a gangrenous leg, you need to cut the damn leg off and start hopping around the rest of your life. I guess that's what that's what we're saying here. I would rather not do that.

15:06We got so much news to cover this morning, including this. Now, J.P. Morgan, CEO Jamie Dimon, out with his annual shareholder letter. Want to get straight over Leslie Picker, who's been going through that letter. Of course, it's something that the investment community looks at virtually every year. So very, very carefully this year, perhaps even more important. Yeah, and good timing this year, of course, as everyone wants to hear his perspective. He's writing in his 58-page annual letter that the economy is facing, quote, considerable turbulence. He's saying that the short-term effects from tariffs is likely to have inflationary outcomes and, quote, whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.

15:48He reminds readers that stagflation in the 1970s didn't stop the trend of rising rates, noting that even though interest rates have come down recently, this trend could still reverse. Diamond says even with the recent declines, equity valuations are still well above their historical averages. Still on trade, Diamond says, quote, where the United States is treated unfairly, we should demand those agreements be fixed. He says America first is fine as long as it doesn't end up being America alone. Much of the letter really entails policy recommendations on everything from tax and fiscal policies to education and health care reforms to building more housing and infrastructure.

16:28And he also lists issues that he thinks is causing, quote, legitimate frustration and anger in the country today, including, quote, uncontrolled immigration, income and education inequality, culture wars, bureaucracy and polarization that's amplified by media and social media. And he said that by enacting policy reforms to resolve these issues, GDP would grow by over 3 percent a year. Guys. Wow. You know, I get the sense that Jamie traditionally works on that letter a pretty long time in advance. But, Leslie, it sounds like he was updating it up to the to the last minute this year because of the issues.

17:03Before the mess that we're in. Yeah. Some of the some of the other issues. I'm sure that's the long term stuff he was working on. My guess is he spends months on this. But he must have been working on it right up to Saturday. Right. Thoughtful. I mean, to say that there are inequities and they need to be dealt with. I don't know if you need to go shock and awe. I don't know why incremental sort of a approach, stepwise fashion might. He just doesn't. He doesn't know that that patients only don't play that. Yeah, you're right. He works on this letter for a very long time. He writes it himself, is my understanding.

17:39But the current environment is so dynamic, it's pretty certain that, yes, he was making edits and adjustments to reflect the current environment with tariffs. Absolutely.

17:54Some new insights from CEOs on President Trump's tariffs and the economy. This is courtesy of the CNBC CEO Council. In a new poll, a flash poll that was just taken, two-thirds say they expect a recession this year or next year because of those new U.S. tariffs. Just 14 percent say that they do not see a recession coming. More than 50 percent say they think that recession will be moderate or severe. And about a third of them say that they expect they will have to cut jobs this year because of the new White House policies. And I think that's the big issue and big question facing the general economy at this point.

18:31They maybe have some data to back it up, but in general, they're in the same boat we are. Yeah, but when CEO confidence drops, that's when hiring. They can be self-fulfilling. Right, exactly. Cheese will be next. Coming up next on Squawk Pod, we hear directly from the Trump administration's senior trade advisor, Peter Navarro. The biggest tax cut in American history, the broadest base tax cut in American history, is coming within a matter of months. So any discussion of recession seems silly. But it's ugly out there. JPMorgan, Goldman Sachs and S &P Global have upped their recession probability.

19:14We'll get into all of it right after this.

19:24You're listening to Squawk Pod from CNBC with Joe Kernan, Becky Quick, and Andrew Ross Sorkin. Stand by, Joe. And three, two, one, his mic. Here. President Trump posting on True Social this morning. Oil prices are down. Interest rates are down. The slow-moving Fed should cut rates. Food prices are down. There's no inflation in the long-time abused. USA is bringing in billions of dollars a week from the abusing countries on tariffs that are already in place. This is despite the fact that the biggest abuser of them all, China, whose markets are crashing, just raised its tariffs by 34 percent on top of its long-term ridiculously high tariffs, plus not acknowledging my warning for abusing countries not to retaliate.

20:12They've made enough for decades, taking advantage of the good old USA. Our past leaders are to blame for allowing this and so much else to happen to our country, make America great again. And a number of countries reportedly reaching out to negotiate tariffs with President Trump over the weekend, joining us now with the latest, President Trump's senior trade and manufacturing advisor, Peter Navarro. And given the backdrop, Peter, of what we've seen, the tumult in the markets, and the S &P could theoretically be in bear market territory. And I know you make the distinction between Main Street and Wall Street, but obviously they're interconnected.

20:53So to get the real story on how many countries are calling and on whether the president is actually agreeable is important. Because we've heard all these countries are, you know, making the phone call. But then we hear that maybe the president isn't interested at this point. Can you clear that up? Sure, Joe. But but let me first take you back in a time capsule, because this feels a lot like the day after the election in 2016. And I don't know if you remember that day, but I was on the set with you. The futures were dead red down and I made the prediction that the Dow would hit twenty five thousand.

21:29And Andrew's head exploded is like, well, but you correctly pointed out that wasn't that heavy a lift. And we did hit that not in four years, but in less than two years. And what I'm seeing, Joe, is a beautiful situation where we will hit 50 ,000 on the Dow. And we're going to have a broad based recovery in the S &P 500. The market's trying to find its bottom now. The thing I would say to retail investors is don't get panicked out by all of this. And what the president could have added to that fine truth was the fact that the biggest tax cut in American history, the broadest base tax cut in American history, is coming within a matter of months.

22:11So any discussion of recession seems silly when you factor that in. Plus, the Fed is not going to do its job, but the long bond is doing it. We're lowering our oil prices, which is just amazing. And here's the one other thing I want to say macro-wise, Joe, because look, this is all about people worried about global recession. That's what they're worried about. The restructuring that's going to happen, Joe, globally, is going to start with China and Vietnam and Germany, heavily export-dependent countries. They're going to have to engage significant fiscal stimulus to reorient their economy. So that thing is going to go on.

22:53In the meantime, we're going to boom here. I think they're much bigger than most people thought. And I think from policy institutes on both sides of the aisle, the methodology that was used has been universally derided as being non-serious. I don't know whether you know exactly who came up with the formula, but it allowed you to at least characterize most of these countries as being their tariffs well above the reality of the situation. so that when you say that we're going to do half on them, it was much higher than anyone anticipated. And I think you'd have to concede that this was not the market reaction you were looking for.

23:36There's a way of maybe incrementally trying to accomplish some of the things that the president wants to do in a reasonable, serious way. And this just almost across the board has caused what you're seeing in the stock market and a lot of head scratching and head shaking on whether anyone really knows what they're doing in this case. Peter, can you acknowledge that? Sure. No, I can't. Because here's what I'm seeing. You throw a lot of stuff at me. First of all, the methodology was perfectly sound. It was done by the Council of Economic Advisers based on long term studies that are in the academic literature.

24:12and the people taking potshots at us are the same people that always take potshots on us. The American Enterprise Institute, Peter. Of course, of course. Joe, come on. The American Enterprise Institute has been against the bill. Conservative, yeah, Larry Lindsey. Let's not get buried down in those weeds now. You asked me a serious question. Is the president willing to negotiate? What we have here is a national emergency based on massive chronic trade deficits It's caused by systematically higher tariffs and non-tariff barriers. So when you ask if we're willing to negotiate, the president will always listen.