Fareed Zakaria on power, politics and populism

Fareed Zakaria:

On the tariffs and immigration, I feel like these are two areas where I can’t see how Trump backs down unless there is market feedback that tells you this is going very badly.

 

Goldy Hyder:

Welcome to Speaking of Business, conversations with innovators, entrepreneurs and leaders. I’m Goldy Hyder, president and CEO of the Business Council of Canada.

On February first, something fundamentally changed in Canada’s long-standing relationship with the United States.  Incredibly, we are now in a trade war with the country that for decades has been our closest friend and ally. It’s the latest sign of growing geopolitical instability around the world. We are living in a time of rapid change and realignment.

It’s something Fareed Zakaria explores in his latest book “Age of Revolutions.” The best-selling author, columnist and CNN host offers unique and thought-provoking reflections on the world in which we live.

In January, just one week before President Donald Trump’s inauguration, I had a chance to speak with Fareed in front of an audience of business leaders. It was a wide-ranging and insightful conversation and I’d like to share some of it with you on this podcast.

I began by asking Fareed why he wrote the book “Age of Revolutions.”  Here’s our conversation.

Fareed Zakaria:

I’ll tell you what got me started. About 10 years ago, I watched the Tea Party and I started to think to myself, this is a very unusual phenomenon in American politics. Certainly, the Republican party in those days, was a very hierarchical party, the Republican party and the British Tory party are the two most hierarchical parties in the Western world. Think about this. This is a party that five times nominated the same man, Richard Nixon on its presidential / vice presidential ticket. You add Richard Nixon and the Bush family. That’s basically the history of the Republican Party for the last 70 years, right? In this party, you were seeing a bottom-up insurgency of people who were essentially taking over the grassroots of the party and they were not motivated by the same things that the party had been motivated by.

And I began to look at that and ask myself, something is going on in politics in the Western world. And I began to realize that we had been going through these very powerful movements, technological, globalization, identity politics that had been moving in a particular direction, liberal basically ever since the fall of the Berlin Wall. And what we were beginning to see was a backlash to these movements. The really interesting thing about the Tea Party was it started out as economics. If you remember it was about mortgages and things like that but very quickly, the core concerns, there’s a very good book on this by somebody who spent two years with them were immigration, culture, race, what we now call the woke agenda. And in a sense, Donald Trump got this much better than most Republicans. So if you think of the election of 2016 as a bit of a fluke, and I don’t mean that, I mean that no matter who had won. 200,000 votes in three states and it could have gone another way, but the primaries were not a fluke.

Trump was up against 16 very talented Republicans, governors of states, senators, the former CEO of Hewlett-Packard. He wiped the floor with them and people forget because they think CNN caused it to happen because they had him on. Trump was leading within two weeks of announcing his candidacy and he never lost the lead. It was a small lead initially, but as one person, more people dropped out the lead kept growing. And why was that? Trump understood, and I think this is because he may not be a good businessman, but he’s a very good salesman and good salesmen know what the crowd is looking for. He understood that all the other 16 were really basically reciting the Reagan formula, free markets, free trade, American strength abroad, balanced budgets, cut government spending. Trump realized none of these people wanted to hear any of that. They wanted to hear about his basic message on those long rallies if you listen to them, which I did was “the Chinese are taking your factories, the Mexicans are taking your jobs, the Muslims are trying to kill you. I will beat them all up. You will be great again.” That was it. And it was a message of cultural nationalism fundamentally, and that was what worked. That was where the kind of animating force of the party was, and that is part of this backlash that we’re talking about, which is in many and very important ways, a cultural backlash more than it is purely an economic backlash. It’s a backlash against elites, against the urban centres of power, against the meritocratic, technocratic elites that run everything. Think about the backlash against the medical establishment in the United States. So somehow he was able to capture that. What I tried to do in the book is to ask myself, why are we in this kind of moment? When has it happened before? What is the nature of this dynamic that takes place in societies, massive moves forward or massive moves in one direction and then a backlash? And how do you navigate through it?

 

Goldy Hyder:

So what does that tell us about Donald Trump’s 2.0? Because there’s a lot of people who are identifying that 1.0 was something else, and 2.0 is going to be entirely something else. I heard you say that what’s going on in America is not a spasm, that in fact, the biggest winner is what you’ve described as the closed agenda. What do you mean by that?

 

Fareed Zakaria:

So I think you’re right that the first thing to understand is that what Trump 2.0 makes you realize is this was not a fluke. This was not a one-off. First of all, if you look at the second election, 90 per cent of American counties moved to the right. 90 per cent of American… I live on the Upper West Side of Manhattan. The Democrats usually win that area by about 25 points. They won it by 14 points. It was an 11-point shift. New Jersey: Biden won by 20 points, 20 odd points. Kamala Harris won by four points. So there’s something much bigger that’s happening. It’s not just happening in the United States. Think about what’s happening in Europe. Italy is now run by somebody who would’ve been considered a far right. The single largest party in the Netherlands is a far-right party. The second largest party in Sweden, the egalitarian Sweden is a far-right party. The second largest party by polling in Germany is a far-right party. So this is now something that is happening much more broadly. And again, if you look at the central issue in almost every one of these places, it’s immigration. It’s not economics. If you want to understand this, just think about the one advanced industrial country which has all the problems of inequality and declining manufacturing and declining productivity, and budget deficits that every Western industrialized economy has. But they don’t have any right-wing populism, and in fact, they don’t even have particularly anti-establishmentism. The same party has been ruling that country for 75 years with no problems, and that is Japan. What is the one thing Japan doesn’t have? Immigrants, right? The Japanese don’t have immigrants. And so in some ways, immigration has become partly because it is a real problem and it’s a real crisis. The asylum system has collapsed in the Western world and you just have a completely unacceptable situation where millions of people are coming through essentially gaming the system, claiming that they are asylum seekers when they’re really economic migrants. But the second piece of it is that in a strange way, immigration is the kind of visible face to all these changes. So many of these changes we are talking about free flow of capital, which has allowed so much of what we are talking about in terms of globalization to happen. How do people understand that? It’s an abstraction. Globalization, abstraction. Even information technology, and the way in which it disintermediated and disrupted businesses, these are all abstractions. But the family that moved in next door, that speaks differently, that looks differently, that worships different gods, that’s a tangible visible reality. And so all the focus in a sense of cultural anxiety ends up on immigration.

And so it was Biden’s biggest mistake in my view. If you could have changed one thing in the last four years in Joe Biden’s policies, if he had cracked down on the border hard, I think you might’ve seen a different outcome and I cannot understand how they may have… I made this point from the start, this was what got Trump elected in 2016. Were you not watching? And then in a strange way, you allowed the same crisis to develop, but on steroids.

 

Goldy Hyder:

But I want you to say more about the difference between a closed agenda and an open. If this closed agenda is the new norm, is it going to work?

 

Fareed Zakaria:

Look, that’s a great question, Goldy. I mean, so right now what is striking to me is how quickly governments everywhere have moved to a more closed… If you think of closed versus open on all the issues we were talking about, goods, capital, labour, technology, everything 10 years ago, you would’ve characterized the Western world as being in favor of open, open platforms, open trade, greater degrees of immigration, et cetera. It’s now all closed in various ways, even capital. There’s many more restrictions now on foreign direct investment in every Western country than there were 10 years ago.

I think that it is part of this swing, this backlash. If you’re asking me will it work? Look, I grew up in a country, as did you that tried this. India in the 1950s, ’60s, ’70s, had all kinds of capital controls on everything, all kinds of tariffs, all kinds of protections. And you know what it breeds? It breeds a business class that becomes highly politicized where the name of the game is currying favour with government officials rather than producing the best products at the best prices. And you’re already beginning to see this. Look, Elon Musk’s net worth has doubled in the last month and a half. Tesla’s stock price has close to doubled in the last month and a half. Has anything about Tesla changed economically in the last month and a half? Yes, they came out with a disappointing slew of earnings and BYD overtook them as the largest manufacturer of electric vehicles in the world.

So if anything, economically, Tesla is facing greater troubles, and yet today its market cap is larger than every automobile company in the world put together, plus 50 per cent. So I don’t need to tell you guys, P/E ratios are meant to reflect future earnings. The market is assuming either that Tesla is literally going to become the only automobile manufacturer in the world, or more likely that there is some magical business that is going to flow to Tesla because of Elon Musk’s personal relationship with Trump. Do you know where else you see a similar thing? In India. If you look at the biggest companies in India, and you look at their P/E ratios, they’re all –India’s expensive right now because it’s done very well – but they’re all in the 30 P/E ratio range forward earnings. And then you have the Adani companies and they’re at like 170. And the theory is that Mr. Adani’s close relationship with Mr. Modi will sprinkle some kind of fairy dust on him.

It’s possibly true, but it’s a very different mode of business where businesses are orienting themselves in these ways. I think that it’s a bad way to go. And by the way, even when the left does, it hasn’t worked. Look at our new industrial policy in the United States. We have the CHIPS Act. Everybody’s very gung-ho about this. The way I look at it, there are a few discrete things that I think have come out of it that have been very good. TSMC coming to the U.S., for example, was extraordinary and it took a lot of arm twisting, but the single biggest beneficiary of funds from the CHIPS Act has been Intel. Now Intel is your classic case of government benefit. It’s like IBM or McKinsey. It’s the company you can’t… Nobody’s ever going to get fired for hiring McKinsey, right? I mean to have a brand name that powerful is… But look at what’s happened to Intel in the last 10 years. Intel has missed every major technological revolution that has taken place in its industry. So the first big one was separating chip-making from chip design, and they made the mistake of saying, “We can do it all.” Whereas TSMC and NVIDIA separated it out, TSMC makes, NVIDIA designs. Then they missed the move away from the desktop to the mobile device. They focused entirely on the desktops, and now they missed out on the whole AI GPU chips. So they’ve literally three times in a row now missed the technological revolution for which they’ve been given $10 billion by the U.S. government. It’s a sort of try again, get out of jail-free card and the EU has given them $11 billion. And what I mean by that, they have the size, the scale, they talk.

Well, if you’re trying to find the next generation of chip-making, you probably want to find the scrappy leather jacket wearing NVIDIA the next NVIDIA, right? You want to find the next Jensen Huang. Not one of these corporate suits out of an Intel, but that is almost inherently how this closed economics works because you’ve got to go with somebody who looks good with Biden when he’s making the press conference and announcing the plan. You’ve got to go with somebody who can announce in the short term some big jobs program. That’s the person who gets the money. Is that the right way to go? Probably not. I mean the money well spent, by the way, was the $800 million loan that was given to a struggling EV with a weird CEO in the Obama administration, Tesla, which was at that time a small scrappy company that was almost going bankrupt. They gave it the money. You want to be looking for people like that.

 

Goldy Hyder:

Sticking in that vein, you’ve also said that your view is Washington, but I think it can be applied to other democracies and their capitals has become a bit of an arbiter. And you’ve even suggested that the fawning by CEOs over the administration is an unhealthy development. Why do you feel that way?

 

Fareed Zakaria:

Well, one, it gives the government too much power over the economy. It’s ironic that a business-friendly administration should not recognize the reason the United States gets all the capital in the world, the reason the dollar is the reserve currency of the world, the reason it has had all these privileges is because it has an accumulated reputation of non-politicized, non-partisan, rules-based, decision-making on the highest level. I mean, there’s now people are talking about, oh, maybe we can fudge something with the budget deficits and we can denominate it all in Bitcoin. That’s the kind of nonsense that Banana Republics do. You don’t want to be in a position where you’re doing that or even frankly getting rid of the chairman of the Federal Reserve because you want him to lower rates. I mean, the last time a president tried to do that was Richard Nixon with Arthur Burns, and it ended very badly for the United States. We had 10 years of stagflation because Burns goosed the economy to try to help Richard Nixon’s re-election benefits. So I think there’s that great danger to it. There’s another piece of this, which is peculiar to America. A lot of these things are happening in other countries, but one of the great strengths of the American’s political system is it is less institutionalized than other systems. So one of the things I think is a big advantage we have is that you have people coming in and out, particularly in and out of the private sector. So you have a lot of high-quality expertise that comes in that goes out. There’s a bit of a problem with the revolving door and corruption, but frankly, I take that trade-off when I compare it to European countries or Asian countries where people have in government and the bureaucracy have so little awareness and knowledge of the private sector and how it operates.

And you see this with this latest set of European regulations around AI. I mean, Europe has literally written regulations to ensure it will never have a large AI company. It was almost like if you were to try to write a set of rules that would ensure that you will permanently be in a subordinate position to the United States, you could not have done a better job than they did. And then they wrote rules basically saying if any company does not meet our carbon emissions goals, we are going to tax five per cent of your worldwide profits even if you operate in Europe. The Qataris on hearing that the first thing they said was, “Okay, we’re never selling you natural gas. Okay? So to the extent you thought you had an alternative to Russian fuel, you no longer have it.” Which means that rule will now get rewritten because there’s no way the Europeans can do without it.

So that openness that the American system has or what call it lack of institutionalization is a good thing. It does have one bad side, which is you can have a very personalistic form of government and Trump is really pushing this to the extreme. We’ve never seen the degree. This is now beginning to look more like Modi’s India or Erdogan’s Turkey, where the degree to which it’s all about a personal relationship with him. I don’t think that’s a great thing, but that is very much Trump. I mean, at the last Republican National Convention he did not invite, let alone allowed to speak any former vice president, president, presidential nominee, vice presidential nominee, including by the way, his own former Vice President Mike Pence. Five members of the Trump family had prime-time speaking slots. So that’s the way Trump handles this, but I think it’s a bad trend in general. I mean, honestly, the system should work well enough that you don’t need to have a personal friend to get work done. Again, that’s the India I grew up in.

 

Goldy Hyder:

Yeah. Well, let’s talk about democracy more broadly. It is something that I hear a lot from CEOs that I interact with from around the world. And that is their concern of what seems to be, at least from a business perspective, from an investment climate becoming more and more unpredictable and unreliable. Regime changes are happening, black is becoming white. Political leaders win campaigns on attacking institutions. In some cases central banks. In some cases, our courts. In some cases our academics. In some cases, businesses themselves. Are we playing with fire here when it comes to this form of democracy, surviving all these attacks?

 

Fareed Zakaria:

It is a period of great stress, particularly on all these institutions. And I think again, back to why is this happening. We’ve had this extraordinary period of change, economic, technological, cultural. But in that period also what happened throughout the Western world, we created and empowered a group of technocrats, and I mean technocrats in a very broad sense of the word. Management consultants, bankers, lawyers, hedge fund managers, government officials who had enormous power. And this is happening at the very same time that the world economy in the Western world, in the industrialized world is transitioning to a post-industrial world in which the knowledge economy pays much better. I mean, basically, if you think of yourself, everybody in this room in some sense is what an economist once called a symbolic analyst.

You manipulate words, numbers, figures, code something abstract like that for a living. And the people who move physical objects as opposed to abstract concepts, their pricing power has gone away even with all the little return. I mean basically, think about it. If you’re moving physical stuff, either machines are beginning to do it better than you can or somebody in India or China or Vietnam, or Mexico is doing it better than you can at a lower price. And that fundamental reality has meant the massive expansion of the power and influence and wealth of this technocratic class that we all belong to. And that has created enormous anger. It’s political, it’s economic, it’s cultural. When Trump was first elected, I got an email from a guy who said to me, “I’m a devoted watcher of the show. I’m a devoted reader of yours. I voted for Trump. I want you to know why.” And he said, “I’m a late, middle-aged man, in the South, and I don’t live in a big city. And he said, “And when I look at America today, it is as if I don’t exist. Every movie is set in New York City or San Francisco. Every television show is set in some hip loft in some urban space. All the music that one listens to comes out of these places. All the cultural trends that are reported come out of these places. It’s as if we don’t exist.” He was saying, and if you think about it, even just in cultural terms, that is so true when you go back 40 or 50 years ago in the United States, a lot of the stuff on TV was like Westerns. It was things like Bonanza. That’s gone away.

It’s all Seinfeld. It’s all Seinfeld and Friends and what that means is that there is a sense of disempowerment that has been felt very broad, and that’s what this anger is about in the sense that why do we have to respect these institutions? These institutions are bogus. They’re fake. Take, for example, this thing about medical establishment. To me, it’s really interesting. People have often described RFK Junior and things like that as this crisis of the decline of trust, but it’s not really a decline of trust. It’s a shifting of trust because all these people, they don’t trust the CDC, the NIH, Fauci who represents that medical establishment, but they have enormous faith in Andrew Huberman or Peter Attia or RFK Junior. I don’t know if you watched in the last few days, Joe Rogan and Mel Gibson had this conversation about cancer. And Mel Gibson says, “I have three friends who got cancer, and then they took these crazy drugs and they’re all cancer-free now.”

That has now gone viral. It’s been watched something like 40 million times by people, that clip of him saying, now we have no idea. This is literally a sample size of three according to Mel Gibson who are off cancer. And yet you put that up against double-blind studies coming out of the NIH I bet you at this point they would win in a popularity contest. So it’s a shifting of trust and the shift is away from these big elite institutions toward charismatic individuals. That’s happening in media as well, right? I mean people… If you had to ask yourself, does a Wall Street editorial matter more than something that Ben Shapiro says on his podcast? I don’t know. It’d be very interesting.

 

Goldy Hyder:

A very successful politician in Canada once told me that Donald Trump used the three most powerful words in the English language to get to where he has. I said, “What are those?” And he’s speaking to the person you just mentioned. He said, “I see you. I see you.” And that has led us to a place of where we are today. What are the checks and balances now in this new world? I mean, you described a monarchy, right? It’s a king.

 

Fareed Zakaria:

Yeah. So internally, domestically, I still think that the American system has a lot of checks and balances. People often forget, and I want to give Donald Trump credit for this, he tried a lot of stuff in his first term. Many, many, many of the things he tried to do, including, by the way, people forget a ban on TikTok and an immigration, a closure of the border, both of which were essentially overruled by the courts. So it’s slightly more complicated story, but that’s basically… He respected every court decision that turned down an executive order of his. There was never an effort to somehow… I mean, they tried another tack where you write a law which is more court-friendly or something like that. So that gives me some hope that there is still that reality, that there will be the check of courts, there will be the check of a one-seat majority in the House of Representatives. I mean, that’s going to be a fascinating challenge to get through. The Senate you still have the filibusters, you still need Democrats in the Senate-

 

Goldy Hyder:

Yeah, midterms, you’re in perpetual election mode down there.

 

Fareed Zakaria:

So there’s all of that. What you don’t have is checks on the president of the United States internationally and that I do worry a lot about. I worry a lot about what happens to Ukraine because there the president can do almost whatever he wants. I do worry about these, frankly, we laugh about it at this point because we know… But it’s humiliating that the president of the United States is going around telling other countries they should be annexed to the United States and things like that. Particularly a serious country like Canada, that’s been one of our oldest allies. It’s not what I would like …

 

Goldy Hyder:

But how do you square that circle, Fareed? He’s either an isolationist or now become an expansionist-

 

Fareed Zakaria:

He’s Donald Trump. Whatever he thinks will make him look good. If he can bully the Danes into giving him Greenland, he will present that as a great victory for the American people. We have all these minerals which we could have gotten anyway. It’s like the truth is that’s a… I mean in a free market country, the minerals are available to be contracted with by anyone, and we already have companies in Greenland doing it, but there you don’t have that trick. He could pull out of NATO. Even the Congress has written a law, but it’s irrelevant because what is NATO? NATO is basically Putin’s ability to read whether or not the United States is bluffing, that it will come to the aid of its allies. That’s all it is. All he has to do is go on Joe Rogan and say, “Nah, I don’t think I’m going to defend the Baltic states. Are you kidding me? Who’s ever heard of Croatia, Latvia, and Lithuania?”

And it’s over, right? Like that’s… You can have all the buildings, the meetings, the treaties, everyone’s getting together at their ministerials. That’s all fine, but all he has to do is give one interview like that or make one off-the-cuff comment because that’s what deterrence is. Now, the place where I do think there’ll be a very interesting check, and it’s something that Donald Trump respects a great deal, is markets. I think we are going to go through a very, very interesting challenging 2025, 2026. You have a situation where most of the industrialized world is in some kind of a low productivity, low growth slump. All of them at the same time have record-high budget deficits. The United States has been the sole exception to this, and that’s for two reasons. One, we are genuinely doing much better than anybody else.

And you can see that in corporate profits. You can see that, by the way, not just in the big tech companies, but in general the U.S. economy is doing very well. But the second piece of that is we are running budget deficits of six per cent of GDP. We have never in our history, in peacetime run budget deficits of over four per cent of GDP. So we are in completely uncharted waters in terms of the size of the deficit and the debt. It only works because we have the reserve currency. So you look at that, you have slow growth everywhere from China to Europe. Everywhere is slowing down. You have the United States, you have Canada. You have the United States. You just wonder what’s happening. And when you think of it from a purely market point of view, the U.S has never been more overvalued than it is right now. The U.S. is four and a half percent of world population, 27 per cent of global GDP, and 72 per cent of the global stock market.

And that’s just very, very busy. You can be very bullish on the U.S. economy, which I am, but U.S. can also have long periods of underperformance in stock market terms. If you look at when the dot-com crash took place in ’99 for the next 10 years, basically the U.S. market did nothing. It basically was flat while emerging markets, for example, tripled in that same period of time. For the last 20 years, we’ve been in a situation where basically the U.S. market has been the only game in town in the world. The second best-performing market in the world has been India. But if you take India out, there’s literally nothing else going on. I’m sure all of you look at this and you see this in your capital allocations.

It’s basically every country in the world you go to now they have this massive allocation in the U.S., they have some home country allocation, they’re asking a few questions about Japan and India and that’s it. There’s four countries in the world that exist. Everyone’s trying to get out of China. So it feels like you could imagine something getting unsettled along these lines. And if that happens, that’ll be a very interesting challenge for Donald Trump because I don’t know that you can spend your way out of this one.

I mean if you look at the pledges, Trump has already made. Extending the Trump tax cuts from the first term, that’s two and a half trillion dollars, no tax on social security. That’s another two and a half trillion dollars. And you haven’t even gotten to overtime and tax on tips and all that stuff. Which by the way, if you wanted to devise a more unworkable thing, the tax on tips is my favourite because a hedge fund manager friend of mine, owner, a friend of mine in New York said to me, we could easily recharacterize our income as tips. He’s like, “That’s not a difficult one at all.”

 

Goldy Hyder:

Great idea.

 

Fareed Zakaria:

If you think about it, what is it? It’s a performance-based fee-

 

Goldy Hyder:

It’s a tip.

 

Fareed Zakaria:

… that is big.

 

Goldy Hyder:

All right, well look, right? This whole room right now is looking at me like Goldy, there’s this obvious question, the elephant in the room question that you haven’t asked. And the answer is, it’s like a concert. You got to wait for the song you most want to hear. We’ve been told that tariffs are coming. What do you believe? Are they coming? What’s it going to look like?

 

Fareed Zakaria:

So the first time Donald Trump ever and ever expressed any political views that I’m aware of was in 1985. He was a real estate developer and he took out a full-page ad in the New York Times and Donald Trump is cheap. And in those days a full-page ad in New York Times cost a lot of money. So this was something that was very dear to him and it was he made two points in it. We are being taken as suckers by the Japanese and the Europeans on trade. We should have tariffs and secondly, we’re being taken as suckers on security and those NATO countries are free riding. So I think that if you scratch Donald Trump, the two things he does think and they’re related because this is his world views, everyone’s ripping us off and I’m going to push back. I’m going to get us a much better deal. So I cannot see a world in which this is all bark and no bite where he just said, “Oh yeah, just kidding. I was just trying to get your attention.”

I think what is probably going to happen is they’re going to use it as leverage to negotiate bilaterally. But in every one of these cases, I think there is going to be some pressure. I think at the end of it all, we will end up in a slightly higher tariff world. And I think that the truth of the matter is the U.S. economy can handle that. We are a vast continental economy. 80 per cent of the U.S. economy is domestic. Imagine you would’ve end up with a three or four per cent tariff on all goods entering the United States with maybe seven or eight per cent or 10 per cent on stuff coming in from China, a few place variations. I don’t think it creates as much of a crisis for us as people think. It creates a big crisis for you.

It creates a huge crisis in the rest of the world. So on the tariffs and immigration, I feel like these are two areas where I can’t see how Trump backs down unless there is market feedback that tells you this is going very badly. So on the immigration side, depending on the nature of the deportations, I think if you end up in a situation where you get massive labour shortages, you have inflation because of that, wage inflation starts taking off, you could imagine him pulling back. On the tariff side, I just don’t think the inflation is going to be that direct immediate as a result of this.

I mean, think of it this way. It’s like it is essentially a sales tax and if you were to put a small sales tax, would it have some cataclysmic effect on the U.S. economy? I’m not sure. So my gut is you’re going to see something on both, almost certainly not as dramatic as what he says, that there’s always exaggeration and bluster, but he really believes this stuff. I have tried to talk to people around him. I’ve even once talked to him about it. He really believes this stuff. This is not a bluff. He won’t accept that economists see this differently. He thinks he has it right and they have it wrong.

 

Goldy Hyder:

But he has one other advantage and that is that he can convince them that even if there’s a little bit of short-term pain for you in the long run, it’s really good for America.

 

Fareed Zakaria:

Yep. If you look at farmers, the tariffs on China really hit American farmers. We had to pay them I think in total it ended up being $60 billion in farm aid to counteract the retaliatory tariffs from China. I looked at polls of farmers, they were supportive of the tariffs even though they lost business as a result.

 

Goldy Hyder:

All right, final question for you. A lot has been said about what will happen if Donald Trump is actually successful with his agenda. I want to turn that on its head. And I want to ask you, can America afford Donald Trump failing to achieve his agenda?

 

Fareed Zakaria:

So let’s start by noting that there are some things that he talks about that would be very, very positive. So there’s no question the U.S. has too many regulations. I think that the one part of DOGE, the Elon Musk, Vivek Ramaswamy thing that doesn’t get enough attention is the deregulatory element to it. Cutting government spending and cutting government workers is both very hard, impractical, and maybe even counterproductive. What do I mean by that? U.S. does not have a vast federal bureaucracy. If you compare us to other countries in the world, our federal bureaucracy is actually not that large. If you look at our spending, most of what the U.S. spends, it spends very efficiently on transfer payments. We very efficiently get out social security cheques, Medicare cheques, unemployment insurance, veterans’ benefits. And when you add that all together, that’s 70 per cent of the budget. I’m also throwing in interest on the debt.

That’s all cheque writing facility stuff. It’s going to be very hard to cut those and by the way, if you cut those, that’s somebody’s income. And we went through an interesting experience in Europe after the ’08 crisis where the Germans forced austerity on a whole bunch of Europe for a long time, and it basically meant you had a decade worth of lost growth in Europe. These are all bad ideas, frankly, if you’re going to do this stuff, you should do it very slowly over 20-year timeframe, not dramatically where you pull income out of people’s… But the deregulation agenda is a very powerful one. The U.S. is massively over-regulated, much more over-regulated than you guys are. Give you one simple story. The guy who runs Habitat for Humanity, Jimmy Carter’s outfit, used to run Habitat for Humanity in Canada. He’s Canadian. When I met him the first time at some event in New York, I said, so this is how my mind always thinks like a social scientist said, “So give me a sense of your country-to-country comparison of building in Canada versus building in the U.S.”

He said, “I thought I was coming to the land of the free enterprise and it would be much easier to build in the U.S.. It’s way harder to build in the U.S. Canada is a much, much easier place to build.” And he started to explain to me why. First of all, in America, everything is triplicated. You have the federal regulations, the state regulations, and the local regulations, all of which have to be complied, which many of which sometimes contradict each other. Canada doesn’t have that and he went on and on. The federal register is crazy. We have a massive, massive overload of regulations. So you could imagine something very good coming out of that and you could imagine that Trump does get a certain amount of growth and innovation and you see areas of the economy that are able to move much, much faster.

Then you get to these big macroeconomic issues where there are problems. The U.S. is a vast, highly productive economy with a lot of… It’s a very messy, unequal, chaotic system that kind of works. So I think you could have some failure in the U.S. and it would not be cataclysmic. It would not be the end of the world and it might even be useful for America. The reserve currency status in America has allowed us to be stupid. It has allowed us to be lazy. It has allowed us to do things that other countries can’t do fiscally and even in monetary policy. You know you have more leeway because where are people going to go? And if there is a little bit more pressure and discipline on the United States to behave in a more fiscally responsible way, for example, maybe that’s not the worst thing in the world going forward.

So I think that piece of it, those constraints, those guardrails that would be a very useful thing. The part, as I say, I come back to ever since 1945, we have constructed a world that is very different from the world that came before. People forget this, but if you look at the world before 1945, it’s basically World Wars, massive acquisition of territory by force, people… When you conquer somebody’s territory, you enslave their population. France and Germany went to war three times in the 70 years before 1945. And since 1945 you’ve had a completely different world, largely rule-based, largely open, largely orderly. It’s amazing how rare the Russian aggression on Ukraine is. There are very few examples of acquisition of territory by force since 1945 that has been legitimized by the international system. And what I worry about is that that whole system post ’45 rests centrally on America, on American engagement, on American leadership, on American agenda setting, and even on American generosity because you know what Trump is right when he says that the tariffs are unequal.

The U.S. market is more open to other countries than those countries are to American goods and that was by design. Roosevelt and Truman and Eisenhower built it that way because their feeling was, we are trying to build a new world. We are trying to build a more stable, peaceful, prosperous world. We are going to be at the center of it but in order for it to work, it has to allow other people to thrive. All boats have to rise. And you know what? We’re the biggest, richest country in the world. We can afford it, but we get the system benefits of a peaceful, prosperous, non-competitive world and it’s worth it for us. And by the way, I think the evidence is overwhelmingly that they were right. Think about it at the end of that 75-year run that we’ve seen, where’s the U.S.? The U.S. is most powerful country in the world.

It dominates the world of every technology in the world. It dominates the financial system of the world. Its companies remain strong. Its per capita GDP is now 50 per cent higher than that of Europe. So it’s been a very good deal. I don’t think Trump sees that and he doesn’t hear that music. He looks at every one of those and says, “I can squeeze this country for more.” He doesn’t really believe in win-win. He believes I win, you lose and you can get more out of each individual country, but you lose the world that you created. You lose the systemic effects of an open rule-based world and that’s the thing I worry about.

 

Goldy Hyder:

Ladies and gentlemen, please join me in thanking Fareed Zakaria. Thanks, my friend. Thank you.

 

Goldy Hyder:

That’s my conversation with best-selling author, columnist and CNN host Fareed Zakaria, recorded in front of an audience on January 13^th in Toronto.

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Until next time, I’m Goldy Hyder. Thanks for joining us.