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FAREED ZAKARIA GPS

Is The Longest Ever U.S. War In Afghanistan Almost Over?; Trump Appoints Loyalist To Oversee U.S. Intelligence; What's Next For The Coronavirus Contagion?; Hollowing Out The Center In Westminster; Charlotte Alter: Millennial Life Is Defined By A Sense Of Precariousness; Why Costs In The U.S. Are Too High; Thomas Philippon: When Customers Have Few Choices Companies Can Charge More; GPS Challenge: Philippines Has Recently Announced Termination Of Key Security Pact With The United States. Aired 10-11a ET

Aired February 23, 2020 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


[10:00:06]

FAREED ZAKARIA, CNN ANCHOR: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

(BEGIN VIDEOTAPE)

ZAKARIA: Today on the show, Russia's meddling in American elections rears its ugly head again. The coronavirus contagion continues in China and elsewhere. And in Afghanistan, the United States could be close to a peace deal with the Taliban.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: They want to make a deal very badly.

ZAKARIA: Also the Las Vegas debate featured a discussion about which septuagenarian had the worst heart troubles.

SEN. BERNIE SANDERS (I-VT), PRESIDENTIAL CANDIDATE: They follow me around the campaign trail, three or four five events a day, see how you're doing compared to me.

ZAKARIA: So is it time for a younger generation of leaders? "TIME" magazine's Charlotte Alter, a millennial, says yes. Who is waiting in the wings? She will tell us.

And is your cell phone ringing up too high a bill? Are plane ticket prices sky high? If you're American your answer is almost surely yes, and you're paying a lot more than Europeans. The French economist Thomas Philippon explains why.

(END VIDEOTAPE)

ZAKARIA: But first here's my take. President Trump's most consistent case for his own re-election is simple. It's the economy, stupid. He points to an American economy that is in reasonably good shape, though, of course nowhere near the best ever that he claims. Growth has averaged about 2.5 percent, a bit higher than under presidents Obama and Bush and a good bit lower than under presidents Clinton and Reagan.

Trump had promised four percent growth, which never materialized, but that hasn't stopped the great salesman from repeating the refrain promises made, promises kept. Actually, the one area where Trump has most clearly failed to keep his promise is central to his ideology and appeal, the trade deficit. Trump campaigned relentlessly on the notion that America's economy was being ruined by large trade deficits. He promised on the campaign trail in June 2016.

(BEGIN VIDEO CLIP)

TRUMP: You will see a drop like you've never seen before.

(END VIDEO CLIP)

ZAKARIA: In reality, the trade deficit has risen substantially under Trump. It was $503 billion in 2016 and grew to $628 billion in 2018. A 25 percent spike. It fell slightly in 2019 to $617 billion. Now watch this clip from my interview with Jared Kushner earlier this month.

(BEGIN VIDEO CLIP)

JARED KUSHNER, SENIOR ADVISER TO PRESIDENT TRUMP: If deficits don't matter and why is it every country I deal with doesn't want to have one?

ZAKARIA: But the trade deficit has gone under President Trump. It hasn't gone down.

KUSHNER: Because our economy is growing and the dollar is very strong.

ZAKARIA: But you're contradicting yourself then it's a good thing.

KUSHNER: No.

(END VIDEO CLIP)

ZAKARIA: It's true that when the U.S. economy grows well the trade deficit tends to rise. If you want to achieve a sharp decline in the trade deficit, it's actually easy, just trigger a recession. And the greatest drop in America's trade deficit took place in 2009 in the wake of the financial crisis.

Trade policy can get very wonky, so let me try to make this simple building on a thought experiment by Roger Martin in the Harvard Business Review. Imagine a country that has less than 5 percent of the world's population but still generates more than 20 percent of global GDP. It buys more goods than it sells, but it leads the world in the industries of the future, services and technology.

It also has excellent laws protecting private investment in a strong, stable currency. So if you were living in another country wouldn't you want to invest your money there? This imaginary country is, of course, America. People might not buy as many American goods but they buy lots of American services and they invest their money in America. In fact, while the U.S. has a deficit in manufactured goods with the rest of the world, it runs a huge surplus in services, banking and insurance, consulting.

And remember that 80 percent of American jobs today are in the service sector. Jobs in manufacturing as a percentage of overall jobs has been declining for 70 years and at about the same pace for that period.

The U.S. is also the world's favorite destination to invest capital by a large margin. As Martin points out, when you look at this entire picture the trade deficit should be something to brag about, rather than denounce.

Donald Trump's trade policy has been an enormously costly exercise, forcing Americans to pay tens of billions of dollars in taxes on imported goods then using additional tens of billions of dollars in taxpayer funds to compensate farmers for lost income because of retaliatory tariffs and ensuring that the global trading system will now be weakened with lots of new tariffs and barriers.

All this to solve a problem that isn't really a problem.

For more go to CNN.com/fareed and read my "Washington Post" column this week. And let's get started.

[10:05:16]

Is one of America's forever wars about to come to an end? The answer is maybe. A seven-day reduction in violence began on Saturday in Afghanistan, the first major action to come out of negotiations between the United States and the Taliban. The next step will be even bigger, peace deal to be signed between those two parties next Saturday if all goes well. This war, which began in October of 2001, is now more than 6,700 days old.

Joining me now to discuss this, Laurel Miller, who was the former U.S. special representative for Afghanistan and Pakistan, now the Asia program director for the International Crisis Group. Richard Haass was the State Department's director of policy planning, now the president of the Council on Foreign Relations. He has a book coming out shortly called "The World: A Brief Introduction." And Ian Bremmer is the founder and president of the Eurasia Group, a geopolitical risk firm.

Laurel, let me ask you, so we have this reduction in violence. The next step is the peace deal. Hasn't the big stumbling block always been the Taliban don't want just want an end to the war, they want to be in some way running Afghanistan, in part or in full?

LAUREL MILLER, ASIA PROGRAM DIRECTOR, INTERNATIONAL CRISIS GROUP: They surely want to be in power to some degree in Afghanistan. What is unclear is precisely what is their political vision, what is their expectation of what the outcome of a peace process would be. They're quite cagey about that. They talk about not wanting to have a monopoly on power. They talk about the need for an inclusive government. But those are generalities. What their specific idea is of what the outcome could be and what compromise might look like is quite unclear.

ZAKARIA: Richard, you know the argument against this, which is that the United States essentially is going to withdraw forces. The Taliban is making commitments over the next few months, few years, that it can easily renege on. And the analogy people made is to South Vietnam. The United States pulled out of South Vietnam and the North promised to honor the sovereignty of the South and of course two years later South Vietnam had fallen to a North Vietnamese invasion. Are we watching history repeat itself?

RICHARD HAASS, PRESIDENT, COUNCIL ON FOREIGN RELATIONS: Quite possibly, which is why, like a lot of other people, I'm uneasy about this. It doesn't change Taliban capabilities. It temporarily changes their behavior, this reduction in violence. It doesn't affect in ways that reassure me their intentions. They still have a sanctuary in Pakistan. We're going to reduce as part of this first phase of the accord essentially by a third, going from just 12,000, 13,000, to 8500, 8600 forces.

Ironically enough, which is the level when Mr. Trump became president. The real question it seems to me is how anxious are we to get out, which is your South Vietnam parallel, and whether the Taliban in any way are sincere, and I would just be extraordinarily skeptical about that. And again, they're not being asked to give up capabilities and everyone's nightmare is we get out, their capabilities are there and then they go, never mind, or we changed our mind and then suddenly the Afghan government is extraordinarily vulnerable.

ZAKARIA: What do you think?

IAN BREMMER, PRESIDENT, EURASIA GROUP: Well, the Americans aren't going back in, right, and that's exactly why Richard's point is so salient here. Trump has been wanting to reduce American presence in this region for a long time, as Obama did, he's had a hard time with it. But he would love in this election run to be able to say, here's one more thing I got done, bringing troops back home, longest standing war in American history, and I'm on path to actually finish it completely.

Remember, in Syria, when he's being asked, you know, to do something about the Russians versus the Turks with, you know, Assad on the Russian side, he said, what do you want me to do? You know, I mean, do you want me to tell them to cut it out? I think he'd love to be in exactly the same position in Afghanistan. And by the way, the guy who is right now in the lead on the Democratic side, Bernie Sanders, has a very similar view on what American footprint should not be in this part of the world.

ZAKARIA: So imagine that Richard's unease is founded -- is well- founded that the Taliban retains capabilities, they decide, you know, the Americans are not coming back, we can violate parts of it. The Pakistanis -- you were just in Pakistan, the Pakistanis have long wanted to maintain a strong degree of influence in Afghanistan and their chosen vehicle has been the Taliban, at least historically. They're still around.

Is it possible that what we're going to watch in a few years is the Taliban in Kabul ruling Afghanistan?

MILLER: Well, look, they're not being asked to eliminate any of their capabilities yet because they haven't lost the war.

[10:10:04]

This is not a surrender of the Taliban. They're not going to be simply folded into the existing system. If there is ultimately a peace agreement, it's going to look more like a merger of the existing political and security forces on the ground. It's not going to be an acquisition of the Taliban and giving them just some kind of minority share of power and governance in Afghanistan.

So the point of having a peace process is to test the proposition that there might be some kind of compromise that can be agreed among all the Afghan parties and stakeholders here. Whether that turns out to be true or not, I don't think we can say. But you know, you're always going to be skeptical about the willingness of parties that have been at conflict for a long time to be willing to enter into those compromises.

That's not unique to Afghanistan. But the point of a peace process, as I said, is to test the proposition that you might be able to find some kind of accommodation.

ZAKARIA: A quick thought, Richard, you interviewed the Afghan president in Munich recently. Is he on board with this? Because he will have to share that power. He will have to let the Taliban in.

HAASS: He's on board phase one to get this going. As Laurel said, you've got to test it which is why we ought to be thinking about a residual U.S. force presence, long-term military and economic help for the Afghan government. We never again want to see Afghanistan become a launching pad for global terrorism and we've got to be careful, like we did in Syria, we don't want this once again to look like we're so anxious to get out that we betray those who have been our partners.

ZAKARIA: When we come back, we're going to talk about intelligence. Members of Congress were briefed last week that the intelligence community is confident that Russia is looking to interfere in the 2020 election. We'll talk about that issue, the briefing and President Trump's reaction to it all.

(COMMERCIAL BREAK)

[10:16:24]

ZAKARIA: The top election security official in American intelligence told members of Congress last week that Russia is already trying to interfere in the 2020 election and that Moscow would like to see Donald Trump remain in the Oval Office.

CNN has learned that President Trump became irate that the director of National Intelligence allowed that briefing to occur. On Wednesday Trump named a new acting director of intelligence, Richard Grenell, a former spokesman turned FOX News talking head, turned ambassador with very little -- actually no intelligence experience.

Let's bring in the panel to talk about it all, Laurel Miller, Richard Haass, and Ian Bremmer.

Richard, this guy, Richard Grenell, just to start with this, has no experience at this. He will be the head of national intelligence, whether that's 17 is intelligence agencies, a combined budget of over $60 billion. What do you think of this?

(LAUGHTER)

HAASS: Well he's unencumbered by qualifications or experience. That's what I think about it. The good news is it's acting and temporary. But let's be serious here. It's got to be demoralizing for an intelligence community that has been treated as almost hostile territory for three years now, it makes it harder for us to collaborate with partner intelligence agencies around the world and it says dangerous things about this president and his reaction to independent institutions.

It's not the president's intelligence community. Let's be clear about that. It's the U.S. government's. They support Congress, they support the executive branch. They're meant to speak publicly also to the American people. It's only several weeks ago, you'll remember, that the leaders of the intelligence community held back from giving their normal public presentation of the threat. Why? Because they're worried that the White House wouldn't react well. It's inconvenient. So this is part of a larger pattern we're seeing in the U.S. government. Personalization of the presidency.

ZAKARIA: It does seem, Laurel, that his -- he wants somebody who is politically loyal to him and aren't people going to worry, I mean, you've dealt with foreign governments, the intelligence they're getting is not the United States' best intelligence, but the United States' best intelligence as filtered through what Donald Trump's political prerogatives are?

MILLER: Absolutely. I mean, I think this decision shows utter disregard for the important role of U.S. intelligence agencies and protecting U.S. national security. It's not unusual or untoward for a president to choose someone for an office like this because of their party affiliation or because they're someone whom the president trusts. What is unusual is choosing someone precisely because of their extreme partisanship and despite having no qualifications.

I think it's more important in terms of what this means for U.S. national security than it is for interaction with foreign governments. There are other parts of the intelligence community that will continue to have exchanges with foreign governments, but what this means in terms of actual objective information, getting to U.S. policymakers, that's extremely concerning.

ZAKARIA: They -- you know, they said -- and Trump just seems to be doing this in a post-impeachment act of bravado, of a defiance to say I can do whatever I want. I mean, I think of, Ian, it's not a perfect analogy, but Caligula once appointed his horse to the Senate as a way of showing that he had complete power.

BREMMER: Are you really going there, Fareed? It's not a perfect analogy. No. No, look, I mean, the -- I actually know Rick Grenell reasonably recently well and he has no qualifications to have this job in intel but he's certainly not stupid and in fact he's reasonably articulate on all these views but he's a bomb thrower and he's a unilateralist. And he's not going to be there for long. And that's -- so frankly the impact is not going to that great.

But, there is a real issue right now that Rick has been directly involved in and that is specifically around 5g and whether or not the Europeans are going to cooperate with the United States or with China. Now, he has delivered a very direct message to the Europeans saying, if you work with the Chinese, there will be consequences for U.S. intelligence cooperation with you.

The Germans, the Brits, and a number of others have already said, we are uninterested in working with the U.S. closely on this issue. Meanwhile, the Americans and not just the Trump administration, but the Democrats, Nancy Pelosi, have come out publicly in saying, this is the biggest national security threat we need to worry about.

So Rick, for the next few weeks, is going to be in the middle of a national security issue that actually matters a lot and we should watch what he has to say about that.

ZAKARIA: All right. We've got to switch because I really want to cover coronavirus. Where do we stand as far as you can tell? Is this dying out? Is it escalating?

HAASS: A little bit difficult to know because it's hard to have any confidence in the statistics. Every time you hear that it's dying out, it turns out not to be. It seems to me contagion is significant, numbers are probably far larger than the Chinese had admitted. The lethality seems to be not that bad and clearly contingent on the public health system, where it happens, whether people get hydration, whether people have masks, how medical personnel interact with patients.

That's where we are. I think the -- economically we can talk about clearly it's going to have a major hit temporarily on China's economy, on the regional economies, and I think the most interesting question will be how this plays out and what, if any, long-term implications it has for China's leadership.

ZAKARIA: What do you think about that? Is this -- you know, I've heard it argued both ways. If this dies down, Xi can say, look, we mobilized and we beat this down. On the other hand, there are people who think it will represent a kind of blow to Xi and power?

BREMMER: I think his response has been consolidation of power and I don't see significant internal challenges to Xi on the back of this even if it gets much worse. But I think the economic implications are meaningful and his willingness to take an iron hand over however many Chinese might potentially be vulnerable to this coronavirus, does mean that you're going to see longer disruptions to supply chain, to tourism and the rest, which in a very politicized environment of the U.S. versus China could play out in ways that people don't want to see in this election.

ZAKARIA: You argue that looking at coronavirus, we should think somewhat differently about China, Chinese power and Xi?

HAASS: Almost everything that is said and written about China assumes China's rise continues. And that's (INAUDIBLE). What I think this should tell us is maybe not. China is a more brittle society that many outsiders understand. Second of all, by the time you've consolidated power to the degree Xi Jinping has done, it's really hard to blame others, you are the man. And the fact that the Chinese are beginning to recast the narrative, publishing different accounts of events, suggest to me there is some questioning going on in China.

Too soon to know how it's going to play out. But if nothing else over the last few years we've got to be really careful with assumptions and assuming the future is going to look exactly like the past.

ZAKARIA: On that note, thank you all.

Next on GPS, Bernie Sanders is an independent in the Senate, now he's a Democrat running for president. Mike Bloomberg was a Republican. Now he, too, is running as a Democrat. Donald Trump was a Democrat. He's now the Republican president.

What in the world is happening to traditional political parties? And not just in America. That story when we come back.

(COMMERCIAL BREAK)

[10:28:29]

ZAKARIA: Now for our "What in the World" segment. At the Democratic debate in Las Vegas this week, Pete Buttigieg pointed out a striking fact about his party's frontrunners. At times, both Bernie Sanders and Mike Bloomberg have not identified themselves as Democrats and don't forget the presumptive Republican nominee President Trump was for many years not a Republican.

(BEGIN VIDEO CLIP)

TRUMP: You would be shocked if I said that in many cases I probably identify more as a Democrat.

(END VIDEO CLIP)

ZAKARIA: This isn't just an American phenomenon. Everywhere you look, established political parties are being taken over by insurgent outsiders, all those mainstream parties are losing their appeal with the public. Why? What explains this phenomenon? In America primaries have actually hurt. You see each party's presidential nominee used to be determined by party elites, meaning elected office holders at the state and local level.

By the 1970s, primaries became the primary method for selecting delegates to the national convention. But the old elites might have been more representative than the primary voters. Turnout in primaries is low, mostly die-hard on each side tend to vote, so a process that aims to be more democratic actually produces rule by minorities.

[10:30:00]

Now look at the UK both Jeremy Corbyn and Boris Johnson are leaders who were in sergeants against their party establishment.

But a Political Scientist Frances Rosenbluth GPS those two are in charge in part because both the Labor and Conservative Parties passed a series of reforms that gave the rank and file a greater say in candidate selection which has of course undermined the party brass. It is Britain's version of the primaries.

As Rosenbluth and Ian Supero write in their recent book "Responsible Parties" in 2014 labors at Milbank took leader selection out of the hands of just MPs and distributed among all party members and some other affiliated supporters for the Tories Boris Johnson's Party reforms in 1998 allowed MPs to pick between candidates until there were just two standing and then allowed all party members to decide between those two in a runoff.

Last year as "The Atlantic" reported those 165,000 members proved to be older, whiter and far more hard line on Brexit than the rest of the country or the Parliamentary Party. And that they chose as their representative the generally unrepresentative Boris Johnson.

But there's a broader shift away from established parties because it's happening in places without primaries, meaning most other democracies. Across Europe, party membership has been battered. Between 1980 and the first decades of the 2000s the number of party members across 13 long-established European democracies fell by nearly half on average.

By the early 2000s less than five percent of the European Electorate was a member of a party. As old parties have weakened, populist upstarts on the right and left have emerged. Look at the Matteo Salvini's League in Italy or Poland's Law and Justice Party or look at the success of Green Parties across Europe.

In some places long, dormant political forces have also re-emerged. Just this month in an unprecedented development the nationalist Shin Fin Party won a plurality of votes in the Irish Parliamentary Elections resting seats from the long dominant centrist parties.

You might think that the solution to all this is just to say good riddance to party power. After all parties are responsible for their own demise the public distrusts them, why should they have more clout than they do?

Because historically political parties have moderated politics, helping different groups to compromise and work together. And one consequence of their continuing weakness is plain to see the rise of particularization and bitterness in politics everywhere.

Next on "GPS," looking for - in the Democratic Party wondering who the Barack Obama of the 2020s is? "Time Magazine" Charlotte Alter has been meeting the political scene's next generation and she will tell us all that we need to know.

(COMMERCIAL BREAK) [10:35:00]

ZAKARIA: Donald Trump is 73 years old. Joe Biden is 77. Bernie Sanders and Mike Bloomberg are both 78. Elizabeth Warren is young at 70. That's a big majority of the current contenders for the 2020 Presidential Race. They're all 70 or older. So where is the new blood?

Well my next guest says get ready for the next generation of American politicians because they are going to reshape America. Charlotte Alter is a National Correspondent for "Time Magazine" and the author of a new book on this subject called "The Ones We've Been Waiting For." So, you talk about millennials and politics. If one were to think about them and as I recall they're born between--

CHARLOTTE ALTER, AUTHOR, "THE ONES WE'VE BEEN WAITING FOR": Between roughly 1980 and 1996.

ZAKARIA: So if you would have picked one characteristic or somebody would say to you define millennials, I know this is you know it's obviously overly reductionist but what would define millennials?

ALTER: I think, and this is what I trace in my book, that millennials are defined by a sense of precariousness, a sense that the attitudes and realities, the guardrails of American life that existed throughout the 20th century have crumbled or have been otherwise eroded and a lot of the financial and political and social structures that enabled their parents and grandparents to live the lives that they did are no longer available to them.

ZAKARIA: And part of the reason is you say that every generation is shaped a lot by the early experiences of millennials, of them. So what were the early experiences of millennials?

ALTER: yes exactly. So social scientists have found that events experienced between the ages of roughly 18 to 28, like kind of when people are coming into their political consciousness, those shape your politics for years to come.

So if you look at millennials, many of them were children when the Berlin Wall fell. So they don't really have that kind of sense of cold war global politics. Instead, my book starts at 9/11, which was a pivotal moment for millennials it traces them through the wars in Iraq and Afghanistan, through the financial crisis, through the rise of Barack Obama who was a transformative politician for this generation and then the rise of Donald Trump.

And it also covers a lot of the social movements that flourished during the Obama Era like "Occupy and Black Lives Matter" which shaped millennials' social identity.

ZAKARIA: So the threats of terrorism, wars that go badly, go awry, financial system that collapses, deep recession, Obama is sort of the blip, right? How do they make sense of Obama?

ALTER: So Obama had an interesting kind of positive and also may be less positive impact on this generation because he was elected because of his popularity with young people. Young voters helped Obama win Iowa and then the nomination and then the Presidency.

And for a lot of these voters for whom Obama was their first presidential vote, a lot of them thought to themselves, okay, well we just elected the first Black President, he will take care of it. And then, you know, when Obama was unable to single handedly fix so many of the social problems that his supporters had expected him to be able to fix, you know, structural racism didn't evaporate just because Obama was President.

[10:40:00]

ALTER: That led many of these young people to think to themselves maybe these systemic problems actually need systemic and that led to the rise of these vast networked, non-hierarchical movements like "Occupy and Black Lives Matter" were there was no one singular fallible leader, it was more like thousands of leaders all acting in cohort with one another.

ZAKARIA: But now they do seem to have found a leader in Bernie Sanders.

ALTER: Yes.

ZAKARIA: So young people are disproportionately support Sanders and young people are disproportionately comfortable with the idea of being called Democratic Socialists.

ALTER: Yes.

ZAKARIA: Why?

ALTER: So it's important to note that it's not as if these entire generations are card carrying members of the Democratic Socialists of America. In fact, even though the democratic - the DSA has had skyrocketed membership since Bernie Sanders started running for President in 2015, it's still, you know, could fit inside Fenway Park.

So it's not necessarily that everybody is a comrade. It's more that socialism has just lost its sting. It's no longer considered to be so dangerous. In fact, it's something that people think of when they think of economies in Northern Europe where people get affordable or free health care or free child care or really affordable education.

And you have to remember this generation was only 8 or 9 when the Berlin Wall fell, the oldest millennials were eight or nine when the Berlin Wall fell.

ZAKARIA: So they don't remember actual socialism?

ALTER: They don't remember totalitarian communism. It's also important to remember when talking about millennial socialism the important word here is Democratic Socialism. So I think a lot of boomers and people who grew up during the cold war when they think of socialism they're thinking of totalitarianism.

And for this generation, they want to elect leaders that will implement policies to strengthen the social safety net. Elect is the operative word there because if you elect AOC in New York's 14th district and then you don't like what she's doing or feel that your taxes are going up too much or you don't like the programs she's fighting for, you can vote her right out.

ZAKARIA: Why do millennials not vote, other than for Obama?

ALTER: It's a great question. So actually millennials did double their turnout in the 2018 midterms and about 60 percent say they plan to definitely vote in 2020. One big impact that the Obama election had is that I think many millennials think of voting as an act of love.

They think of it as something that you only do for something that you - for somebody that you really believe in, not just whoever happens to be--

ZAKARIA: Not civic discipline.

ALTER: -- not duty. Not just whoever happens to be on the ballot. That is something that's going to really shape this election in particular when you have so many young people who are so enamored with Bernie Sanders, a really big question that Democrats are going to have to deal with is, whether those young people will vote for somebody who isn't their chosen candidate?

ZAKARIA: Fascinating stuff. Charlotte Alter, pleasure to have you on.

ALTER: Thank you so much for having me.

ZAKARIA: Up next, listen up America, your French friends pay much less for their cell phone service than you do. Have you ever wondered why? I will give you the answer when I get back. It's a troubled tale about America today.

(COMMERCIAL BREAK)

[10:45:00]

ZAKARIA: I want to ask some questions to the Americans in my audience. Do you ever wonder why your cell phone bill is so damn high? Have your eyes ever popped at just how much it costs to fly your family to your favorite destination?

Well, my next guest has written a very smart book that explains why these things are so much more expensive in the United States than say in Europe. Thomas Philippon is the author of "The Great Reversal" how America gave up on free markets.

So let's start by explaining that proposition. I think most Americans don't know what other things cost in other countries, but you've done the - crunched the numbers and in many of these key areas, Americans pay much higher prices, correct?

THOMAS PHILIPPON, AUTHOR, "THE GREAT REVERSAL": Yes, yes. Today they are much higher in the U.S. than in Europe by a factor of two or two and a half in the case of telecom prices. So literally people are overall paying on average $50 or $60 per month for their cell phone and broadband plans.

ZAKARIA: Why? What is the nature of the American industry in those areas that has allowed the companies to charge so much?

PHILIPPON: It's very much concentration and lack of competition. What is most striking is that it was the opposite 20 years ago so when I came to the U.S. from Europe 20 years ago, I noticed that the U.S. was the land of, you know, low prices and free markets, where you had lots of choices and very low prices, be it for flying around or for buying a cell phone or for getting on the internet.

And somehow over the 20 years that I've been here, I've seen those markets become more and more concentrated, controlled by a few large players, so that today U.S. household has fewer choices and they pay higher prices.

ZAKARIA: This is very important because I also came to America, you know, 30 years ago and I remember thinking this is a consumer's paradise. Everything seems geared to get the cheapest price for the consumer and you're saying it's now the reverse.

Explain why it is that when you have concentration of - and lack of competition, when you have two or three players in a market, why does that lead to high prices?

PHILIPPON: Well, it leads to high prices for many reasons. The first one is that they don't have to fight for your purchase because that they take you for granted. If you fly from one airport to another and there's only one direct flight or at least one airline operating their flight, then either you don't fly or you take the car but you don't have that many choices. So that's how they can charge higher prices.

ZAKARIA: Now we think of this concentration being true in technology.

PHILIPPON: Yes.

ZAKARIA: Amazon is dominant, Google is dominant, Facebook. You're saying it's actually quite widespread.

PHILIPPON: Oh, yes. So the concentration is happening in many, many sectors but what is important to understand is concentration can happen for good or bad reasons.

[10:50:00]

PHILIPPON: Sometimes concentration is just the outcome of competition and then the best win, and if the best wins a lot, then it ends up being a dominant player. That does not mean it's a bad deal for consumers.

But when you have for a long time the same players and they don't face any threat from the outside, they get lazy and so that you know either you get high prices or you get lousy service or both which is what you get in airlines or cell phone plans.

ZAKARIA: So why did we go from America 20 years ago being the land of free competition and low prices for consumers, to the land of less competition, oligopolies and high prices for consumers?

PHILIPPON: Yes, that's a very interesting revolution. It's actually happening parallel in the U.S. and in Europe with opposite trends. So in the airline case we have low cost airlines that are major players in the European markets today.

In the case of telecoms we have more predators, and they compete extremely aggressively so that the base I mean you can get a cell phone plan for 5 Euros a month in France. That's how competitive these markets are.

And what's interesting is this was all inspired by how the U.S. used to look. In the U.S., what happened is more I think a bunch of different forces, people get, you know, complacent they take free market for granted that things are always going to adjust.

The judges - authorities start to be complacent with respect to merger reviews. In the case of airlines it is clear you went from eight to four, where as essentially I think badly done reviews and in some other markets we've seen also either state level states putting too many restrictions, too many costs, too small businesses that prevent them from growing and competing with the big guys.

If you put all of these pieces together you get these trends toward the higher prices which today cost the middle class in the U.S. a lot of money.

ZAKARIA: Is a large part of this story the political power of big businesses that found ways to influence either legislatures or local governments or anti-trust authorities to say, don't, you know, don't make this market - close this market up, give us more power?

PHILIPPON: Okay. So it's very clear that the rule of lobbying and campaign finance played a very important role. I don't know if it's the entire story, but it's definitely a major contributor. You can see that industry that successfully lobby, they get away with higher prices in the future without anti-trust actions against them.

They will be successful to prevent entry by small either competitors or foreign competitors so all of that is part of this trend towards more concentration and worse deal for U.S. consumers.

ZAKARIA: This is a really important book. Thank you so much for coming on.

PHILIPPON: Thank you for having me.

ZAKARIA: And we will be back.

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[10:55:00]

ZAKARIA: We often talk about America's endless wars, the ones in Afghanistan and Iraq, but U.S. troops in small numbers are actually deployed in over 150 countries, whether to protect against Russian influence in the Baltic's or North Korean aggression in South Korea.

It brings me to my question, which country recently announced the termination of a key security pact with the United States Bahrain, Finland, Honduras or the Philippines? Stay tuned and we'll tell you the correct answer.

My book of the week is Fred Hochberg's "Trade Is Not A Four-Letter Word." Hochberg has managed to do the seemingly impossible, write a breezy, smart, funny book about trade, he weaves in stories with the data, has a refreshingly informal voice and takes the reader on an entertaining ride. The bonus is he's right about the subject as well.

The answer to my "GPS Challenge" this week is D. The Philippines recently announced it is withdrawing from the visiting forces agreement, a 22-year-old pact that allows U.S. troops to operate there.

The agreement is a key piece of a 70-year military relationship which has included annual joint military exercises and hundreds of millions of dollars in defense aid. Philippines President Rodrigo Duterte has been threatening to withdraw from the agreement since 2016.

In an expletive laden speech, he revealed that the final straw was the visa cancellation of one of his key allies, the Former Police Chief largely responsible for enforcing Duterte's brutal extra judicial war on drugs.

When questioned about the Philippines' decision to pull out, Donald Trump proclaimed he doesn't really mind. But actually, it is a big deal. Experts see it as part of Duterte's larger realignment toward China.

"The Center For Strategic and International Studies" details how since taking office Duterte has been distancing himself from the United States and seeking new alliances with Russia and China. He has courted Chinese investment to the tune of $24 billion.

"The Atlantic" reports that China is now investing $2 billion to build a modern industrial city out of an air base that was once America's largest overseas military outpost. Moreover, observers of the region wonder whether Duterte's pulling out of pact will further Chinese expansion in the South China Sea.

Philippine is just one of the nations laying claim to the waters where China has been building up artificial islands and even military bases. In fact days before announcing the break with the U.S. even the Philippines own foreign secretary warned that such an act would embolden Chinese aggression.

Now American and Philippine are negotiators have six months to restore the pact or we will witness a sharp geopolitical shift in Asia. Thanks to all of you for being part of my program this week. I will see you next week.

JOHN AVALON, CNN HOST: Hey, I'm John Avalon in for Brian Stelter. It's time for "RELIABLE SOURCES".