SMBC's Joe Lavorgna Talks Economic "D-Day" Against Iran, Tariffs

**SPEAKER_1** (0:02)
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**Joe Mathieu** (0:07)
I mentioned Joe Lavorgna was coming up, and what a day to have him with us. The chief economist, SMBC Americas, former counselor to Treasury Scott Bessent, who we just heard from, and an important economic advisor to President Trump in the first term. He's with us live from World Headquarters in New York. Joe, good to see you.

**Joe Lavorgna** (0:23)
Good to see you.

**Joe Mathieu** (0:23)
Welcome, you've been very generous with your time, and everyone should know you were listening along with all of us as the Treasury Secretary spoke. Will D-Day work this time?

**Joe Lavorgna** (0:33)
The sanctions, though, as Kailey said, we need more details, but it seems very strict and potentially very groundbreaking and broad in a way that sanctions have not been used before. The fact that the US is trying to pressure Iran to negotiate a table to me is a positive. We're not involved in military kinetics at the moment. Hopefully, that will remain the case, and that somehow there is a negotiation that takes place. But of course, if the sanctions work the way the administration would like them, and the regime crumbles internally because of it, well, that will also be effective. So it's a strong negotiating tactic. We'll see what happens.
I don't know exactly how they're going to be implemented, but right now, from what I heard, it sounds like the rhetoric is pretty harsh, and my guess is Joe will be matched with action.

**Kailey Leinz** (1:21)
Do you expect that it will be matched with action equally for all of these different countries to which it could apply? He obviously indicated that China wouldn't be exempt from this, Joe, but I do wonder if you believe that the US would really be willing to do its worst ahead of Xi Jinping's visit here just weeks from now.

**Joe Lavorgna** (1:37)
Right. Well, that's a fair point. And there was one of the questions that asked about the comparison to D-Day, and the secretary is allowing there to be some runway before these are fully implemented so that these backdoor, whatever it was, the negotiations, so to speak, backdoor, I think was the word used, or backchannel negotiations proceed so that there could be some success. So the secretary is pretty persuasive. He knows how this negotiation process works, which is why I believe intentionally he didn't want to give that much information. The fact that he did allude to the fact that major financial institution could be sanctioned this week, I think is important and probably is raising some eyebrows. So we'll just have to wait and see.
But I think he was, as I said, very firm, very credible. We'll just have to see now what actually happens.

**Joe Mathieu** (2:23)
It was mentioned earlier, Joe, that as of right now, Scott Bessent is running the war with Iran much more than Pete Hegseth is.
And as the administration turns from military warcraft to economic statecraft, I'm just wondering your thoughts on this. You worked very closely with him. Is this something that he envisioned? Did you game this out when you were at the Treasury? And is the country in better hands now that he's in charge of this?

**Joe Lavorgna** (2:54)
Well, obviously, I'm very happy having worked for the Secretary, I'm very happy he's in that position. And I can tell you many clients, it's like the Bloomberg story that was run A number of months ago, in Bessent, We Trust, I wouldn't say that the Treasury Secretary is taking over from the Secretary of War. The fact is, and when you were in Treasury, you realize it, but the tentacles, the reach of Treasury is just so broad and deep. Undersecretary for Terrorism and Financial Intelligence, Acting Secretary Gene Lang. The sanctions are a big part of the Treasury's portfolio. So the fact that the administration is using economic leverage in addition to prior military kinetics are all part of a larger platform. But I wouldn't say one department is overtaking another. This is just part of the Treasury's portfolio, which has certainly grown in scope relative to past Treasury secretaries.
I think it reflects the fact that the president and many in the administration have a lot of faith and confidence in the Treasury Secretary, so hopefully, they'll be successful.

**Kailey Leinz** (3:58)
Well, when we consider the various challenges the Treasury Secretary now has before him, certainly this is one, but he was asked there repeatedly during that press conference about another, which is climbing long end rates in the United States, hence the bigger buyback announcement of last week, the promise of some coming fiscal consolidation, which let me know if you buy in to that notion, Joe. But could some of the things that the Treasury is trying to pursue, choking off Iran economically and therefore taking even more energy out of global markets, actually fuel the inflationary forces that are creating, in part, his other headache right now in terms of higher borrowing costs?