The Tariff Formula with Commerce Secretary Howard Lutnick 4/3/25
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I'm CNBC producer Katie Kramer, and this is Squawk Pod. The other countries, and they all understand, we're going to have to go through a little tough love maybe, but they all understand. They're ripping us off and they understood.

President Donald Trump shocks investors with rolling out a tariff plan some call worse than the worst-case scenario. People in the business community are like, wow. Markets around the world respond with a sell-off as the U.S. announces a baseline 10% tariff on all imports. The next several months, at a minimum, are going to be crazy. And it also means that most businesses are going to be frozen.

In 60 so-called worst offender nations getting even higher rates, including some of our biggest trading partners. China, 34 percent. Europe, 20 percent. South Korea, 25 percent. And places companies used to go to escape tariffs, Vietnam got 46 percent. It's going to be gut-wrenching, but we're back to the broccoli. I don't know if the cheesecake ever comes.

We're joined today by Citi's Kate Moore on what's shaking the street. These numbers are so much greater than anyone had started to factor into price or into their models that I think it's going to be disruptive. And our Steve Leisman on the calculus that got us here, a new trade formula for a new world order. 40 to 50 percent, according to trade experts, is not a tariff. It's a shutdown. It's you just don't do it anymore.

Plus, how retailers and automakers are faring and when the increased tariffs hit your wallet. And we talked to a man at the center of the president's policy, Wall Street veteran turned Commerce Secretary Howard Lutnick, defending the bold moves of his boss. We all hold our iPhones, which we love. Why do they have to be made in Taiwan and China? Why can't those be made with robotics in America? And you know what Donald Trump has said? They're going to be made in America.

It's Thursday, April 3rd, 2025. This supersized, the day after Liberation Day, SquawkPod begins right now. All right. Good morning, everybody. Welcome to SquawkBox 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 on the day after T-Day for tariff days. Let's take a look at what's been happening...

Ladies and gentlemen, the President of the United States. This is one of the most important days, in my opinion, in American history. It's our declaration of economic independence. For years, hardworking American citizens were forced to sit on the sidelines as other nations got rich and powerful, much of it at our expense.

But now it's our turn to prosper and in so doing use trillions and trillions of dollars to reduce our taxes and pay down our national debt and it'll all happen very quickly. We will establish a minimum baseline tariff of 10% and that'll be on other countries to help rebuild our economy and to prevent cheating. Effective at midnight, we will impose a 25% tariff on all foreign-made automobiles.

So many questions about what this is going to mean on an individual company by company basis, what it's going to mean on a country by country basis. If you check out what's happening in Europe this morning, you'll see that right now with markets that are open, the CAC is the worst performer. It's down by about 2.4%. The DAX in Germany off by now 1.9%. So that's been picking up some steam. Earlier they were down by about 1.2%, 1.3%. And worth noting, by the way,

Germany's finance minister already out this morning effectively saying that they should retaliate against Trump. They believe that he will buckle under the pressure, interestingly. There's some back and forth about where... Once you start with that language, that's, I think, where a lot of this is going to come from. That is a question. Do we get retaliation or do we get conciliatory tones where they say, okay, we're going to take some down? Well, already you're getting the retaliation language. We'll see when they announce it, but that's certainly possible. These will be...

Challenging days ahead, I think we're looking at that. The other thing we don't really know, this is obviously a stock market sell-off can be self-fulfilling in terms of it can hurt the economy. But at this point, we don't know. The economy is still the same economy at this point.

It could go south. There's no doubt. I will tell you the chaos that this has thrown into business. If you talk to large businesses, if you talk to small businesses, mid-sized businesses. I mean, I have a friend who works at a company where they import really high-end sweaters. And last night, her concern was this, was she had just moved all her production to Cambodia and was really seeing a lot of the benefits that they were getting because they made their way out of China. There's not enough capacity.

I mean, this, by the way, is the same story even with small company, big company. Apple, same story. They moved out of China. They moved to Vietnam. They moved to India. They're going to get slapped with these things, too. I will tell you, I talked to a CEO just yesterday, though. This is even a broader issue, which is a major multinational company that says that what's happening here is actually making it harder to hire people in other places. It's a consumer-facing company, that there are consumers that are not as interested in buying from them

So the whole thing changes, like the entire dynamic changes as a result of this idea that America, which you talk about the American dream, part of what we have been selling this American dream is to the rest of the world. But Andrew, you have been, the end result, and I don't know if there's a method to the madness or not. I don't know whether it eventually works because people are split.

Hardcore classical economists have never liked tariffs. Yeah. History has not liked tariffs. History has not. History and economists. When he was talking yesterday, he talked about prior to your book, 1929, tariffs were working. Then when they got rid of them and tried to bring them back to smooth halt, nothing worked. So that was bad. The Kernan family...

imports a lot from Vietnam for certain things. That was 46%. That's a 46%. So I don't know where the Trump put is. I don't know. It looks like they're serious. I mean, we should probably point out, and when the S&P is dropping like this on one day, we shouldn't get complacent, but we're now back to 10%. Right.

So now we're back. So somehow we had bounced to where now all we're doing is matching the worst levels that we saw. Not to say that we couldn't, you know, if it goes down 3 or 4 percent a day, you could get to 20 percent in a week. I think there are still questions about how long-term these tariffs are, if this is negotiation. And whether... The Treasury Secretary, Scott Bessant, was on Bloomberg last night, and he said, look, I would urge other countries not to retaliate. There could be a negotiation that's in the works. He was urging negotiation, but...

But basically threatening these countries not to do anything or they will raise it from here. This is the ceiling otherwise, unless you retaliate back, in which case we will raise even more. But then he also said we need to let these settle in. And that suggests that this is not going to be gone in a week. This is not going to be gone necessarily in a month. But that is the hope. That is the hope. That it's not a trade war. That's the hope built into the markets right now still. But it's that some of these countries that...

And admittedly, some of them have been bad actors in the past. The hope is that they take the tariff off. Whatever it is, it means that the next several months, at a minimum, are going to be crazy. And it also means that most businesses are going to be frozen from making investment and doing anything. I will say there's a scramble today for companies that have to come in and figure out immediately. If you're importing a lot of goods, you've got to figure out immediately what you're doing. So people in the business community are like, wow. We don't know yet what the hit's going to be, the GDP or...

You know, there's already been hits to consumer confidence across the board. But once again, I don't know if it's time. You feel like it's a good idea. I didn't say it's a good idea. I'm saying you don't know. And I don't think at this point you need to absolutely go running down the street screaming that the world's ending. Exactly.

Look, in Canada... We didn't need to do it during COVID because it was 2,200 on the S&P. It came back. We probably don't need to do it. There may be a time. And if you read the journal, this is anathema to everything that the Wall Street Journal thinks. How long does he... If it's the biggest...

sort of change in the global economy since World War II, the end of globalization, it's going to be gut-wrenching, but we're back to the broccoli. I don't know if the cheesecake ever comes. You might be eating dog food the rest of your life. The Journal pointed out that we have done very well under this

this globalization that we've set up, that America has had 25%... But the UAW guys that were there yesterday don't give a crap about Wall Street. They don't care about wealthy people. I mean, 401Ks, but they were... Did you see? They were all in on this. We closed 60,000 factories.

over the last 50 years. 60,000 factories. In the United States, auto workers make, on average, $70 an hour. In Mexico, it's $6 an hour. So there's a huge difference. This started with NAFTA and probably even pre-NAFTA. But USMCA is OK on this, right? Well, that's why this whole thing. So it's going to be very interesting to see how this plays out, because USMCA is OK.

At this point, Ford from Ontario, who we had on here yesterday, is urging Mark Carney in Canada to not retaliate. He would like to see this status. You were famous. You know that. Did you see? You were famous. You were on five, at least three or four hours. How much do you watch? I watch them all. I watch them all. I can't. No. You know what I'm watching now? I'm watching The Pit.

which is an unbelievable ER. It's unbelievable. No, I can watch about five minutes. When you see the same story done five times over and over and over and over on that channel, it's like... I got to start watching myself. You were on there and you looked amazing. Thank you. You looked...

Like you were giving him a, like you were, you know, not on Canada's side. You looked like you were pushing back. It was great. But he has no juice, that guy, right? Mark Carney's got the juice. Take a look right now at where the big financial stocks are trading this morning. As you might imagine, they're trading down. Take a look. Bank of America off about 4%. Citigroup off about 4%. Wells Fargo a little over 4%. JP Morgan probably doing the best out there, but not by much, frankly, about 3.5%. So...

We got a lot to talk about. We do. A lot to talk about. And joining us to do that right now is Kate Moore. She's the chief investment officer at Citi Wealth.

Kate, what did you think? Did you get a long night of sleep last night? Wake up well rested? Yeah, Becky, I feel refreshed and ready for the rest of this trading week. No, I mean, I think like everyone else, we were sorting through and slicing and dicing all of this data and trying to really figure out what this meant for a lot of companies, not just in the U.S., but around the rest of the world. And I woke up this morning with not a huge amount of clarity.

I didn't say I know exactly how this is going to hit profits. I know exactly how the impact on demand. And I think we're going to see that uncertainty really play out, frankly, over today's trading session. I would say probably today's trading session and well beyond. I think there are a lot of questions about if this is a negotiation starting point, if we are going to see that. We don't know how other countries will react. But the president has been pretty clear that this is a ceiling unless you try to

fight back against what we're doing, in which case we could, he reserves the right to raise tariffs even more. So I'm not sure we know what we're in for. Yeah, it was a much higher opening bid than I think a lot of people expected. You know, consensus on the street and all these buy side surveys, we're looking for kind of anywhere between say 12 to 15%. These numbers, even if they're the starting point of negotiations, are so much greater than anyone had started to factor into price or into their models that I think it's going to be disruptive.

What do you tell people to do this morning, whether to buy when you're looking at pretty significant dips? The S&P right now indicated off by about three and a third percent. Yeah, you know, we've had this message for the last number of weeks since I joined Citi as CIO that, in fact,

Effectively, we don't want to be adding to risk right now. If you have a portfolio that is fully invested, we're going to sit tight and think about being a medium and long term investor. But if you have cash that you were looking to deploy, the uncertainty factor, whether it's in bonds or in equities, was too great for us to have a really convicted call. And, you know, for our clients, like money is made while you're sitting here.

And money is made while you're being patient, not when you're trading all the time. - But is this enough to lure you back in? Do you think, okay, we're back in correction territory, we're down by 10%, or is it just,

Even though you're seeing these drops, I don't know that I'd venture in at this point until I understand it. Yeah, look, the price levels are really interesting. And we're watching some of the technicals. We want to be thoughtful about when we reenter the market or we think about adding to risk. But I would also note the uncertainty factor is just starting. I mean, one of the things I kept telling the team going into yesterday is April 2nd is not going to be a clearing event for the market. You know, we have big economic data coming out tomorrow with payrolls.

Earnings are just going to be starting. I'm watching really closely how companies talk about what they expect for the balance of 2025, even X the tariffs, because we know that there was some slowdown in momentum. And we obviously have this big tax bill that's going to need to get done, which will have implications as well. So, you know,

You know, even if we felt like we could bake in everything that was announced yesterday, I'm not sure the uncertainty and the confidence are in a place where I'd want to add to risk. The uncertainty is also where the Trump put is. And I can tell you that it may be a lower strike price than what we're used to. Number one, he's hopefully not running for reelection. I mean, I think he's just trolling, but hopefully that's not what he's saying. And I even though.

the 20 percent gains the last each year of the last years he wasn't president but i still think he might have the idea that it's not house money but the wealthy have done really well the s p was 2200 a couple years ago yeah it's 6 000 right now so at 5600 i'm not sure him or his advisors at this point are saying the pain is so significant we need to say uncle so that makes me

at least concerned that the strike price on the Trump put could be well below what we're thinking it is. It could be $44,000? Could it be $4,000? What's that? Another, I mean, that would be bear market. It's not just the amount of pain that the Trump administration is willing to take. It's also House Republicans, Senate Republicans, how much they're willing to take because right now they are allowing him to do this with tariffs. They're the ones who are supposed to have the absolute ability

ability to raise taxes and to put on tariffs. I mean, and for how long? We'll obviously have a midterm election. At some point, it feels like an eternity from now, but that will be a consideration certainly for all members of Congress. But I think this idea of the put, we've gotten very comfortable with this idea that whether there's a policy put or a Trump put or a fiscal put or a monetary policy put. You might not have control of having a bounce.

Yeah, it may have already passed the point of no return to where the damage is done. So the other thing is the EU today, Ursula von der Leyen, I believe, was making some comments just suggesting that, hey, we do export a lot of goods, but that they import a lot of U.S. goods.

And I wonder if you think about the implications, the implied threat there, the implicit threat, what that would mean for things like financial services and other services that are imported or exported around the globe. Yeah, I mean, I think some of that's getting reflected in the price action we were talking about and Andrew mentioned at the beginning of this segment. I do say, I do want to say, like, it's prudent for all of these global leaders to maybe, you

say they're evaluating the information that came out yesterday without being really reactive. We want to see the leaders be responsive and thoughtful about how they're going to approach. Well, now you sound like Scott Besson, who would like to see the other leaders not do anything just yet. Well, yeah, I want everyone to come with a clear head because there was a lot of emotion, I think, and emotion getting priced into the market last night. Well, so to me, there's two questions. One is just the uncertainty and how long the uncertainty lasts.

Yeah.

I actually wonder, and this is what I think is happening with the banks this morning, and I think it's going to happen to all the services companies, which are a lot easier to drop, frankly, than actually everything else, which is to say, if you are a business in France or Germany, name your country, and you have a choice of using, dare I say, the Great City Group or BNP, Paribas, or HSBC, or some local bank,

I kind of think you're gonna say to yourself, you know what? Those guys may be good. I may like them. I may have done business with them, but I don't really like what's going on anymore. And it's a lot easier when they're doing their next deal or their next whatever to just not pick up the phone and call you as opposed to actually have to drop you, which is what they have to do in the manufacturing world.

Yeah, I think this is a good question about incremental attention and flows to U.S. companies. And this happens for international asset allocators. You think about big pension funds, sovereign wealth funds, who've all been super overweight U.S. assets. They have this opportunity now to say, for additional money that I need to put to work,

do I want to invest in the US or do I want to invest in another country or my own home country? Do I want to rethink that plan? You know, I can't speak so much on services. Citi is a great global bank, but we would hope to be seen as a global bank. I'm saying it's not even about dollars anymore. What's, I think, happening here, because this is what I was hearing from a number of CEOs yesterday. This whole idea that people are just going to say,

I don't like you people. I don't like you people. I don't like what you're about. I don't like what you're doing. - Tariffs are only good for us. They're not good for you.

Look, the world is a relative place. I don't think that happens. I think they know full well that they had this coming. We'll see whether... That's the thing. I don't think that anybody ever thought, A, that they were going to have it coming at this level, and B, when I say it's all relative... Because it's not just tariffs. It's all these non-trade... When life has been one way for a very long time, even if you think that life is unfair... They've been doing currency manipulation. But we don't do that with the Fed.

That's stealth. We don't have any idea what this formula is, how they came up with it. You think we're doing currency manipulation now, weakening the dollar? Well, what do you call the Fed? I mean, you've said that yourself. I know, but that's sort of a cynical viewpoint. A cynical viewpoint? We don't overtly control our currency. You've been talking about them doing that for the last 10 years. No, because they had to.

Because they had to because of the fiscal spending. We're not doing it on purpose. They're not going to do it as much. I don't understand the formula, and I'm not sure other countries do either. I think you're being polite about not understanding the formula. The formula is completely made up. This is quid pro quo, too. They have tariffs in. So even if we were, which I don't agree that we really are intentionally doing,

manipulating our currency. But even if we were, that's just the same as what they've done to us for years. What do you tell a country where we have a surplus? Honestly, hold on. Just do that with me.

Were we a trade surplus? We have a trade surplus. There are a couple of countries on the list where we have a trade surplus and we're putting the tariff in. Tell me how that works. I thought that they actually set the tariffs based on deficits. Someone told me that none of those tariff numbers are actually true about some of the other countries. They aren't true. And that they actually were doing it with some calculation. I read that too. I don't know how it works. But that tells me how complex and complicated it is. We are not going to lose our preeminent status as the world's leading economy in the world.

Andrew. I mean, that's more running down the street screaming out about a 10% correction in the S&P. Let's wait until the worst case scenario starts to play out before we do. All right? I mean, this is uncharted territory. We could...

I hope there's a method to his madness. I do. But I'm not. I do. Tim Geithner used to say hope is not a strategy. I don't know. Thanks for coming in. We could be voting on getting rid of the filibuster right now and disbanding ICE. So just look at the counterfactual coming up. I got more. Tease will be next.

You just heard it: The White House listed tariff rates for different countries. "I don't understand the formula, and I'm not sure other countries do either." And it didn't take long for us to try to reverse math... "The formula is completely made up." ...and figure out how they landed on these numbers. CNBC's economics reporter Steve Leisman looks under the hood, behind the curtain, to see what's up. "So this tariff policy looks like it's basically resting on made-up numbers."

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Good morning, everybody, and welcome back to Squawk Box. We're live from the Nasdaq market site in Times Square. Economists were quick to react to President Trump's tariff plan. Our senior economics reporter, Steve Leisman, joins us right now with how the outlook changed dramatically with the stroke of a presidential pen. Steve, good morning. Good morning, Becky. The president's tariff measures were worse than expected and deepened the troubling stagflationary outlook for the U.S. economy.

Scott Lincecum of the Cato Institute called the tariffs just totally detached from reality. They're more complex and onerous than I was expecting, he said. Lincecum and others say 40 to 50 percent tariffs, they're not tariffs. They essentially will shut down trade from those countries. And most had serious issues with how the president appeared to make up the tariff level. He says other countries charge the U.S.

And other comments on the outlook. J.P. Morgan says a recession is now likely if these policies are sustained. Pantheon's boosted their PCE core inflation outlook by one and a quarter percentage points. They reduced their growth by almost a percentage point. Now, here's interesting back and forth on the Fed. Citi says the Fed will cut aggressively. Morgan Stanley removed its June cut and sees the Fed up.

on the sidelines for a protracted period of time. So nobody knows what's going to happen. Nobody knows. The Fed doesn't know. On the growth side, trade partnership worldwide estimates tariffs will cost $654 billion in a year or one of the largest tax increases in U.S. history. They said, quote, with tariffs taking effect immediately, American companies will be on the hook for $1 to $2 billion per day in costs for products that were ordered months ago.

Even in smaller trading states like Idaho, for example, businesses could pay an extra $5 million in tariffs. The biggest concern was that the president was said to have completely made up the tariff numbers other countries charge the U.S. He said the U.S. was charging those countries half of what they charge us,

but his assertion bore little resemblance to the real tariffs other countries charge, most trade experts said. Instead, the White House used a formula few had seen before based on the trade deficit that caused most to scratch their heads. So this tariff policy looks like it's basically resting on made-up numbers. Can I ask you about the made-up numbers for a second? Yeah. Because we were talking about the made-up numbers a little bit earlier. I don't think they're made up. They're not quite made up, but they get the tempered administration where it wants them.

to be in terms of right when you make the reverse and i don't know whether it's not seen this before right if in fact it's a real formula if in fact steve you wanted to come up with a formula how would you do it how would you do it that's my question to you country by country they did look they really hard did have a formula if you look at talk to a bunch of people have a formula it's the u.s trade deficit divided by the gross imports from that country my point is that or

Or 10%. My point is that nobody has seen this formula before. Or 10%. But that's not in the formula. Or 10%. And I will say, the traders who are passing this on to me are also saying, a very well-known one, it's absurd and shows a kindergarten-level understanding of international trade. Imagine that somebody had something that they're the only ones who had it. Say it was a rare earth mineral.

and you needed it, and you bought it from them, and let's say you spent a billion dollars buying it from them. You would have a billion-dollar trade deficit with them. They would have no tariffs on you. And, of course, you were taking those rare earth minerals and putting them into computers and value-added. Look at it that way. You've just got to say we're huge consumers of everything because we're so rich and prosperous. So trade deficits, by definition, are going to be something. Among the things that are quite remarkable about the president is this idea of

saying that we are being taken advantage of. We're somehow a poor country. In some instances, we are. In some instances, we are. But look, what about the people that moved all their stuff to Vietnam? Remember when I was reading those USTR comments? They're like, hey, we went to Vietnam because you told us to go to Vietnam. And then they put it on Cambodia. 40% to 50%, according to trade experts, is not a tariff. It's a shutdown. You just don't do it anymore. So China, 54%, which is the 34% plus the 20%.

Vietnam was 46%. And these are not the tariffs they charge us. It's not. You don't do it anymore overnight? Probably not. It's probably going to be a while before they can figure out where to manufacture and do some of these things. There's not the capacity for a video game. We had somebody on this show, Becky, they said...

A year for a brownfield, which is an existing plant. A year and a half to plant it. Three years for a greenfield. And then another year to have to plant it. I hear on factories it's usually three to five years. I get that entirely. But what does that mean? You think the companies are just going to stop selling stuff in the United States? Or they're going to stop? What's Apple doing? Let me make one comment here, which is listening, of course, to Phil LeBeau, our expert. What did he say? He said that...

The cheaper cars are made overseas. By the way, the cheaper guitars are made overseas. Everything's made over. So who gets hit by that? The people who buy the cheaper cars. Let's start there. What does that mean? It means maybe they go to a used car and then maybe they don't buy a car. Maybe they share a ride. What's that? Used Teslas are cheap.

Apparently, yes. But they have swastikas carved on the side. Maybe that guy doesn't get his first guitar when he's 16 and never plays and we never hear from, you know, Little Richard or something like, I don't know. That's not the kind of thing. But the long-term thing, I will just say the long-term thing is that you have higher wages because there's more manufacturing here, but that is something that takes years and years to play out. And this goes to, I think, a larger political point, which is,

And I also talked to a number of people on this issue last night. There's a whole number of CEOs, we talked about playing chicken, who are gonna sit now and say to themselves,

I can hold out longer than Trump can hold out. Not me personally. But there are companies that are going to say, do I, if I'm going to make the three to five to six year investment in this factory that's not going to even exist for five years, what is the prospect that these tariffs are still going to be in effect five years from now? That is the fundamental question. And if you don't think, or you think there's even a chance that they won't be, you may just say, you know what? I'll accept what's going on here for a little while because it's not even worth me to bring back.

You see how democracy is good for business in the sense that a tariff proposal or a tariff plan that went through Congress

That CEO wouldn't have to worry as much about that. Right. I talked to a manufacturer, said I benefit from the tariffs, but I am not expanding my capacity because I don't know if those tariffs will exist. Might not be on five months from now, much less five years. What's that? It might not be on five months from now, much less five years from now. Well, if that's the case, then what was this all about? Negotiation. But Joe, is this the way to do it? I mean, imagine. That's what he said he was going to do. And.

You got to like that. I don't know. No, no, no. He said these were negotiation tactics. Right. And they still might. And now it's fentanyl and it's now China. And remember he put out a tweet that said we're keeping the Canadian tariffs in place until they become the 50% You can find video of him saying this stuff 30 years ago. That's true.

He's wanted to do this. So that tells you they're not they're not they're not negotiations. Well, as negotiations, if he gets a better as a D.R. to the deal with the United States, for the United States, with other countries. But how do you start when he says my tariffs are 46 percent? But for example, Singapore has no tariffs. Switzerland has almost no tariffs. Europe is not 39 percent. Europe is 4 percent. Right. Except with this calculation. But Steve, you do need to.

Their argument would be that you can't quantify all the other protectionist measures that aren't done through tariffs. So you sit down with our allies and you talk to them. That hasn't worked. Did that work with NATO? I don't know. Have we tried it? Didn't work with NATO. Didn't work with a lot of things. I don't know if that doesn't work.

Well, I mean, I think there's been a lot of prosperity in this country and around the world. And we're talking about capitalism. You're talking about free markets and what that's done to bring people out of poverty. Don't point at me. I'm just saying. 28% of global GDP with 5% of the population.

This is an enormously wealthy country. It is. The idea that other countries are raping and pillaging us is what the term is. That does set us up as a very large country that's not going to care if we're not treated fairly. That could be true. It is true. They send us wine and cheese and Mercedes. That's not rape and pillage. We send them paper in response to that. Right. A lot more on Squawk Box this morning, including Howard Lutnick. We're going to talk about all of this with him next.

Yes, Andrew. Commerce Secretary Howard Lutnick is next on SquawkPod explaining the president's tariff strategy. What he's saying is, look, we need to rebuild American manufacturing base. We can't allow the United States of America to not produce steel. We can't allow the United States of America not to produce pharmaceuticals.

Plus, how retailers and automakers are responding to these changes. All the tea on tariffs right after this.

The U.S. and China are competing for global leadership. The country who wins will define the world we live in. U.S. international assistance is vital to our national security. It helps prevent terrorism and avoid costly wars. It fights diseases and saves lives. It helps keep America as the number one economy in the world. U.S. international assistance protects our interests at home and abroad. If America doesn't lead, China will.

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Learn more at Freshworks.com. Welcome back to Squawk Pod from CNBC, where it's the day after. We're digging into the impact of the Trump administration's proposed tariff policy and rates. Here's Andrew Ross Sorkin with a recap of the numbers.

There is now a baseline tariff of 10% on all imports into the United States. It is effective April 5th. Then there is what the White House is calling reciprocal tariffs. Those begin on April 9th. Here's what we do know, and we still have a lot of questions out there, but in addition to the current tariffs, there will be a 34% tariff on China, but of course that's on top of the existing 20% tariff.

20% tariff, so that makes the effective rate at least 54%. So you see 34% there, but it's really 54%. For the EU, the new rate is 20%, but again, that really looks in some ways like 30%. 46% on Vietnam, of course, that's a country where a lot of U.S. companies had been moving their manufacturing facilities out of places like China because the United States told them to do such a thing. And then

24% on Japan, which historically has been one of our great allies as well. China and the EU each saying they are planning countermeasures already this morning, so this could escalate.

In the United States, two notable sectors getting hit this morning, as you might imagine, the auto sector being one of them. You're looking at General Motors down about two and a half percent. You're looking at Tesla, interestingly, down six percent, which surprises me. We can talk about why that may be the case in just a moment. Take a look at retailers as well. You're looking at Nike now off about 10 percent, 11 percent. That's a company that's

manufacturing a lot of its goods in some of the countries that are going to be seriously tariffed, China, Vietnam and the like. Five below off now, 15, almost 16 percent. Dollar tree off. Best buy off is well over 11 percent. For a closer look, rather, on all of us, we want to get to our team of CNBC reporters. Courtney Reagan's at the table. She's got reaction from the retailers, but we're going to start with Phil LeBeau on autos. Phil.

Andrew, I get this question from a number of people. Why don't the auto companies simply move some of these plants from Mexico and Canada back to the U.S.? The answer? Oh, it's a big one. It's all about money. Look at how much more expensive it is to build a vehicle in the United States compared to Canada and compared to Mexico.

This is information from the consulting group Alex Partners, a leading consulting group in a number of industries, including the auto industry. And we put the question to them point blank in terms of hourly labor and overall labor. How much more? What's the difference in building a vehicle in the U.S., Canada and Mexico? And a couple of things to keep in mind here. That's just hourly.

hourly labor. All in when you add things like indirect labor, energy costs, etc. U.S. assembly of vehicles, 68 percent costlier than Mexico assembly. And it's 38 percent costlier than if you were building a vehicle in Canada. Just a reminder on where we get most of our vehicles from in this country that are bought at dealerships. A little over half are built here

here in the U.S., but look, you've got Mexico, South Korea, Japan, Canada. That's where the bulk of the vehicles come from. It's only 5% for Europe. I say only. That's a significant amount, but that's where we get our vehicles from. The inventory right now is at 71 days, which is basically...

Basically normal. That's a normal market. But that's going to be changing very quickly. A couple of notes this morning. Stellantis saying that it will be pausing some of its production in Mexico and Canada, including shutting down its plant in Windsor, Ontario for two weeks, restarting on April 21st. That's where they build all of their minivans at.

Ford this morning out with a new marketing plan offering employee pricing as there is a surge of people going out to dealerships looking to buy a vehicle now before the tariffs take effect.

And finally, take a look at Nissan and VW. Nissan is suspending some of its production in Mexico, according to reports out of Japan. And VW is halting rail shipments from Mexico to the U.S. due to the tariffs. It is also going to be adding an import fee that will be listed on the sticker price when you go into dealerships as the tariffs take effect. That is the story with the automakers. Courtney, tell us what's going on with the retailers.

Yeah, Phil, I mean, wow, what a morning I think that we might be in for. President Trump's tariff announcement is what Jeffries' team in Asia calls, quote, a nightmare come true for textile and footwear manufacturers. So many brands and retailers have shifted manufacturing out of China over the last number of years to Vietnam and other Asian production Bayesian countries. And now those are subject to heavy reciprocal tasks. What we learned yesterday, Vietnam imports subject to 46 percent, Cambodia, 49 percent in China,

As we've mentioned, now subject to a 34% reciprocal tariff that's on top of the previous 20% levied by the administration for a total import tariff of 54%. In a note titled Tariff Tantrum, U.S.-based Jefferies analyst Randall Koenig says the new tariff announcement makes retailers' guidance and mitigation strategies, quote, essentially fruitless and all footwear and apparel margins will be affected.

question comes, where do we go from here? 34% of footwear sold in the U.S. last year was imported from Vietnam. That was second behind China. Similar picture for apparel. Some of the retailers most exposed to manufacturing in Vietnam include Nike, On, Lucent,

Lululemon, American Eagle, Wayfair. We know Abercrombie has a lot of exposure as well and many, many others. Retailers, frankly, have a lot to figure out. In the meantime, the lobby groups are speaking out on their behalf while I imagine the war rooms are going to be packed and busy today. Steve Lamar, president and CEO of the American Apparel and Footwear Association, saying in part for Connors,

Companies that have been in a wait and see mode, the chaos of the last few months, coupled with the confusion from today's announcement that was from yesterday, has only created more uncertainty. So, Andrew, a lot of the retailers just frankly aren't ready to speak yet, as you might imagine, because they just don't know what to say or what they're going to do. Let me ask you two questions. One is for most of these manufacturers, when they have moved from China to Vietnam or from

China and India. How long has it taken them to spin that up? Is that... Years. Because I keep hearing three to five years is almost a minimum amount of time that you have to... Okay. So then there's this... And we'll talk to Howard Lutnick about this. Then there's this game of chicken that goes on politically, which is to say...

They need to know that five years from now, these tariffs are going to be here if they're going to make that move. What are you hearing from retailers? Are they saying, we think this is here to stay? We don't know. We... I mean, really, it's a lot of we don't know. And there was a lot of surprise yesterday. This is...

You know, the words that I'm hearing is sort of shocked, much worse than we thought. We have to rethink things. I mean, when we were thinking that tariffs were coming in on all Mexican and Canadian imports to the degree of potentially 25 percent, that's what I think a lot of the retailers were preparing for. And we had asked them very specific questions in this last several rounds of quarters of reporting.

about that and so they had really begun to talk about it because as you might expect is the China conversation sort of took on a life of its own. We talked more about near shoring and brought things to Mexico. And so now I think that lesson is going to scar retailers a little bit to your exact point. I don't know that anyone wants to have a knee jerk reaction because is that the right thing in three to five years from now? So I think there's just gonna be a lot of questions, a lot of confusion.

I don't envy a retail CEO this morning. Court, there have been people who have suggested, and even as recently as this week, Jan Niffin suggesting that a lot of these would be picked up by the factories themselves, by the manufacturers of this. I don't think anybody was anticipating numbers this big, which makes it way more complicated. Right.

And maybe there's just a lot more pain to go around. Right. I think that's such a great point, because I think if you're talking about a 10 percent or a 20 percent tariff, which I guess is the case in some of these countries. But if we're looking at the top 60 or in this case, what I'm really focused on is the Vietnam, the Cambodia, the bank. Most of these clothes are made. Exactly. Most of these clothes are made. It is a very, very big number.

uh... and so we're not talking about splitting hairs on a ten percent we're talking about forty six percent forty nine percent so is everybody gonna take fifteen twenty percent of that i mean that is

- And it's especially a lot if you are a lower end manufacturer. We're not talking about luxury retailers where they have some more room for more margin that they can kind of play around with this stuff. But in some cases, when you're making clothes on the cheap. - Right, I mean, think about companies that have been built with commercial strategies. - We got a guy who's got a lot of answers to our questions. - Okay, great. - Joining us now, Commerce Secretary Howard Lutnick. You've been through,

You've been through a lot over the years, Howard, very seasoned, obviously. But today's move, is it unexpected for you about right? I mean, you saw Monday was kind of like a bonus, the way it turned around. But when it finally did happen and we got the numbers, was this reaction, is it overdone, you think, or about what you thought?

Well, I think the long term or even the medium term, you've got to expect the United States American markets are going to do extremely, extremely well. I understand the reordering of the rest of the world's markets, but they have been taking advantage

of the trading policy, the markets policy, all the policies of the United States of America were designed to make you rich and make us poor. You know, take our factories from us, go build elsewhere. I mean, imagine this. Why are all of our pharmaceutical products, the ingredients to our pharmaceutical products made in Asia? That's not cheap labor. That's just a failed policy that lets

The rest of the world got America. And that's what Donald Trump is here to address. And he's going to change it. And he's going to protect America for our children and our grandchildren. Secretary, who came up with the the equation that we've shown? I know it's hard to to get a clean number right.

for tariffs plus all the other things that you would constitute as unfair trade, whether it's currency manipulation or regulations or whatever. But there is some, I don't know if I'd call it confusion, but there's some downright derision about using...

a trade deficit imbalance and then subtracting it and putting it over another, and coming up with some of these, what look like almost arbitrary numbers taken, there it is. Did you come up with that? I don't know if you...

if you had advanced calculus or something. - All right, the council, stop, stop. The Council of Economic Advisors, right, coupled with the United States Trade Representative, they have huge staffs of economists who study this and have been studying this for years. They put out the non-tariff trade barriers. I'll give you an example.

Yesterday I was talking to a trade minister of a big country and I said, look, we can't sell cars in your market. You've got to do something to change that. It's obviously unfair. And at the very end of the conversation, the trade minister dropped his head and said these words. He said, fine, we will provide your car manufacturers the same subsidy we provide Apple's.

Just think about that for a minute. So you've got all these countries, they charge a VAT or a consumption tax. What do they do with that tax? If they turn around and sell really cheap energy to their steel company, then their steel companies destroy everything

ours, put ours out of business, and then all of the steel goes elsewhere and we can't defend ourselves in a war. If they take that and give it back as a subsidy to their car manufacturer, then their car manufacturer actually has a cost of $40,000 when our car manufacturer has $50,000. And of course, we're never going to sell a car.

So this is the reordering of fair trade. And what happens is people think it's all about tariffs. It's about those non-tariff trade barriers. That's what we are addressing now. It'd be nice if everybody on that list, all those countries said, you know what?

You know, we've seen the air in our ways and we're going to go zero zero. We want to make it fair across the board. But how likely is that? How soon do you expect to see some concessions or conversely, retaliatory tariffs would just cause this to go much longer than anyone probably wants to be more costly and could be a full scale trade war if it goes that way? Which are you expecting?

I expect most countries to start to really examine their trade policy towards the United States of America and stop picking on us. Stop saying that we can't sell our corn to India. Stop saying that we can't sell our beef anywhere. Just stop treating us so poorly if we are the great consumer of the earth. The United States buys everything.

everybody's products. We buy everybody's goods. You just have to treat us fairly. And that is the problem. So some countries, you know, which have these VATs and they use these VAT taxes to, you know, they basically subsidize their domestic production, right? That's got to really be bad.

We've got to figure that out together. But what you're going to see is you're going to see tariff rates decline. You're going to see the opening of all of these global markets to our agriculture, to our ranchers, to our fishermen. You're going to see American production start to rise and finally be fair. And I think that we have Stockholm syndrome. We're so used to being abused.

And Donald Trump's been talking about this for 35 years. Mr. Secretary, in terms of the suggestion that we're being abused or being fair, what would you say to the United Kingdom? Or what would you say to Australia where we have a trade surplus, where they could look at us and say, we're the winners of that competition and yet we are going to tariff them?

Well, look, they each have the lowest rate available. Right. I mean, if you if you really dissect these trade numbers that are made publicly, I mean, the United Kingdom, part of their trade surplus is that they have the London Metals Exchange and they count the importing of bullion. I mean, come on.

So, I mean, if you really dissect these things, you realize they have a 20% VAT, okay? And these things, but they work hard to have a balance of business with us. So we don't have a trade surplus with them? They're raping us too?

Well, they are. They have it. If you looked at them and really studied it, you'd see they have a goods deficit with us. Right. And and Australia buys a lot of our planes, which we really appreciate. But we're really looking at the production for people to get jobs. So the stuff of Mexico and Canada, I'd really like to talk about because.

USMCA is still in place. So if you make a car in America and the parts are made in Canada or Mexico, there is no tariff. The auto parts business of Canada and Mexico are not being touched. Energy prices are not being touched. You know, people need to understand we did not today, uh,

Semiconductors are not included. Pharmaceuticals are not included. Donald Trump's gonna deeply study those and those are gonna come later on how to reshore from Taiwan, all that semiconductor manufacturing. We have to protect ourselves at some point, right? America has to be able to protect itself. We can't have everything, I mean, think about it. All of our electronics,

are primarily built in Taiwan. It used to be built here. Our policies let Taiwan take it all. And now 9,000 miles away, our way of life is being built. And Donald Trump is saying, come on, that's gotta be here. That's why you've got Apple.

announcing it's going to do $500 billion in production here. I mean, think about it. We all hold our iPhones, which we love. Why do they have to be made in Taiwan and China? Why can't those be made with robotics in America? And you know what Donald Trump has said? They're going to be made in America.

Secretary Leibniz, there have been questions raised already about whether a company like Apple would be able to get a carve out from this because they have promised to build more in the United States. The market's trying to figure out how permanent these tariffs are going to be if there is a negotiation taking place.

Scott Besant, the Treasury Secretary, said yesterday that we may have to let these sit for a while. But I'd also heard that you'd been in charge of already negotiating with some countries, maybe giving them wish lists to say, here's what it would take to get these tariffs reduced or removed. Is that the case? And if so, which countries are you negotiating with?

We're talking with all of the major countries of the world and we've been talking to them for more than a month. This is this has been coming. We've said it's been coming. The key is, will they take our agricultural products?

Will they treat us fairly? Can they treat us fairly? And the answer is, over time, that is going to be yes. American products are going to be better sold elsewhere in the world. But the fact remains we are treated unfairly, and they have built structurally into their markets this unfairness.

the subsidies to their steel companies, the subsidies to their car companies. That's why we don't do well. Did you ever think about why we don't sell cars in Europe? Why we don't sell cars in Japan or Korea? Why we could never really sell cars? It's very difficult for us to sell cars in China.

It's not that hard to figure out. We can't sell corn, we can't sell beef, we can't sell cars because the rules are stacked against us. And I think it's interesting, it's time to change the rules and make the rules be stacked, act fairly with the United States of America. We need to stop supporting the rest of the world and start supporting American workers. - Let's take a for instance, Australia, for instance, hit with a 10% tariff.

And they don't accept beef imports from the United States. That goes back to when they thought Mad Cow was going to be imported with some of those things. If they were to start taking American beef imports, would that be something that would get them an exemption? And how quickly do you think that could happen?

I don't think the word exemption is going to be a factor. I don't think that's such a thing. I think what there's going to be is a world of fairness. Let's go try to figure out ways for the world to treat us more fairly and more properly. I don't think it's effective for the world to retaliate. I mean, those things are silly. We are the consumer of the world.

We buy $20 trillion worth of goods and we are basically the buyer of everybody else's in the world's items. So what is the point of them going higher so that we go higher? I mean, come on, look, he gave a 50% discount. What he's saying is, look, we need to rebuild American manufacturing base. We can't

allow the United States of America to not produce steel. We can't allow the United States of America not to produce pharmaceuticals. We can't have a war where we can't get antibiotics and we have to call another country to make a missile or to make a plane. I mean, these are

Obvious things. We need to have domestic production. We need to employ Americans. And I think that is the model that Donald Trump is seizing on. We need to employ Americans for the good of the United States of America. Factories are coming back. And here's the key.

Factories now can use robotics. And so American workers can be much more efficient with robotics. You're going to see the greatest surge in training for what we call tradecraft, teaching people how to be robotics mechanics.

engineers and electricians for high-tech factories. HVAC, you'd think about your air conditioning system. No, no, no. When you build one of these great factories like an Apple factory, they use air conditioning to cool it. That is really high tech. It's a great paying job and it requires a high school education and training and our Americans are ready for it. And you're going to see the greatest resurgence of

factory building and factory production in America. This is our time and it is time for us to rebuild it and that's what Donald Trump is out to do. He's changing the way people think about production in America. It's time to stop exporting and time to stop taking all our fact

and letting the rest of the world have them. It's time to bring them home. Along with that, there sometimes are some unintended consequences. And if it's the biggest reset of the economy, U.S. and global economy since World War II, Howard, the stock market's one thing, and I can understand, you know, we had 20% gains the last couple of years, and it's done well. But there's other markets in a world order to think about in terms of currency moves and bond yields.

And it does matter because we're interconnected. So I'm going to paint your story just quickly. The dollar has declined significantly since the president came into office. What if that became disorderly? And, I mean, Europeans have already lost a lot of money in the stock market and even more with the, you know, with the euro appreciating. What if they got to the point where,

where interest rates suddenly had to spike, the dollar started to go into free fall, investment capital no longer came into the United States like it has been because there's a fundamental shift in the world order in terms of currency. Is there a Trump put there? Maybe there's not a Trump put on the stock market, but what about on a collapsing dollar?

It just can't happen. I mean, if you think about it, the United States is a $29 trillion economy, and we are the consumer of $20 trillion of goods.

Other countries are producers of goods and we are the buyer of goods. So if you want to build your product, you're going to have to build it in America if you want to avoid these tariffs or these countries have to fundamentally alter the way they do their business. Those two things going together are going to result in interest rates in the United States of America being much, much lower, high quality production jobs, much, much higher, domestic

production of huge amounts of factories. That's GDP, right? Remember when Donald Trump says we've got $5 trillion of factories coming to America, think of 5 trillion divided by his four years. That is huge GDP growth on factory building, which all of you are not yet thinking about. These factory commitments are...

are going to create huge growth in America. Mr. Secretary, that's the big question I wanted to ask you about, factory commitments. And one of the things that I was speaking to a whole number of CEOs yesterday who need to actually make some decisions. And the question is, how soon do they make those decisions? And they talk about what they think of as this game of chicken, a almost political game, which is to say they don't know whether these tariffs, which are being announced today, are going to be the same tariffs

in a month, two months, six months, and more importantly, in four or five years when in fact the factories that they would have to invest in today would be up and running. What do you say to that CEO who says, you know what, I'm actually gonna take a, I'll take a flyer and I'll wait a year or two, see how this all plays out before I do anything, which also means that we're going to have a real freeze in terms of investment.

I think you're going to see, and we've been feeling it every day, that you're going to build in America. That this is a reordering of global trade and it's really thoughtful. If you understood how rough

these other countries are on American products. Rough, and their tariffs are just like the tip of the iceberg. The classic, the rest of the iceberg below the water is so rough and so difficult, and they have subsidies and they have trade barriers, and you can't sell because if you lean one inch to the right or one inch to the left, oh, you're not allowed to sell. I mean, I tell this story, we made a deal in 2012 to take Korean cars.

in exchange, they were going to take our produce and agriculture. And when McDonald's tried to bring in French fries, they actually said, we can't bring in the French fry. The American company can't bring in the French fries because we couldn't prove the origin of the potato.

I am telling you the rules of the world are so stacked against us that we are just the consumer of the world and it's going to end. And once that ends and once America wakes up to it, and now all of America is going to wake up to it, everybody is going to build their factories here. Everybody's going to move their factories here. And America is going to become the producer

of much, much more of what we consume. There will become a balance, interest rates will be much, much lower. The United States of America will be much, much stronger. We are growing much too much like the rest of the world. Our growth rate should be double or triple them because we are the greatest economy and we are feeding the world.

and Donald Trump would like to have America first. How about we feed America first? We start building these factories, you're gonna start to see GDP, domestic production go up. We talk about buying foreign cars, that's consumption, that's not domestic production. We're gonna start to see domestic production dramatically rise, and that's what Donald Trump is focused on. - We appreciate all the time you gave us this morning, and hope to see you

Explain all these things. Make the case. I said, yeah, the Commerce Secretary, he'll probably be waffling a lot about all these things. That was sarcasm. You are not. You're very steadfast in making that case. We appreciate it. Thank you.

And that is SquawkPod for today. Come back tomorrow. Listen every day. SquawkBox is hosted by Joe Kernan, Becky Quick, and Andrew Ross Sorkin. You can tune in weekday mornings on CNBC at 6 Eastern or get the smartest takes and analysis news from our TV show right into your ears anytime you want when you follow SquawkPod wherever you listen to podcasts. Thank you. We'll meet you right back here tomorrow. We are clear. Thanks, guys.

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The U.S. and China are competing for global leadership. The country who wins will define the world we live in. U.S. international assistance is vital to our national security. It helps prevent terrorism and avoid costly wars. It fights diseases and saves lives. It helps keep America as the number one economy in the world. U.S. international assistance protects our interests at home and abroad. If America doesn't lead, China will.