biden and sanders and buttigieg and others it is 9:00 9:00 >> you'll see the highlights. >> first they put the nba games at 9:00. i can't watch that and now this >> they do it just for you, joe. >> early bird special. >> make sure you join us tomorrow when they have the first debate tomorrow night. "squawk on the street" is next ♪ good morning and welcome to "squawk on the street. i'm david faber with sara eisen. we're live from the new york stock exchange jim cramer has the day off carl quintanilla, he doesn't he's in hanoi. and he's got an in depth look at vietnam's manufacturing boom and what it means for tariffs and u.s. trade let's give you a look at futures as we get started with trading, 30 minutes from now here at the nyse we have the april s&p

case-shiller report, home prices up 3.5% in april compared to one year ago, compared to 3.7% gain in march all right. let's bring in carl quintanilla. yesterday or over the weekend, traveling to vietnam, you saw a bit of some of his teases and reports, but he's there in a place that, of course, carl, has become so central in the discussions of trade that we have on this desk every day with jim in terms of changing your supply chain, so curious to see what you have learned in the time you've been there in terms of how easy or difficult that actually is. >> yeah. david, you're right. it is funny, you know, we talk about it at the desk all the time, and then you get here on the ground and see what is happening in real life because this is not something that companies address directly or specifically you and i know we have read the transcripts and the conference calls, they say we're looking at it, we're going to study it, reports that others may or may

not be studying, expatriating supply chains out of china to various countries like vietnam but you to get here, talk to suppliers, talk to brokers, talk to lawyers, talk to government officials to see what exactly is happening. i would say net net in certain categories, specifically apparel, it is happening you look at q1, exports out of vietnam, to the united states, up 40% exports from china to the united states down 13%. so they are -- they're stealing some market share, pretty fascinating. but there are a lot of challenges, even if they were able to bring on more production online, how do they get those goods from the factory to the ports. they don't have the super highways china does. they don't have the huge rural workforce, migrant workforces that china does. how much will they really be able to steal in terms of market share. so all day long today, we're going to look at whether or not this is vietnam's moment, what is it going to take to capitalize on it, which american companies are truly counting on this to happen and then what happens if we do

get a deal out of g-20 or beyond what happens to vietnam's dreams then there is a lot going on. sara, i know a lot of this hits on your beat regarding footwear and apparel. we got a lot to show you later on this hour and this morning. >> footwear, apparel and currency here's my question i wonder if the u.s. government can start to go after vietnam. they were flagged in the last treasury report as a potential currency manipulator they start having a ballooning trade deficit with the u.s. which we know our president hates and if all the production is going there and not to the united states, i wonder if they become a target. >> i totally agree one big mystery has been why the president has been so silent on the trade imbalance with vietnam when he's been so vocal on trade imbalances with other countries. obviously currency is one way some of these american companies might be able to mitigate the cost of a tariff but in the going to be the cure all. jpmorgan, great table of in

retail, where -- how much you would need to raise prices to make up for a full blown 25% tariff on all chinese goods. walmart and target, 17% price hike best buy, nearly a 20% price hike costco, same story that's not assuming any mitigation, not assuming any vendor renegotiations, so these are real issues. we're not there yet, obviously good chance we may never get to that point this is the -- these are the things that supply chain managers are starting to have to game out just the way they game out, what if a earthquake happened at our plant in western china, what would we do then those are the war games going on >> something else i've heard from both small and larger companies as well as the question of, okay, if i move there, can the quality of the product be the same as what i'm making in china. and then there is this fear and you raised it that will get a deal with china and suddenly i'll have moved my supply chain

to vietnam will i have the same price or will i be above where i was and am i going to be undercut by those when stayed this china, all concerns at least for people who are exploring the need to change their supplier base >> i know. remember the week we had where we thought there might be tariffs on mexico and the conversations we had about go-pro, which had moved production of u.s. bound cameras from china to mexico, only to face that week what a nightmare that would have been your point about quality is exactly the right one. in apparel, yeah, okay, you can train someone to work a sewing machine or blade saw that cuts fabric in about 90 days. that's not a terrible ordeal getting someone who can work a true tool and dye machine the way we used to do with the united states in the 1950s and '60s, that's a much larger challenge and that's where the chinese really starts to make vietnam and their ambitions look

a little more chancy so we'll try to get into the differences between categories later on. >> and, quickly, carl, we have been seeing the video of the nike factory and you mentioned that footwear and apparel have been out front in terms of industries to move their factories to vietnam way before the trade conflict with the u.s. i wonder, though, because they still have a big presence in china. nike has been moving to vietnam and indonesia and bangladesh and they have a footprint in china is it because there is just something about the scale that china produces or the quality that you can't get by moving everything to a place like vietnam? >> yeah. you never miss a beat, sara, that's right one reason is that the raw material, the actual cloth, the yarn, the things you need to make a fleece, still come from china. even the factory that we're looking at right here, 90% of their raw material still comes from china you talk to any manufacturer when makes rugs or curtains,

that's not going to change china spent two decades investing in that very low end supply chain and so that's hard to replicate and to your point about bangladesh and sri lanka, china gave away a lot of that to those countries. at the low end if you talk about down jackets, ski jackets, things harder to sew, china is less likely to let those things go. >> carl, we so much look forward to your reporting throughout the day and certainly for your shows here in the morning, given the importance of this and so many of the great videos, so much of the great video we have seen carl quintanilla in vietnam, going to be joining us throughout our show this morning. let's get to a major deal, though, we want to bring you in the pharmaceutical industry, hit about two hours or so ago, abbvie is acquiring the botox maker allergan the price tag, $63 billion deal,

worth about $188.24 a share. at least at the open, in cash and in abbvie stock. that's a 45% premium to the closing price yesterday. this is one that did not leak. so they're able to say, not the last month or the last week, but yesterday, a 45% premium, sara that is very significant let's go through some of the key parts of this deal itself because it is probably something of a surprise to abbvie holders as they woke up this morning and they are responding to a certain extent by selling some of those shares, alternatively, those in allergan watching that stock decline for quite some time, who may have been in even since the failure years ago of the pfizer deal when it was so close to getting a deal done, of course, key part of that being pfizer's desire to invert to move to a different tax regime, and then jack lew said not going to happen by really pinpointing the deal with some changes in the

laws the deal again, .866, shares of abbvie, 120 and 30 cents a share in cash. it is expected to be 10% accretive to eps over the first full year. get to as much as 20%. they're also talking about synergies of at least 2 billion by year three and expected to close next year. what is going on here though well, abbvie has a huge drug, still the biggest drug in the world, $19 billion a year. 2023 is when it hits, patent expiration it wouldn't go from 18 billion to zero but would decline year after year after year. you want to use this time now to potentially use some of the profits that come from that to diversify your revenue base. they'll be able to do that going from 60% to 40% of revenues as a result of this deal. but they are moving into areas that they have not typically been associated with, at least not fully, when people talk to

abbvie, they talked about high science. they talked about their focus on really just a few key areas, and sort of not trying to do too much so on oncology, inflammation, central nervous systems, that's been their focus now, well, things broaden out a bit, don't they? and the question that i've heard, sara, is well they need scale, if you want to compete with the big guns, namely novartis, j&j, pfizer, merck, and compete for some of the smaller companies, you need that scale. and this they hope gives it to them but somebody i spoke to, very familiar with this area, and even thought about this deal in the past said this may whab is the best of a bunch of mediocre alternatives for

abbvie >> it is a way to halt the exit of four year slide in the stock since pfizer deal collapsed in 2016 and for abbvie it diversifies the revenue. a few things to talk about number one, the tax deal, this is a victory for trump. >> freedredomiciling in the u.s. pfizer wanted to use it to invert that fell apart. but they will redomicile in the united states because tax regime is markedly different now. it will have the effect of increasing in some fashion and, you know, everybody likes to make sure they know that because who knows, might get a favorable tweet from the president. >> there is also some serious -- the antitrust authorities started looking into these megadeals, right, in -- >> very few overlaps. >> you heard it yesterday.

>> very few overlaps on this one. not expected necessarily to get -- you never know, we always need to say that, and, yes, that's right, with bristol yesterday and celgene, it is funny, this is somewhat similar to what bristol did with celgene. bristol had two main drugs it relied on. it is about gaining scale and being able to compete. there is a theme here if you're highly dependent on one or two drugs, you need to potentially diversify away from that you don't have that many choices. you don't have that many choices. if you're abbvie, you made your choice they're talking about a new growth platform, revenue of more than 30 billion. they're talking about generating significant operating cash flows that would have been 19 billion in 2018. they will continue to pay their dividend, will continue to generate a good amount of cash for r&d. we'll see. very curious to see. allergan, you get it, right? and his shareholders, brett saunders, april luiou appaloosa,

which had been in there, any number of them -- >> there was resumers that thrue looking at a split or some other structural change to the business t has to be superior to that >> yes, that is right. i think there had been an expectation when mr. saunders had talked about having a sense of urgency to create value that he was talking about a split and while if you look at average analyst estimate of what a split would bring, it might be about 190 bucks, it would have taken years to get there here you get virtually the same compensation and you get it today. well, you get it when -- >> will we see another bidder for allergan >> unlikely. unlikely this is irish takeover law the breakup fees 1%, very low. it is not a borrow it all to potentially another bidder the only name some have bandied about would be j&j, already big in some of the areas that

allergan is big in unlikely >> i think it is fascinating that, you know, here we go, 2019, with a bang, all these drugmakers are just getting bigger this is the third mega $60 billion deal, celgene, bristol and this one. >> yes >> it is all about -- there are, you know you still got -- sure, you got glaxo and lilly, you still got some out there at least some may be seen as subscale and that's what it is always about when it comes to m&a, gaining scale, certainly all right. >> cutting costs >> coming up, what warren buffett is saying about his relationship with 3g and the wake of struggles at kraft heinz. we talked about that yesterday look at futures, we set up for an open 15 minutes from now. more "squawk on the street" for you live from post nine.

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there is significant tension. i heard this from many people from warren buffett and 3g they are not on good terms any longer a number of missteps unilever, the accounting problems, any number of things but i can tell you that they are

not getting along. that was what i told you yesterday about warren buffett and 3g capital buffett telling becky quick, there are no tensions between himself and 3g berkshire hathaway's partner in kraft heinz. buffett expressed sort for the incoming ceo of kraft heinz, miguel patricio, who takes over on july 1st. i stand by the reporting i mean, nothing says that buffett isn't friendly with jorge, but i will tell you the teams of the people who work for buffett and i think that 3g, there is tension not unexpected that said, you heard what he said, they haven't sold the stock, sara, which would speak volumes. >> a lot of other people have. >> but many people wonder whether or not they would ever do something together again.

>> so the stock lost about 50% of its value over the last 12 months whether buffett and 3g are at odds or not, is not really the issue. the issue is this company cannot turn itself around people have lost a lot of money, betting on 3g, which was supposed to be this sort of miracle dealmaker to turn around this company just go to kraft heinz brands. velveeta, miracle whip, cool whip, country time lemonade, crystal light, capri sun, kool-aid, none of them are what millennials want now those are the complex foods of, i don't know, our grandparents, maybe you growing up. >> i grew up on them may have stunted my growth that's what i blame, yeah. >> that's part of the problem. they cut costs so much that was the whole 3 they were going to come and do a deal and it didn't happen. unilever rebuff was a misstep. >> years ago now we heard it from mr. buffett

telling becky what he did in terms of his relationship. based on who i'm hearing it from, i believe there is and has been tension how will it play out, we'll see. you have to view it through the prism of there had been an expectation, they would be partners for life and conceivably this deal to the next deal to the next deal with unilever, much of that came to an end regardless now with the market cap of $35 billion, they are more prey than actually -- >> at one point, the whole buffett 3g friendship really propped up valuations in the entire group everyone thought who's next. valuations are high. but there are other factors supporting them like low bond yields up next, art cashin on what to expect from today's trading action more from carl in vietnam. >> 95 million people, 6,000 factories in the garment business alone is vietnam ready to become the new china? and is the threat of new tariffs

what's going to get it there all day today on cnbc.

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welcome back to "squawk on the street." you are looking at a shot of cardinal timothy dolan, archbishop of new york, here at the big board today to ring the bell on behalf of the catholic charities. we're minutes before the open. let's bring in art cashin, director of floor operations with ubs things have taken a turn in a positive direction futures, we're seeing a little bit of that action in europe what is the buzz today >> well, i think i said

yesterday morning that i thought we would have a consolidation day. even a blind squirrel can find an acorn every once in a while. >> you've found plenty of acorns in your time. >> we may continue in that patte pattern. i think they got a little bit better going to be fed speakers all day. 1:00, will be powell that will be big i'm going to hang out until after the close when bullard will be speaking what was amazing was that dallas fed's captain came out with an essay yesterday, he expressed concern that further monetary ease may not help economic activity at all. he sounds like the europeans >> does the market care though >> the market didn't pick up on it at all. >> market just wants to see easing, doesn't it >> 50 points in july that you were talking about and they think they're going to get it in the meantime, you got the

iranian situation, still people crossing their fingers that neither side goes to military action. and that we still wind up with sanctions and things of that type but the market is, as i say, consolidating. we're at new highs, but this is also right around where we pause back in early may and when things started to turn and head the other way. so i would make for narrow range relatively quiet day. >> art cashin, thank you for joining us. >> my pleasure. >> opening bell a few minutes away stay with us

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guests, mike santoli joining us here at postnine we talked at the end of yesterday, our trio here art called it a consolidation day. you sort of had similar words for it. >> that's right now what the market is telling us is you achieved new highs, waiting on a few big et is going to be sensitive making sure no one wants to outright call the market assumptions out about a july rate cut so far we haven't gotten that. i do think treasury yields are back down again. ten year at 2% still feels like that low and slow playbook, right low yield, slow growth is in play, want to see if that continues. >> you have this very odd picture right now if you look at the markets. you have stocks at record highs. you also have this big reach for negative yielding bonds for bit k coin, for gold they don't yield anything.

no safe haven, whatever they are. the dollar is weakening. so once the dollar starts weakening and we're at march levels basically, everything else goes up, like a bitcoin, or like a gold. that's what is happening >> opening bell for this tuesday. take a look at the s&p 500 real time exchange back at our headquarters looks like working out for more green on the board catholic charities, archdiocese of new york, cardinal timothy dolan, archbishop of new york doing the honors at the nasdaq, metadata solutions, pharmaceutical software provider for managing data and tracking clinical trials we have had a heart beat had domes do it comes to mergers and acquisitions yesterday the caesars deal, not insignificant. worth noting the acquirer el

draud yorado down a lot the m worth noting abbvie stock prices down double digits at the open, down 10% on, of course, this $63 billion deal to acquire allergan its share holders were quite excited about as you might imagine given a 45% premium to yesterday's close. >> talking about how we have negative or low yielding bonds everywhere, liquidity is high. cash is almost free. therefore buy an asset or buy something that will have some kind of long-term growth profile. that's the logic here. i don't think there is anything out of the ordinary for a large pharmaceutical a feature of in economy for decades, but i do think that the fact that it is happening now tells you that the companies are at a moment where they want to bulk up. i think m&a is underperforming in terms hough market cap is

total in terms of the u.s. market would have expected higher volumes. so i don't think necessarily is the start of off to the races. it is a constant feature of -- >> a lot of concern and rightfully so perhaps as a result of the trade tensions that having cross border deals, for example, that were so prominent for a period of time, certainly those deals that might require antitrust approval in china would be very hard for a board of directors in this environment to sign off on not to mention simply given the uncertainty in terms of if you are an international business or one that derives revenues from overseas, figuring out how things are going to go we have seen, again, in this particular area in pharma, the third, as you pointed out, large deal that we have seen in the last six, seven months and it speaks to the need for scale it speaks to the need for some of these companies such as bristol-myers and in this case

abbvie to diversify away from one or two drugs that provide the bulk of their revenues and to do so prior to the patent expiration for those said drugs. it is humira. >> facing a patent cliff. >> yes. >> you look at abbvie stock getting hit today, sometimes these companies get caught up in the general sector trade this is a high yielding stock. not much of a growth stock in the penalty box, but still stable so you have a lot of people in there owning it just for those features and not because, you know they back the strategy and you hear today, big diluted acquisition. >> they are keeping that dividend one thing to share with you, the conference call began at 8:30 eastern. richard gonzalez, abbvie, running the combined company, brent saunders, ceo of allergan, will step on to its board. unclear what his future holds. he's a young man, so assume he makes -- finds himself somewhere

else at one point. gonzalez said we look at three different types of transactions, one was an enhanced string of pearls, smaller deals, if you look at a larger number of the string of pearls, he said you rely on a series of binary events that could play out positively or negatively, hence he believed the big deal was the ideal strategy that's what we ended up with this surprising announcement this morning. >> it is an appropriate way to make his exit. he built his reputation as somewhat of a dealmaker. and they tried for the pfizer deal, tax inversions were all the rage, jack lew, bad timing >> right at the end there. pfizer was looking single-handedly at it as a result of how much they would save on their taxes, why allergan stock price went it a level it never, ever recovered to once that went away, and then once there was no long are a need for tax inversions and it was no longer had that ability to offer that to a potential

acquirer, it never was able to regain those heights. >> the promise of botox, all the aesthetic products. >> botox up 17% in the first quarter. very, very strong and for migraines as well, another indication that it -- or at least used for botox beyond just, i guess this kind of stuff. >> i know about that, yeah it gets rid of wrinkles in your head and helps with measuyour migraines. >> what we have seen in the recent run-up, real estate and consumer staples people think that's a nonconfirmation of the record rally and this idea that things are great and we're looking at a better second half of the year you got that you also have transports, which i wanted to highlight. they did not do well yesterday they are not near record highs are they still in collection territory? you got names in there like fedex, suffering some individual problems which we should talk about, guys. fedex is coming out after the bell today.

>> down another percent and a half. >> suing the u.s. government saying essentially because of the new rules from the commerce department they have to police packages from huawei, which has gotten them into trouble, and now they're being investigated by the chinese government. put that aside, fedex is also dealing with issues like amazon, which is now kind of breaking up with because of the challenges there. and competition from u.p.s it has been slowing and it had to cut guidance in march and in december so we'll see what happens again today. >> margin squeeze in the delivery business domestically and then just reduced flows of global trade in freight. that's, you know, just a general backdrop is not helping there. and all the rest if you look at how fedex trades under valuation basis, it is rarely been this inexpensive, if the forward earnings forecast are anywhere close to correct. a lot of stocks are like this. the market is not willing to take the bet that the growth will come through. that's why you're seeing

consumer staiconsum er staples and other companies stay in favor. is there going to be some kind of big flip. if you get either a rate cut or the economic number start to come through a little better, there is a lot of dry powder in these deep cyclicals you think -- >> the numbers are coming in worse. >> no trigger for that just now. and that's why i think we have that >> look for stability in fedex the other index i would point out as far as the sort of nonconfirmation bullish signals is the russell 2000 index of small capcaps, it has not had t banner june that the s&p and dow has had. i looked at it the russell 2000 over the past 12 months lost 9% versus the s&p 7% run it is up 4% in june versus the 7% gain for the overall s&p. this is the small domestic players, if we were banking and betting on some sort of recovery in u.s. earnings and u.s. economy and a better trade deal and fed cuts, wouldn't you

expect to seat small caps do better >> sort of a lot of financial stocks in there, they have not been able to get out of their own way, they also -- a lot of unprofitable companies the same thing if you're not willing to bet on a big profit rebound in general, small caps are not going to really be the place you want to go there is also a lot of trade dependence businesses in there that aren't really the direct exporter i guess it is not terribly surprising very stark, as you say it doesn't tend to predict a lot in terms of whether we're near an overall market top or the economy is about to enter recession, data track research, interesting piece today saying it doesn't tell you that much on a forward going basis except that small caps have been really weakened very similar to 2016 a lot of the same features that we saw here. even though credit markets are strong and a lot of times that determines if the russell performs well or not. >> i don't want to call it an

update, but we want to keep track of the ongoing negotiations between the department of justice, sprint, more importantly t-mobile and dish they continue to try to fashion a deal that would meet the objections of the doj to just a straight deal in terms of establishing a divestiture that would lead to a robust fourth competitor in the wireless industry and our country, not necessarily right away, but within some reasonable amount of time late last week i reported that people close to the situation were quite optimistic, putting it as high as 90% the chances they would get the deal done difficult to put percentages when dealing with charlie irbegan, a man known for how difficult he can be when it comes to negotiating that would seem to be perhaps the case here. we'll see if they can get there and fashion that divestiture boost and spectrum it appears according to the reporting of others, not mine,

that mr. irgan may be petitioning for the delay and when he needs to build out on certain spectrum he already owns and has a deadline on building out on but, of course, he would be bringing in even more spectrum and conceivably creating a nationwide 5g competitor we'll update as we get it. wanted to keep an eye on that. finally, we are keeping an eye on abbvie. interesting to see the loss of market cap for that company as it moves boldly into a future, wow, down over 14% now that's not a great start for the deal by the way, i said this, may have seen it, gonzalez, the ceo of abbvie, did initiate, i'm told, about six, seven weeks ago, called his counterpart brent saunders and said, hey, can we talk. that's how they begun on the road towards this deal they announced this morning. >> are they paying too much? is that why the stock is down? >> there is a question of the assets they're acquiring well said by somebody who -- it

perhaps the best alternative but mediocre alternative, the best though it may be in terms of sort of seizing their future let's get to bob pisani on the floor. >> this is indeterminate open. this is the way we thought it would go this week we're awaiting the g-20 meeting and it is the week after the quadruple witch. that's usually fastest to the downside indeterminate open, consumer discretionary reits, health care, materials, energy, either side of positive or negative but we're ending the quarter and it is not the month that matters. professionals tend to look quarter by quarter this is very much a big cap quarter. really dominated by a small group of super cap stocks, for example. the s&p up 3.9%, you go down the food chain, midcaps are slightly flattish, and small caps, notably to the downside, transports down about 2% when i say super big cap stocks, you look at the point impact on

the s&p 500, you can see what is going on here. the s&p 500 up about 110 points for the quarter. look at this, microsoft is 213 of those points. how is that possible one stock can be more than the actual total because other stocks are down. intel down, that's having a negative point impact on the s&p. the s&p up 111 points, microsoft 200 points facebook is 85 disney, 75 71 for amazon. apple -- look at five stocks, basically are dragging the s&p 500 up because they had a significant percentage move and because they have such a huge waiting in terms of market capitalization let me show you the transports, really a tale tof two cities. it is the logistics and transport names that are all down we're all obsessed about fedex we're going to get the earnings report they got it downward, fourth quarter, they got it downward last quarter, we'll get two fiscal 2020 numbers from them and that's going to move the

dial but the whole group as a whole, logistics company, whether you talk about hunt or ryder or land star or robinson, any of those companies out there are just down on the global slowdown concerns fedex has concerns about competition with amazon. it is not the only thing that is going on but it is the global slowdown that is really moving these. if you look, elsewhere in the transports, though, for example, there is a tale of two cities. all the airlines are to the upside jetblue, alaska, american, they're all trading to the upside depends what you're actually looking at finally, i want to know, ipos yesterday, a little flutter there with some of the big names that have been up double digits. down notably on the day, down double digits. all that is a little more stable today, zoom, resolve, pay to duty, cloud strike flattish, down four days in a row, keep an eye on that. slack, $35, that's not bad they opened at $38.50 last week. reference price was $26. that's still well above the initial reference price.

sara, back to you. >> bob, thank you. >> to the bond pits now. rick santelli at the cme group in chicago tracking the action as always. good morning, rick. >> good morning, sara. how low can rates go well, you know, last week on wednesday was fed day. that established at least for a while a new low closing yield for 10s, 202 last night 201 let's look at a chart that starts last wednesday on fed day. you see we had some 197 low yields intraday. but the close wasn't down there. now we're definitely hovering below 2%, most likely extendinging textending i the historic run with the rest of the curve and the rest of the world. look at bund yields. you can see from this chart, this is just an intraday, we ticked off minus 33. so maybe three quarters of a basis point more negative than the most recent negative yield close. they really auger the question as to where is the exit, where is the support for banks in europe and japan

time will tell it is not only our rates, of course, i showed you bunds let's look at the ten year gilt, the uk's ten-year, reached 880 basis points we haven't been under 8 0 basis points on a closing basis since around halloween of 2016 if you look at gold versus ten year note yields, yields, and gold are inversely related makes sense. it is the safe harbor rades. look at how they accelerated gold up, yields down here is another safe harbor trade. the dollar yen, right now the dollar is suffering against the yen. worst level since april 2018, global dynamics continue to push investors not only into equities, but into some safer trades as well david, back to you >> thank you, rick time to head back out to carl quintanilla, he's in hanoi, vietnam. carl >> so manufacture the nay of thk

about every ay, they all have sourced product out of vietnam and they have been doing that for years. what happens when they start upping their orders, trying to hedge against china? well, those production lines get stretched, and those lead times get stretched. it all starts with raw materials, despite vietnam's growth in textiles, still heavily rely on china. close to 90% after this factory. once the materials are inspected for quality it spread out using automation, and then cut into smaller pieces where they get ready to get sewed this is going to end up as a component in a kid's hoodie. they try to use every possible stitch of material so that nothing goes to waste. less than 1%, which will eventually get recycled. and it all leads to this the production room. 34 different lines, each with their own product, and real time targets. 1800 workers under this one roof alone. this sign reads, we love the

factory as our home, we love the machine as our children. a big part of this is keeping employees motivated and happy. this is just one of the lines where they're making a fleece for nike workers here make about $280 a month, well above the country's minimum wage of $170 and had they're done with the piece, they hit a green button that tells the production line whether they're on track you can see the famous triple stripe that is adidas. stakz and stack stacks and stacks of finished nike, all of this will get boxed and pressed and screen and get ready for shipping you see the finished product getting screened for pieces of metal, anything that may havecl production this flips it and screens it twice. these boxes of finished goods are headed for a 35 day trip on a boat but they tell a larger story about a country now trying to

make its move in global production i reached out to a bunch of those clients, no comment really and not a surprise, customers generally don't talk about their supply chains. specifically but in the next hour, having covered the production element, we're going to talk about what it takes in vietnam to get a good from the factory to the port because the infrastructure here is not like it has been built up in china over the years. and that's going to be another challenge for this country if they do try to take some share guys >> carl, i can never get enough of those pictures. kudos to the team out there and to your shooters as well, just in terms of the factory floor. it is amazing to see all of those people, working on all those things you mentioned it earlier, you mentioned it again in the piece, 90% of the fabric still comes from china but that would not -- the end product still would not have a tariff on it because that is bought by the supplier, right?

>> exactly there is an interesting game that some play, david. if you can -- if you've been making stuff in china, what is to stop you from shipping it across the border into vietnam, renting a warehouse and exporting it from vietnam. they call it renting the label commerceis starting to get wis to and cracking down on some practices of that. that's what we're up against very complex supply chains, like a big string of spaghetti. a lot of them are small, not well known and willing to go out on that risk curve and place some off beat risks in terms of strategy business models. >> we just did the open and one stop or etf that has been working well lately for investors is eem, the emerging markets etf. it is having a nice run here they have got the higher growth rates. they have got the higher yields. the dollar has started weakening which is helpful for them, the fed will be easing again

i guess the question, carl, is what is your sense of the economy because vietnam is one of those fast growers and yet isn't it still so dependent on china for growth >> hugely dependent. a dependent on a lot of the investments over the years have come from the south koreans, have come from the japanese if you go up and down the highway, you'll see canon and you'll see samsung what's different is getting phone calls from hong kong, i think china might be trying to keep the end line business but change the actual location of their factory. that's an avenue that we'll have to pay more attention to but you're right about em and you're right about vietnam gdp 6-8 is faster than all other south asian economies. if any country is set to take some share, it's vietnam >> 6-8, a gdp to be jealous of carl, thank you, we look forward

etm.ore of your reporting from vina meantime, dow has dipped lower, it's at 56 points we'll be right back. >> announcer: the bond report is sponsored by pimco we built it to help them go beyond. because beyond risk... welcome to the neighborhood, guys. there is reward. ♪ ♪ beyond work and life... who else could he be? there is the moment. beyond technology... there is human ingenuity. ♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. has been excellent. they really appreciate the military family and it really shows. with all that usaa offers why go with anybody else? we know their rates are good, we know that they're always going to take care of us. it was an instant savings and i should have changed a long time ago. it was funny because when we would call another insurance company, hey would say "oh we can't beat usaa" we're the webber family.

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let's take a look at this morning's top gainers on the s&p 500. no surprise, allergan the biggest winner aer t afthebbvie deal we'll be right back. my entire career and business were in jeopardy. i called reputation defender. they were able to restore my good name. if you are under attack, i recommend calling reputation defender. vo: there's more negativity online than ever. reputation defender ensures that when people check you out, they'll find more of the truth, not trash. if you have search results that are wrong or unfair, visit reputationdefender.com or call 1-877-866-8555.

coming up, we're going to have more from carl. he's in vietnam, of course he'll be discussing the country's manufacturing boom, where u.s./china trade fits into that picture, as you see a live otf ghttime in hanoi keep it here y's headwinds? or plan for tomorrow? at kpmg, we believe success requires both. with our broad range of services and industry expertise, kpmg can help you anticipate tomorrow and deliver today. kpmg

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welcome back to vietnam, which has slowly been stealing manufacturing production from china for a decade but now there's a trade war and tariffs, which has a lot of people asking, can vietnam become the new china ♪ all around the world ♪ got to spread the word ♪ tell them what you heard good morning, everyone, welcome back to a special edition of "squawk alley." we're live from post 9 at the new york stock exchange. carl quintanilla is live from vietnam with a look at the company's manufacturing renaissance. we do not have breaking economic data at this hour, let's get to rick santelli for the numbers. rick >> yes, a trifecta we'll start off with some of

these regional fed indices, they've been exciting, this one not so much, very close to expected following five unrevised. consumer confidence for the month of june, 121.5, ten points below expectations when was the last time we had a number with this zip code? it's almost exactly equal to january, 121.7 the last comp here would be 120.60 from september of 2017. and finally, the moneyball, our main read on new home sales, minus 7.8% to an annualized unit of 626,000 that follows 679,000 626,000 would be the lowest of the year if you look at december of last year it was 564,000, seasonally

adjusted annualized units. let's go east to diana olick >> rick, this is a huge miss on new home sales, down to 626,000. the street was looking for 683,000. april was revised slightly higher but a couple of things to note in this. first of all, mortgage rates you can't miss this, the 30-year fixed started at 4.29%, it was down to 3.94% by the end of may. this number represents people out shopping in may, that is signed contracts, not closing. you should have seen a boost in demand we also saw supply go to a 6.4 month supply from 5.9. that means the builders have simply too much supply we're seeing existing home supply down around four months, that's an unbalanced market. now we're getting in the exact opposite direction on new homes, that means builders have too much supply going into the summer months when we're seeing

demand now start to pull back. the median price of a newly built home, $308,000 in may, that's down 2.7% we saw in earnings this morning they said prices were moderating and that was stimulating demand. so we are seeing the prices come down that median price which should help, but again, didn't help in the sales. so you're seeing buyers pull back because of high prices. they should have been coming back into the market because of a huge drop in mortgage rates. back to you guys we have more breaking news, let's go to washington, ylan mui with headlines ylan >> the congressional budget office is projecting the national debt and deficit will grow more slowly than it previously forecast, thanks in part to lower interest rates the cbo is now forecasting the national debt will hit 141% of gdp by the end of the next 30 years. that's 11 percentage points lower than its previous projection this year the deficit is expected to hit 2.4% of gdp.

that's a 0.3 percentage point decline from last year the deficit is expected to rise to 3% of gdp, a decrease in their forecast cbo is also lowering its forecast for real interest rate. the ten-year t-note now projecting to hit 1.4% in the year 2029. by 2049, the ten-year will be at 2.2% guys, just a comparison, the average rate between 1990 and 2007 was 2.9%. back to you. >> mmm interesting, ylan. what is the national debt right now? where are we, do you know? >> i'm sorry, where are we in -- >> how large is the national debt right now, $21 trillion, something like that? >> roughly $22 trillion.

those numbers don't come out today, they come out in a monthly budget report. even at a 11 percentage point decrease in their forecast, it's still a number that the cbo says is unsustainable >> $22 trillion and counting $67,000 for every man, woman, and child in the united states >> ylan, thank you it is a special day here on "squawk alley. carl is with us live from hanoi, vietnam. of course a country at the center of what we're taking a look at here in terms of the multinationals who may be choosing to move their supply chains out of china, given the tariffs in place and the threat of future tariffs, into vietnam. carl >> hey, david. yeah, i see navarro is on the tape even as we speak, saying he wants a rock solid relationship between the u.s. and the eu. he says the u.s. is achieving great things in trade despite some bumps, that's from the u.s. trade rep. we showed you the factory story in vietnam in the last hour. next hour we'll show you more of

the infrastructure story i wanted to take one moment to explain how interesting it is, when you get a country that sees a spike in production on the manufacturing side, how that affects the services business, because all of these plants and customers need lawyers and real estate brokers and office space. that work is having a field day in hanoi a large real estate management firm, we talked to one of the directors there. he says what's different there is that foreign direct investment is coming not from the contemporaneous koreans or o much but from the japanese themselves >> mostly our observation is companies from asia, specifically companies out of hong kong and mainland chinese, has been the major groups, especially looking at vietnam the past six months or so. and that's new, because previously for vietnam, our main investment sources are from

south korea, from japan, with samsung a major contributor. >> it doesn't take a private eye to figure out the connection between why that foreign direct investment may have shifted in origin and the trade war we're seeing right now as for rent increases, guys, cbre says 10% rent increases year to year are completely commonplace. in some large urban centers where demand is intense, 40% increases in rent in one year. that's how much they're betting on long term plays, building new industrial parks, securing the land, which by the way, we should mention, in a communist country is kind of an ordeal, hence the need for all of those lawyers and bankers, guys. >> so carl, when you hear people say can vietnam be the next china, can it be the world's factory, is that an exaggerate, or can that really happen?

>> i think it's awfully ambitious, sarah to train an army of millions and millions of workers who can operate highly sophisticated equipment and assemble, i don't know, an iphone, highly intelligent automobile components, that's going to take years. and an ongoing commitment from the government and customers throughout economic cycles, throughout global slowdowns. so i'm not arguing that vietnam is wrong to reach for it but in those high key categories, i just think the consensus is it's going to be a very ambitious ride. >> carl, we should mention measurab michelle caruso-cabrera is with us as well >> great stuff, carl >> it really is amazing.

vietnam, as carl said, 95 million people, 1.3 billion in china, right there you start to say, how far can they really go. >> but there are 200 million people in china employed in industrial manufacturing, right? so they've only got 96 million people in vietnam, they can't actually -- >> there's a capacity problem. >> there's a capacity problem based on size. but they can certainly on the margins absolutely take share. as carl has pointed out, a lot of it is low-end manufacturing a lot of the manufacturing that's been moving there has been moving there long before the trade war, right because cheaper labor in vietnam, for example so, you know, on the margin does this help vietnam? absolutely they've still got other issues, they still need to improve their infrastructure dramatically. they're not going to have the same capacity. >> you've observed so much the political relationships and the diplomatic relationships is this affecting at all the china/vietnam relationship, the u.s./vietnam relationship? >> the chinese/vietnam

relationship has always been incredibly fraught you brought up the issue of what they're doing with their currency >> they basically peg it, right? >> they basically peg it just a month ago there were reports that the vietnamese central bank was out there buying dollars, right, to -- >> they have to. >> they have to. so i think that the u.s. would look at vietnam and say, okay, they have a tough relationship with the chinese, we need the vietnamese to be our friends and we want to be as friendly to them as possible even though they are a communist state with deep controls in their population similar to what we would see in china, for example. >> carl, michelle brings up the question of infrastructure and i'm just curious, you know, how far you've been able to -- on range, i'm not quite sure, but what are we seeing in terms of the roads, the ports, the ability to support what would be vastly expanded distribution systems, conceivably >> yeah, i don't want to give

away too much for the next hour, but there's a huge, huge part of it as we said earlier, they don't have the eight-line super highways that china has, they don't have the high speed rail that china has they're going to work on it. deep parwater ports is a start they're on track for that. but on michelle's point, i woan to piggyback and say, the vietnamese are highly suspicious of the chinese they asked various countries a few years ago who had the most negative view of china, japan was number one, vietnam was number two, 83 to 88% unfavorable. that relationship is fraught, for a whole number of reasons. and that goes way back into all kinds of history >> certainly and the infrastructure question issues that you point out, carl, are what make india really problematic. when it comes to size, who could compete with china india, right 1.4 billion people i know one business owner who

has a product that this person imports from china and the minute the tariffs went into place, he went to india to see if there was a way to move manufacturing there. he said, never going to happen, can't get into the country, the roads aren't there it was so poor in terms of infrastructure, he did not think it was possible to do, and that the country would not be able to take advantage of clearly what would be the desire of manufacturers to move stuff officer china if they could. >> carl, it looks like you've been dodging motor bikes while you've been there. there are so many of them. i don't know if there are traffic lights or street signs but it seems like they randomly move about the streets >> i was warned, good luck trying to cross the street and it is the real deal. i'm not sure, percentages of people who ride scooters and bikes. but 70% of the population under 30, so that is a big population that is motor-bike-ready right

there. but yep, a lot of kids you see parents with a 2-year-old on the front. it's a cost-efficient way to get around, especially in the big cities >> noisy too so my big question, michelle, is there any way for investors to take advantage there is a vietnam etf, i don't know how liquid it is, vmm, that trades here in the u.s what are the other opportunities? >> i think you have to wait and see what happens with the meeting between trump and xi, right? my bet would be that they will do something that the market likes. that doesn't mean there's a deal but maybe there's happy talk or maybe there's truce or something that tees puts off what would be the worst case, would be more tariffs. but expect, i think, a long, prolonged, drawn-out battle here, because of the changes that china would need to make in order to please the united states >> carl, we'll see you in a bit, we look forward to more of your

reporting from vietnam michelle, we have to talk about iran where is this going? >> we should point out we've got the new sanctions that were put in place i think the country called it, that is iran, "outrageous and idiotic," announcing this means the end of diplomacy >> i don't necessarily believe that they're clearly insulted that the supreme leader has been sanctioned i'm actually far less concerned than i was a week ago when things started heating up in the straig strait of hormuz the president pulling back on the retaliatory strike was a big signal, neither side wants to go to a military situation. and the fact they're getting all of their allies together trying to increase the number of ships that are patrolling the strait of hormuz, to make sure there's a supply of oil coming out so i think they're trying to work very hard on diplomacy. there's been a lot of knocking on the sanctions by the supreme leader i don't think that's justified

in iran, the clerics have a lot of power, they have foundations, religious charities, assets they accumulated during the revolution in 1979 these are huge holding companies and conglomerates that we would recognize as pure-on businesses. if they can start to get to those companies that have tentacles all over the worlds, aei has done some work on this recently, i think it can have an impact it's a big statement you know, they go after maduro, they went after hussein, they went after gadhafi that's the category they're putting the supreme leader in. there's a question in washington, are they really doing this to bring him to the table to negotiate or are they trying to signal they want regime change? >> there are people who question what the strategy is, there's also those who wonder whether there's unanimity of thought, bolton and pompeo have been

hawkish while the president may have a different viewpoint it's difficult to see how you could have a diplomatic solution when you chose to pull out of the iran deal in the first place. >> at the same time, i don't see a president who is eager to go to war here. >> what's the leverage sanctions? >> now you raise a very good point that was raised by "the wall street journal" editorial page is this like the syrian red line, like obama did, threatening air strikes? it's possible, trump may look weak to the iranians because he pulled back at the last minute he's also incredibly unpredictable, though. >> you think >> to state the obvious. >> i wonder if there's any connection, you know, we're heading toward this very critical g20 meeting on friday u.s. and china where is china on iran, and how does that influence these talks and other relationships, u.s./europeans, which also has

to do with the trade war it feels very interconnected >> because it all is look who's meeting with jerusalem today, we're meeting with the russians to talk about what can be done about iran, at the same time that we have all these issues with the russians all of these president trump made it very clear that if xi was helpful on north korea, he would be easier when it came to trade. all these issues come together you use economic leverage and political leverage at all times. >> it will be interesting to see whether china steps out and backs tehran, at least economically, for these sanctions. always love having you here, michelle caruso-cabrera. when we come back, the blockbuster pharma deal, abbvie buying allergan, both stocks moving in opposite directions. plus back to carl in hanoi in vietnam to look at whether vietnam is prepared to become a manufacturing powerhouse 95 million people, 6,000 factories in the garment business alone is vietnam ready to become the

new china? and is the threat of new tariffs what's goingo tget it there all day today on cnbc. the flexible class schedules allowed me to go to work full time, run my catering business and be a mom and parent. when i reached this accomplishment, it was like, it's here, it's happening, it's now. we at southern new hampshire university are the ones who succeed. we are the ones who break through.

a very large deal in the pharmaceutical industry today. abbvie agreeing to acquire allergan, $63 billion roughly in equity value, a cash and stock deal cash roughly two-thirds of the consideration.

we'll get to the decline in abbvie shares in a moment. 10% accretive at least over the first full year, could get to as much as 20%. they're talking about $2 billion in synergies, huge premium to the closing price of allergan yesterday. this is a company that has had a very difficult time over the last few years, since its deal to be acquired by pfizer was put to sleep by the u.s. government and the treasury at the time that was an inversion, of course, that pfizer was willing to pay a great deal for. tax reform has taken place and interestingly, this deal will have the effect of re-domis i'lling allergan in the united states, back to where allergan is, in illinois. that will bring income and tax revenue as a result back to the u.s. for abbvie shareholders, the question is fit, it would seem is this the right fit for a

company that has made it a point to talk specifically about not straying too far from a few key areas of focus in the past, which has been oncology, inflammation, the central nervous system, and really kind of saying, hey, that's where we're going to be focused? now, you get a very large franchise in dermatology and esthetics. you also get a lot of other businesses as well we all know about botox, sales of which were up 17% just in the first quarter of this year one person who knows the industry well saying, listen, it could be seen as perhaps the best of a bunch of mediocre alternatives for a company like abbvie which has one key drug that does $19 billion in sales a year but faces a patent expiration how do you redeploy the profits now to diversify your revenue base in this case it seems richard gonzalez, the company's ceo,

chose to make the big deal rather than the so-called string of pearls, where you might buy a number of different companies in the hopes that one or two of them would have big hits speaking of mr. gonzalez, meg terrell spoke to the abbvie ceo on the record a few moments ago. i want to bring meg in, who of course covers all things pharma for us so closely, and get her both take and of course hear what mr. gonzalez had to say >> hey, david. a very interesting chat with rick gonzalez from abbvie with more details on that are thinking going into this abbvie's share price reaction, it was down 15% just now, steadily decreasing throughout the day. he said he wasn't surprised by that reaction, saying, quote, i can't think of a single scenario where abbvie isn't better off than without allergan, kind of defending it there he's saying with these big deals you get these reactions from shareholders initially he compared it to abbvie's

acquisition of psycyclics. abbvie down about 16% as people are digesting this now seas saying the company is going to be better off a few things he wanted to point out, saying that it ensures their ability to drive what he calls top tier growth. as you pointed out, protects against the loss of humira in 2023 he says he likes the company's neurology franchise where they have botox for migraine and other experimental migraine drugs. he likes their gi, gastrointestinal disorder franchise, as well as women's health, which had been a little bit out of favor for allergan and they had been looking to sell it. he said it fits well with abbvie's business. he gave me more details about the timeline that commitments the reporting you've been doing, david, showing this started maybe five to six or six to seven weeks ago. he said abbvie had gone into a

strategic process with the board more than a year ago he said in march he first approached brent saunders, called him as abbvie was going through a number of different options. he said, look, if you were ever going to consider strategic alternatives, give me a call they met in chicago and he reviewed conceptually how he was thinking about this transaction. i asked him, did they look at other potential big deals of this size, because as you said, they had ruled out that string of pearls idea, decided on a big deal like this one so were there other targets they looked at? he said, of course, you don't always look at one target. he wouldn't tell me what those were interesting deal, we'll tell you what more we get back to you. >> you do sometimes see a significant sale particularly when people are surprised, meg i will also point out, losing almost 16% of your market value when you announce a deal is not exactly an ideal way to begin. they're going to have to do a lot more communicating with

their shareholder base, it would seem, in order to explain some of the things that mr. gonzalez was trying to lay out to you as to why this is the better way to go, given this was, what, a $100 stock not that long ago. >> absolutely, it seems like people are becoming less excited about it as the day goes on, after we saw the call, the stock has been declining since then, so not going in the right direction right now. >> is it a similar dynamic, david, to bristol-myers? jeffrey said we could see that kind of -- you know, we could see that kind of fresh arb pressure, range-bound, they're going to be leveraged in pharma. >> we made that connection earlier in terms of bristol relying on to a certain extent two main drugs, trying to obviously diversify, trying to get into that next tier of larger pharma that can compete for other assets the need for scale is driving so much of this we'll keep aclose eye on both these stocks

good day for allergan shareholders regardless, not trading near, though, the 188 price that they had agreed to. meg, thank you, meg terrell will be following this all day as well for us. when we return, investing in vietnam as the u.s. and china battle it out over trade differences, foreign investment in vietnam is reaching a four-year high much more live from hanoi on this special edition of "squawk alley. dow down 83. stay with us the cloud i need? it has to keep up with sales, supply chain, inventory - ♪ ♪ it needs to track it all, from cincinnati to singapore. ooo! ♪ ♪ and protect it all. customer records, our financials, they better be secured. but i also need easy access, to manage data across my clouds - no matter where it lives. ♪ ♪ so if an auditor shows up, i can be a step ahead. that's the cloud i want.

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i'm courtney reagan. in jerusalem, national security adviser john bolton says president trump is open to real negotiations with iran he was speaking at a high profile trilateral security summit >> the president has held the door open to real negotiations to completely and verifiably eliminate iran's nuclear weapons program. all that iran needs to do is to walk through that open door.

then in a live address to the nation, iranian president rouhani says the new u.s. sanctions targeting the islamic republican's supreme leader are, quote, outrageousidiotic he mocked president trump, saying the white house is afflicted by mental illness. spacex launched its falcon heavy rocket for the second time this year, calling the mission the most difficult launch ever its purpose was to demonstrate falcon heavy's abilities for the u.s. military. that's your cnbc news update at this hour. back over to you, sarah. >> courtney, thank you sometime for our etf spotlight, taking a look at the home construction etf, itb it's rebounding after suffering a six-session close.

lenn lennar benefitted from the weather and the recovering housing market they're holding on to their gains this morning despite disappointing home sales which rick and diana reported at the top of the hour are down 7.8%. that stock handily performing the s&p 500 so far good earnings, better quarter. however, new orders were kind of flat-ish you would expect with new mortgage rates >> and/or refinancing, it's the time to do that. 1.99 on the ten-year >> lower and lower not negative >> not negative. got that going for us. up next, back to hanoi if vietnam is the next manufacturing haven, how are your products getting exported from the country this is vietnam. all day today we're talking about vietnam as an alternative to chinese manufacturing even if you can build it here, can you get it out of here we'll talk more about vietnam's

frtrtu cllgetoy on cnbc. is where people first gathered to form the stock exchangeee, which brought people together to invest in all the things that move us forward. every day, invesco combines ideas with technology, data with inspiration, investors with solutions. because the possibilities of life and investing are greater when we come together. ♪

welcome back to "squawk alley. we're live in annoy today, talking about vietnam's emergence as the alternative to chinese manufacturing in the face of a trade war. one challenge for the country is definitely going to be infrastructure, getting goods from a factory to a port, for example, because suppliers here have to convince their customers, hey, we can get your product made, but also we can get your product delivered getting goods from the factory to the ports is going to be key if vietnam's going to be a manufacturing powerhouse their railroad lines are spares. they have highways but not the eight-line monsters that china is famous for. and always a reminder, it's

still an agrarian economy, the world's third largest exporter of rice. this port was opened in 2008, some of these boats are going to japan. the containers carry things like apparel, electronics and auto parts. in a year, they'll move about a million containers of this size. but that's where the bottlenecks begin. this is the only port in vietnam directly accessible by rail, putting a strain on highways this is the last stop for shipments headed to the u.s., meaning suppliers have to fight for cargo space. vietnam has long needed a true deep water port. they'ring abouing aboue buildin there. that's not going to open for another three years. david and sarah, vietnam has invested about $11 billion in construction projects in 2017. the world bank says they need to be doing more like 16 to keep

pace with all this growth. interestingly, the interim cfo of tapestry was asked about this very topic on a call earlier in the month. she said right now there's no real spending to keep pace with the growth it's leading to larger lead times with more inventory, quote, in the water, at any given time so it's very clear that corporate america is aware of this issue too, guys >> as you point out, carl, it's not like you can create a six-lane highway overnight what are the long term plans i mean, i would assume they are in place, ten years from now, can we imagine a very different-looking infrastructure >> i think so. a lot of it is going to rely on private companies. samsung came in, built an enormous cellphone assembly plant, and helped finance a highway, right around there, to help workers get around. it's going to be part of that, part of it government

commitments. as you said, these are not things that are going to get done in a year or two years. we're talking multicycle decisions. it's going to depend on how much these companies want to be here for the long term. >> i went there on a honeymoon, carl i was struck by, outside hanoi and the rest of the country, yeah, there are manufacturing plants and factories, but you mentioned in that piece there that it's still an agrarian economy. that's what you see, you see fishermen. it's a much different-looking picture. i just wonder how equipped the labor force is there for this boom that's hitting them >> yeah, there's a huge debate about, is vietnam really going to trade in their centuries-old rice exporting industry so they can learn how to operate a sewing machine and make shoes for nike that's going to be part of the game plan, but switching that economy into a true coming from economy, like china did, it took them 20 years but they did it, that's the kind of crossroads we find vietnam at right now.

>> carl, thank you we'll see you in just a bit. i want to mention the story is front and center for u.s. companies because back in washington today, it is the last day of testimony for hundreds of u.s. brand pleading against imposing new china tariffs, among those making their case this past week, the maker of clothing, strollers, flashlights and electronics. joining us is the ceo of evenflow, john chamberlain, who testified last week. it is worth noting that evenflow has significant domestic manufacturing here in the u.s. already, producing car seats, baby gates and other products. john, what were you asking the u.s. government, what were you testifying about the impact to your industry? >> sure, good morning, sarah, first, thank you for having me on the industry was asking for our opinion, obviously and evenflo is kind of a unique position, next year we'll be celebrating our 100th year anniversary of being an american

brand. we the key globally from ohio, where we have a leadership team that makes car seats, we do that without the benefit of a tariff. as we look going forward, we're a little concerned about the predictability of the business we've made an aggressive play from a supply chain standpoint in the last six months to move some of our component parts into areas of the world so we can help mitigate the cost to consumers if these tar wiffs doo through. that was my testimony last week at the ustr. >> does that mean we can deal with it if we see the next leg of tariffs go through on $300 billion of imports >> it does from a car seat standpoint, absolutely, so we're prepared for that on the stroller side, we think that's a more difficult challenge. the infrastructure to put it in place in the americas or mexico even is very capital-intensive the payback really isn't there it would take quite a bit of time to get that up and running. we're asking for some relief on

strollers. we're saying if you go ahead with the tariffs on car seats, we'll be able to support the american consumer and keep the increase to be very minimal. >> why are so many baby products made in china? >> well, obviously there's a tremendous labor advantage and historically, that has been the principal reason >> i mean, i wonder if we would see -- if we would see higher prices if you had to, say, move some of that manufacturing to vietnam. is that even possible, where carl is? >> yeah, it's interesting, i've been watching the segment this morning. the infrastructure still has to develop. i saw the numbers, obviously there's an awful lot of investment that has to occur it's not an easy transition. some component parts certainly may come from vietnam. but if you're talking about large scale manufacturing, i think that's years away. >> how much would the price of a stroller go up if you didn't get the exemption and we did see the tariffs go through >> well, you're probably talking high teens, somewhere 15 to 20%.

you're looking at a 25% tariff as is proposed right now so those are on component parts. and sometimes on the full product itself so you would be looking at high double digits, 15 to 20% range >> that all goes to the consumer strollers are already so expensive, hundreds of dollars >> yeah, well, we're doing our best to try and mitigate that. that's why i talked about car seats, what we're doing with car seats to try to lower the intake cost so we can be doing a better job with that consumer of keeping that overall retail price where it's very manageable strollers, a little bit different. that's why we're asking for the exemption. >> what goes into trying to sort of not raise price the same amount as the tariff, when you talk about working with suppliers, what is that actually about, what is that conversation about? >> how efficient can we be, are there things we're just not taking advantage of today that they would offer us that maybe historically we haven't had to look at. now i think with the proposal

the way it is, you look at everything a little more aggressively than you have before and so we're always looking to mitigate that cost increase to the consumer certainly our retailers don't want us to pass it on, so we work with them as well combination of suppliers and retailers, we try to create value. it still stays where the consumer can appreciate it >> is it conceivable, if you don't get these tariffs but you do get those efficiencies, that your margins will end up improving as a result of this focus you're talking about >> absolutely. i think that's fair. you know, that's one of the benefits of the intensity of trying to offset the cost due to the tariff so we could see that we also may share that with the retailer longer term short term, absolutely, you would pick up some margin if the tariffs do not go into effect. >> you said you were shiftin production for car seats into the u.s. why can't you do that for strollers, and how much more expensive is it to produce here

in this country? >> the capital investments would be huge, sarah that's the principal reason. it can't be done quickly and there's just not a good payback on that capital. >> what about the fact that -- so is your parent company a chinese company? i think you're a subsidiary of goodbaby, which is a chinese company. explain the complicated structure of your business and whether you're caught in the crosshairs of this trade friction >> we're very fortunate, our founder allows us to make the decisions we need to for the local markets. when he bought evenflo a few years ago, he left the manufacturing in ohio, he saw that as a competitive advantage for us he gives me the autonomy to make decisions that are right for the local market >> even though your owner is based in china >> that's correct. >> jon chamberlain, thank you for joining us >> my pleasure, thank you. as we head to break, fedex

suing the u.s. government over the white house ban on exports to certain chinese companies also reporting earnings after the bell, a big underperformer in the market this year. and a check on where the major averages stand right now, dow is down 87, s&p down 4/10th's "squawk alley" will be right back -driverless cars... -all ground personnel... ...or trips to mars. $4.95. delivery drones or the latest phones. $4.95. no matter what you trade, at fidelity it's just $4.95 per online u.s. equity trade.

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one strategi sstays the markets are getting ahead of themselves more "squawk alley" coming up.

some tweets to share from the president of the united states involving the back and forth between our country and iran he says, iran's leadership

adoptenadop en -- doesn't understand the words nice or compassion the u.s. is by far the most powerful military force in the world with $1.5 trillion invested over the last two years alone. iran's very ignorant and insulting statement put out today only shows they do not understand reality any attack by iran on anything american will be met with overwhelming force, meaning obliteration no more john kerry or obama, of course referencing the iran nuclear deal that the trump administration has withdrawn from rack sick santelli with the santelli exchange. rick >> thank you, sarah. i would like to welcome my guest

bob hormats. bob, markets are expecting no significant change, a push on new tariffs, maybe designs to talk more in the future to try and iron this out but probably no last-minute hail mary solutions that we could read or place online and actually get major detail on your thoughts? >> quite right i think the chances of a real breakthrough agreement are pretty low at this point, given the tensions what worries me now is that they need to do something to avoid not only further escalation in tariffs, but escalation in the acrimony over investment issues, export controls, import controls that are very stringent on high technology and perhaps even movement to some type of war over currencies and if all of these things continue to escalate, we're going to be seeing a period of mutually assured disruption for

both economies so at a minimum, they should try to find ways of modulating this escalation and getting on a path, even if not toward an overall agreement, at least dealing with a few of the key issues in establishing a longer-term process for dealing with others. >> well, fsit should be no shoc to anybody, this president is not your precedent-following president when it comes to negotiations, whether it's foreign policy or political. having said that, let's take the other side of it let's say there's deterioration. i found it interesting that in polls taken in china, and i understand the way news is squashed there, but this particular trade issue with the u.s. is like sixth on the line of what most households in china are worried about. they're worried about the cost of college, cost of living increases, all the other things. so there's a face-saving issue here with regard to president xi in my opinion. what if it deteriorates.

it certainly seems in my opinion that manufacturing and farmers are still behind what the president is doing >> yes, i think for the moment, the country is not adversely affected, very much, by the trade war. and i think many chinese probably, as you correctly point out, feel the same way the next round of tariff increases, if they were to occur, would be on more products and they would be, perhaps, at a 25% level. for americans, that would have a very direct impact, not only on component parts for manufacturing companies, that would hurt them, but the next round would be much more focused on american consumers. and they would begin to feel that very quickly. so i think for americans, the impact would be there. now, it's not the biggest thing that's affecting the american economy, but at the margin, it would be unsatisfactory for our people >> i just wouldn't rule out the notion, bob, that this president

could definitely move to higher tariffs, especially considering that in a way, there is a red line with regard to these negotiations markets don't seem to have that particular outcome >> i agree >> bob, we're going to have to run. we're going to have to run here, but thank you for joining me >> things picking up back there. thank you, rick antelli. "squawk on the street" will be right back don't go anywhere. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade

welcome back time for us to wrap up, but it doesn't mean sarah is going anywhere she'll be back on the "closing bell." you've got a busy calendar, including earnings from federal express. fedex. >> fedex and micron reporting after the bell today both sort of bellwethers in their own right. we're also going to get reaction to the megafarming deal of the day. fred hassan joins us and david, let's see where this market goes. we've got two pretty poor economic reports at the top of this hour. i think we should just hit consumer confidence, lowest since september 2017 and a big drop in new home sales. the mixed messages on the economy continue in the meantime, "squawk alley" is up next don't go away.

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good morning it is 10:00 p.m. here in hanoi,

vietnam. it's 11:00 a.m. on wall street and "squawk alley" is live ♪ roll if you want to ♪ rom around the world ♪ roam if you want to ♪ without wings, without wheels ♪ ♪ ♪ ♪ well, good evening, vietnam. and good tuesday morning to wall street welcome to "squawk alley." i'm jon fortt with morgan brennan here at post nine of the new york stock exchange. carl quintanilla is live in hanoi, vietnam, as companies race to find manufacturing alternatives with the threat of more china tariffs looming and vietnam is where we'll