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Fareed Zakaria GPS

The Terror Threat to America; Foreign Policy in Trump 2.0. The Fissures In Trump's Coalition; Remembering Jimmy Carter; Economic Trends To Watch In 2025. Aired 10-11a

Aired January 05, 2025 - 10:00   ET

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

[10:00:35]

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 coming to you live from New York.

(BEGIN VIDEOTAPE)

ZAKARIA: Today on the program, the FBI says the New Orleans truck attack was 100 percent inspired by ISIS. Should Americans be bracing for more?

My guest says, yes, the terrorism warning lights are blinking.

Also, what can we expect on the foreign policy front from President Trump 2.0? How will he deal with China, Russia, the Middle East?

I'll ask Richard Haass and Kori Schake.

Then, just days before Jimmy Carter's funeral, I talked to his chief speechwriter, the great journalist James Fallows, about the legacy of the 39th president.

(END VIDEOTAPE)

ZAKARIA: And now here's "My Take."

Countries with more than half of the world's population went to the polls last year. And the basic message they sent to their governments was one of dissatisfaction and anger with the status quo. Their frustration, however, seemed to be particularly focused on the party that has traditionally been identified with big government. The left.

Almost everywhere you look, the left is in ruins. Of the 27 countries of the European Union, only a handful have left of center parties leading government coalitions. The primary left of center party in the European parliament now has just 136 seats in a 720-seat chamber. Even in countries that have been able to stem the rise of right-wing populism like Poland, it is the center right that is thriving, not the left.

And in the U.S., of course, the breath of Donald Trump's victory. Nearly 90 percent of counties in America moved right, suggests that it is very much part of this trend.

The crisis of democratic government then is actually a crisis of progressive government. People seem to feel that they have been taxed, regulated, bossed around and intimidated by left of center politicians for decades but the results are bad and have been getting worse.

New York, where I live, and Florida, where I visit often, provide an interesting contrast. They have similar sized populations. New York with about 20 million people. Florida with about 23 million. But New York state's budget is more than double that of Florida's, $239 billion, versus roughly $116 billion.

In addition, New York City, which is a little more than three times the size of Miami-Dade County, has a budget of more than $100 billion, which is nearly 10 times that of Miami-Dade. New York City's spending grew from 2012 to 2019 by over 40 percent, four times the rate of inflation.

Does any New Yorker feel that he or she got 40 percent better services during that time? What do New Yorkers get for these vast sums of money generated by the highest tax rates in the country? If you're well off in New York City, you pay nearly as much in income taxes as in London, Paris or Berlin without free higher education or health care, I might add.

New York's poverty rate is higher than Florida's. New York has a lower rate of home ownership and a much higher rate of homelessness. Despite spending more than twice as much on education per student, New York has education outcomes. graduation rates, eighth grade test scores that are roughly the same as Florida's.

It's easy to comfort oneself by thinking that these sky high tax rates and growing government revenues are providing some crucial ingredients of progressive government. But they are often simply the toll of waste and mismanagement. The first phase of the Second Avenue subway construction at $2.5 billion per mile was eight to 12 times more expensive, compared to a sampling of similar projects in places like Italy, Sweden, Paris and Berlin. Not exactly low cost locales.

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A large chunk of state and city tax revenues goes to fund pensions. In Illinois, more than 8 percent of the budget goes towards pensions. In New York City, nearly 22 percent of the budget funds pensions and benefits for government workers.

Now promising government workers generous pensions has been an easy way to buy the support of a crucial voting bloc, while ensuring that the costs don't show up in the budgets until years later.

America's big cities are incubators of growth, vitality and energy. That's why the spotlight is placed on them and their governance, and what people have seen recently is liberalism run amok. For years theft was rampant in California cities because of a weak shoplifting law. New York's homeless, some of whom are drug addicts or mentally ill, are left to frighten and harass the public on the streets and in the subways.

The man charged this week with attempted murder after pushing another man in front of the subway had a string of prior arrests.

The ultimate test, of course, is how people are voting with their feet. For years now, New York has been losing people to states like Florida. The same story can be told with minor variations about California and Texas. Basically, big red states are growing at the expense of big blue states, which will translate politically into more Republican representation in Congress and more electoral votes.

There's now an interesting effort by people like Elon Musk and Vivek Ramaswamy to combine cultural conservatism and economic nationalism with the radical reform of government. That could be an appealing ideology for many voters who are frustrated by a government where nothing seems to work that well. On the other side, if Democrats do not learn some hard lessons from the poor governance in many blue cities and states, they will be left defending cultural elites, woke ideology and bloated, inefficient government. And that might be a formula for permanent minority status.

Go to CNN.com/Fareed for a link to my "Washington Post" column this week, and let's get started.

On New Year's Day, 14 people were killed and dozens injured in an ISIS inspired truck attack in New Orleans. Police killed the attacker, an Army veteran from Texas. Graham Allison coauthored a prescient "Foreign Affairs" article in June called "The Terrorism Warning Lights are Blinking Red Again."

He is a professor of government at Harvard who served in the Pentagon under Bill Clinton and has advised secretaries of defense under every president, from Ronald Reagan to Donald Trump.

Graham, welcome. That really was quite an article where you laid out something that the director of the FBI had been laying out, Christopher Wray, which is that the terrorism warning lights are blinking. Tell us, give us a little bit more of a sense of what it is that you and your co-author, Mike Morrell, saw that made you worry.

GRAHAM ALLISON, PROFESSOR OF GOVERNMENT, HARVARD UNIVERSITY: Well, we found ourselves just in our private conversations confessing to each other that we were hearing echoes of the sort that we had heard before 9/11, the terrible attack on the World Trade Center and the Pentagon that killed 3,000 people.

So what kind of echoes or warning lights? First, the Mideast on fire. You can't have a region as disturbed as it is without a lot of chaos. Chaos is where Islamic groups regroup. And when we're seeing a regrouping of them in Afghanistan, with ISIL-K in Syria, in Iraq, in the wars in the region. Secondly, every day, as Avril Haines, the director of National Intelligence, has said, every day that the war in Gaza goes on, you're seeing a sea change in the Islamic and Palestinian world as they think about, you know, their future, their lives. Third, here in the U.S., there's been this almost normalization of

violence, with more and more people being deranged and diluted, and therefore possible possibly attracted as this Texas driver who killed the 14 people in New Orleans. So a confluence of factors.

ZAKARIA: And Graham, help us to parse through two different kinds of terrorism. One is the lone wolf who seems maybe inspired by ISIS, inspired by some radical vision.

[10:10:06]

And the second, a 9/11 type attack, coordinated, planned, operationalized by a group possibly in the Middle East, has therefore access to many more weapons, and is presumably planning a series of attacks. Is -- you know, is one more likely than the other in the kind of world you're describing now or do we have to be on guard for both?

ALLISON: Well, I think you're right to identify the two. And then you also have just this homegrown versions. But I think all of them are dangerous. I think -- and they actually feed on each other. So the -- how in the world did this fellow who had been a veteran, a Texan, get into the -- into his head that he had become radicalized by Islam and now he's wanting to conduct terrorism here in the U.S.?

I think trying to figure out the psychology of these individual is very, very difficult. At the same time, when you have the chaos that you have in the Middle East today, I was talking to an Israeli counterintelligence person, and he said they had identified 1300 separate groups of Islamic -- they could be small groups or even groups of hundreds emerging as clones or next generation versions of ISIS or ISIL.

So I think we're in for a long stage in which this will become just part of the threat environment that we have to live with.

ZAKARIA: And part of what seems to feed this is something we sometimes forget. But the barriers to entry. I hate to use a business term for this. The barriers to entry for terrorism have gotten lower and lower. It's easier to find this stuff online, in places. I mean, you saw a different example, but the guy who killed the UnitedHealthcare CEO machine printed a gun. How do you know -- you know, is this a losing battle in the sense that you can't stop people having access to weapons that are very deadly?

ALLISON: Well, that's again an excellent point. I think that, you know, how hard is it to rent a truck? Well, we just saw both in Las Vegas and in New Orleans, not that hard. And how hard is it to buy a gun? Most places not very hard. How hard is it to find large constellations of people? I mean, if you go back to the Taylor Swift event, she was having a concert in Vienna where they would have killed probably 10,000 people had the terrorist attack not been disrupted.

So the piece of good news in this, Fareed, I mean, I think it's part of the threat environment we'll have to live with. And I think the good news is that the intelligence agencies and the law enforcement agencies, the military have been working very hard. So I find a lot more thwarted or prevented terrorist attacks than the ones that succeed.

Now, unfortunately, it's horrible when you have a success like the deranged fellow in New Orleans. But we live in a very dangerous world. Actually, Americans kill more of each other, you know, every week than we do -- than we have from Americans killed by terrorist attacks. So that gets into a whole another topic that you've explored in a previous show of, have we normalized violence in a way that should be unacceptable but may just become part of life?

ZAKARIA: Graham Allison, pleasure to have you on, sir.

ALLISON: Thank you. Pleasure to be here.

ZAKARIA: Next on GPS, what will Trump's foreign policy look like? We'll explore with two seasoned experts when we come back.

(COMMERCIAL BREAK)

[10:13:34]

ZAKARIA: Donald Trump will be president again in just 15 days. The world looks very different from the last time he took power. He inherits the ongoing war in Ukraine, instability in the Middle East, heightened tensions with China.

How should he navigate those crises, and what might he do?

Joining me now are Richard Haass, president emeritus of the Council on Foreign Relations, and Kori Schake, the director of Foreign and Defense Policy Studies at the American Enterprise Institute.

Richard, let me start with you. You now have so many opinions that you express on your Substack blog that I don't know --

RICHARD HAASS, PRESIDENT EMERITUS, COUNCIL ON FOREIGN RELATIONS: You can at least name it if you're going to say that, Fareed.

ZAKARIA: What is it -- remind me the name.

HAASS: "Home and Away."

ZAKARIA: "Home and Away" and if you want to hear Richard Haass' views on foreign policy or golf, you can get both of them. But on foreign policy, I want to ask you, do you really think that Trump is going to do something serious about Ukraine? You've been arguing for a long time that there is a deal to be had. The borders are not going to change. The Ukrainians need to accept that, and the Russians need to accept that Ukraine will get some kind of security guarantees.

So my real question is, for that to work, Trump will have to pressure Putin because Putin needs to accept the deal. The leverage on Zelenskyy is obvious. We say we will withhold aid. What makes you hopeful that that could happen, that Trump could pressure Putin or try to pressure Putin?

[10:20:00] HAASS: Well, first, what makes me optimistic is the situation on the ground. It's deteriorated slightly over the last few months, but after three years of fighting, Ukraine has essentially fought the Russians to a standstill. Second of all, Zelenskyy, president of Ukraine, seems to have come around to the idea that he's not going to militarily liberate the 20 percent of his territory that he's lost, and he seems to be willing to make a trade. Essentially, I will compromise for some type of a cease fire in place. I won't give up my long term claims in exchange for the security assurances about arms, what have you.

So I think essentially the United States and Ukraine are pretty much at that point. Now we'll turn on to Putin. If Donald Trump really wants this agreement as much as he said, it's Vladimir Putin who stands in his way. Vladimir Putin clearly has manpower problems, not just we see it from the North Koreans, but increasingly anybody and everybody in Russia is being incentivized to join up for the military.

He's got real economic problems. So I'm not suggesting Mr. Trump is going to get his deal in his day. But, you know, Fareed, I once wrote a book about ripeness. And you've got to have situations where people are willing and able to make deals. Well, Putin hasn't been willing. He's obviously able to make a deal. I think he's getting in the space where he's moving closer. He's going to be forced to be willing.

And I think Mr. Zelenskyy is obviously able to make a deal if he wants. And I think he's now come around to that. So I think there's a decent chance 2025 will be the year that we will have serious movement towards a ceasefire.

ZAKARIA: Kori, what do you think?

KORI SCHAKE, DIRECTOR OF FOREIGN AND DEFENSE POLICY STUDIES, AEI: I agree with Richard that the sand is running through the hourglass for both Ukraine and for Russia, but I don't see any evidence that Putin thinks he's losing, thinks he's been fought to a standstill. I think he is banking on Western countries becoming tired of paying attention to Ukraine's suffering. And I think President Zelenskyy has actually played the incoming Trump administration exactly as you say, Fareed.

He understands his reliance on the U.S. and he's got to find a way to deal with President Trump. And I think he's doing that very effectively. What I hope will happen is that President Trump will hold true to his campaign promise that if Russia won't make a deal, he will open up the spigots and give Ukraine what it needs to win the war because Foreign Minister Lavrov is not sounding like there's any trade space. I don't think Putin thinks he's losing. So I don't see --

ZAKARIA: And you've been critical of the Biden administration. You felt that the spigot should have been opened more fully.

SCHAKE: Yes. I think the Biden administration was always predominantly concerned about escalation, an attack on a NATO country or American involvement. And as a result, they left American allies who are at greater risk of retaliation than the U.S. is to make the first moves on releasing airplanes, on releasing long-range weaponry instead of actually leading Ukraine to be able to reestablish its sovereignty over its internationally recognized territory.

ZAKARIA: We got to move just because there's so much to cover. Iran, another place that you and I have both argued there's an intriguing possibility that Trump can say, let's find some new Iran nuclear deal because at the end of the day you do want them in a box on the nuclear issue. What is the possibility of that actually happening?

HAASS: Well, funny you should ask. I have a piece coming out Monday on "Foreign Affairs" that basically says, I think we should press for a grand bargain. Serious constraints on Iran's nuclear program with verifiable ceilings. Second of all, end of military support for proxies. And in exchange, we would ease sanctions and we would be willing to live with the Islamic Republic of Iran.

But essentially, we would establish two very demanding national security goals. I don't know if they'll agree to it. We backed these demands with force and say, look, one way or another, you're going to get out of the business of supporting proxies militarily. The Houthis, Hezbollah, Hamas, and one way or the other, you're going to have a nuclear program that's going to be so limited we're going to be comfortable with it. So we prefer to do it diplomatically. But if you're not prepared to do it, if you will, voluntarily, we will do it through the focused use of military force.

ZAKARIA: But there would be an upside if they did it, the release of it? Because that's would -- Biden has been unwilling to do so far.

HAASS: There has to be. I think the upside is that sanctions relief I'd be prepared to essentially recognize the Islamic Republic. I would put this into a treaty if that's what the Iranians want. So it was open ended. So, yes, there's something in it for them. And it allows us, by the way, to help stabilize this part of the world. So in part, we can focus more on the situation in Europe, disabuse Mr. Putin that time is on his side and focus obviously a lot more on China.

[10:25:03]

ZAKARIA: All right. Stay with us. When we come back, we're going to talk about the rest of the world, but particularly places where there are divisions in Trump-land.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Richard Haass, president emeritus of the Council on Foreign Relations, and Kori Schake, the director of Foreign and Defense Policy at the American Enterprise Institute.

Kori, it seems to me the biggest issue on which there is potentially a divide is China. Trump said he wanted to invite Xi Jinping to his inaugural. Who knows what's happened about that? But it, you know, it suggests something which is that somebody like Elon Musk needs a good relationship between the U.S. and China, he needs the Chinese market to justify the kind of crazy value that's placed on Tesla. But there are lots of people in Trump land who want a much more hawkish policy on China. Who's going to win? KORI SCHAKE, DIRECTOR OF FOREIGN AND DEFENSE POLICY STUDIES, AEI: I'd bet my money on the business wing of the Trump administration, because it doesn't appear that President Trump himself has very strong commitments to defensive -- America's allies in the region, to the independence of Taiwan. I think what the president is likely to be looking for is a deal that affects trade policy with China, and that's more likely to be aligned with the business wing of Trump influencers.

ZAKARIA: What do you think?

RICHARD HAASS, PRESIDENT EMERITUS, COUNCIL ON FOREIGN RELATIONS: I hope Kori is wrong. I fear she's right. But there are different camps. There's the geoeconomics, if you will, as opposed to the politics. But yes, I think the concern among a lot of us is that there's a deal to be had that the Chinese would love. To essentially give us some of what we want on trade, to have less of an imbalance in the in the trade. And in exchange, the United States would distance itself from Taiwan or other allies in the -- in the region. That's -- that's my concern.

ZAKARIA: I mean, if I were to put -- picture of myself in Trump's -- you know, put myself in Trump's shoes, difficult thing to do, but you can imagine him saying, why the hell do we care about Taiwan? It's 11,000 miles away. It's something that's existential to them. Do we really care about it? You know, it feels like that's how his gut is probably about Taiwan.

SCHAKE: I think he has actually even said that. I don't -- I think it would be very difficult for the China hawks like me that are in the Trump administration, which I'm not, to persuade the president to run the risks of an actual war with China for the independence of Taiwan, or even possibly for the independence of other American allies who are relying on our security guarantees.

ZAKARIA: Well, do you think that this highlights a broader difference between -- because, you know, Musk, Vivek Ramaswamy people like that a lot of his economic guys, these are all part of a kind of world of globalized elites who want to do deals, make trade. And that feels very different from the base of the party, which has elected Trump.

HAASS: Yes. Well, then you got three camps. Youve got those who mainly see the world through an economic prism. You've got those who have an isolationist or minimalist approach to the world. And then you've got those who are real China hawks.

So, you've got, you know, various schools of thought, and we'll just have to see how this plays out. And one possibility is Donald Trump doesn't come down squarely on one or the other. That this is an administration, shall we say, that's constantly in motion and defining itself.

SCHAKE: What Richard is trying to say is that we will pay an enormous chaos premium in a Trump administration, because it's not clear that the departments will function effectively. It's not clear that the interagency process will produce policy in predictable ways. And it's not clear where the president will come down on a lot of these issues. ZAKARIA: Where do you worry most about that issue of -- you know, some of these people are new to policy, particularly the process, I think of Pete Hegseth at the defense department. The defense department, and I say this with great respect for TV hosts. You know, TV hosts run, you know, maybe 20 people.

The Pentagon is the largest bureaucracy in the world. Millions of people, close to $1 trillion in budget. Is there a danger that somebody like that will just get run by the professionals in the defense department who know how to do this backwards?

SCHAKE: Well, it is an incredibly effective bureaucracy, and a lot of people there know how to not just make policy, but how to prevent things from happening if they don't want them to happen. But it's also, in particular in the American military, you know, it's a culture of obedience, right? Where if the -- if the Senate confirms for ratification a treaty or confirms an appointee, they are going to try and make the institution do what it -- what the secretary wants. And they should.

ZAKARIA: What worries you most? Which appointment worries you most in the Trump --

HAASS: The Kash Patel at the FBI, given its reach within the -- within the society. I think the -- I wouldn't call it a danger in terms of Mr. Hicks. I actually think that's the hope that if he were to get defense in a funny sort of way, the uniformed military and the civilians in the department, the office of the secretary of defense would be a constraint. So, I'm actually less worried about that. I'm more worried about the ability of someone to weaponize the justice department.

ZAKARIA: All right. We're going to have to leave it there.

[10:35:00]

Thank you both. This is really good. Next on GPS, former President Jimmy Carter's funeral will be held Thursday in Washington. I spoke to his chief speechwriter when he was president, James Fallows, about his legacy.

(COMMERCIAL BREAK)

ZAKARIA: Former President Jimmy Carter, who died last Sunday at the age of 100, left a lasting impact that spanned the globe.

[10:40:01]

Among his top accomplishments as president were mediating peace between Egypt and Israel, normalizing relations with China, and agreeing to hand over the Panama Canal. While in his post-presidency he was a tireless champion of human rights and public health.

For more on Carter's legacy, I'm joined by the veteran journalist James Fallows, who was chief speechwriter for President Carter. Jim, welcome. Let me first ask you about a line that you -- that you wrote or said, which went viral before there was virality. You once said that being Jimmy Carter's speechwriter was like being FDR's tap dance instructor.

What did you mean? Why was Carter so hard to coach into giving kind of eloquent speeches?

JAMES FALLOWS, CHIEF SPEECHWRITER, PRESIDENT JIMMY CARTER: The serious point I was trying to get at is there were certain natural gifts the world has had a chance to see, not just in Jimmy Carter's four years in office, but in his nearly 44 years after being in office. His gifts of vision and of principle and of global scope, and what he wanted to do, and being personable on individual by individual level.

Somebody who would go to little villages in Africa to fight the Guinea worm. Somebody who would shake every single passenger's hand whenever he flew a commercial airline flight. There are also things that Jimmy Carter didn't want to do that go with the performance art of being a president.

One of them is giving big formal speeches. Jimmy Carter became president because he was so good at talking with small crowds of two or 300 people in the Iowa caucuses in the year before he became president. He never wanted to learn to give the big formal speeches, because he thought that was sort of artificial, something he shouldn't have to spend time on.

ZAKARIA: It was generally seen as an unsuccessful presidency. Do you think -- and naturally, you're partisan about it. But I just want to get your best sense. Was it some of these traits he had? A certain kind of stubbornness and unwillingness to play, for example, the congressional game? Or was it just that these were very tough times that he was in?

FALLOWS: It was a terrible, terrible time for the world, for the United States, for being U.S. president. It was when the first oil shocks were setting in, and the price of gasoline was skyrocketing. Worldwide stagflation was beginning. The Democratic Party was trying to find its way after LBJ and Vietnam.

The nation had barely recovered from the Watergate scandal. So, I wrote one time that only a nation with sort of as much going wrong for could have given somebody like Jimmy Carter, with no national experience, a chance to be its leader.

So, partly it was just really difficult times. Partly it was that Carter, like many first term presidents, didn't recognize what he didn't know about working in Washington, about working internationally.

He had some surprising in even more in retrospect, domestic successes. His energy plan was visionary. He did a lot of environmental steps that were also visionary. And he got the Panama Canal treaties passed by supermajorities in the Senate. ZAKARIA: You mentioned the Panama Canal treaties there. Back in discussion now with Donald Trump saying that he wants to basically renegotiate them. I just wondered, what are your thoughts on that, given how closely involved you were in the original ones, which, as I recall, were urged on Carter by the U.S. military?

FALLOWS: Yes. And it's worth remembering that the negotiations to transfer control of the Panama Canal began not under this pinko Jimmy Carter, but under Richard Nixon, and then continued under Gerald Ford. And the reason in both cases was the increasing concern from the U.S. military. That was really -- what was really a colonial outpost in Panama was becoming more and more impossible to defend.

In 1964, there were riots in Panama, where Panamanians tried to sort of storm the walls of the canal zone. Panama briefly broke off diplomatic relations with the U.S. over that. And so, Nixon, Ford and then Carter all thought for national security reasons, egged on by Henry Kissinger and others, the U.S. had to arrange this transfer. It was a -- so, Carter accepted that logic. I think anybody in the national security realm would say, this is one of the great achievements of Carter's time and of American diplomacy.

ZAKARIA: If you were to have written his obituary for "The New York Times" or the "Washington Post," what would be the first couple of lines? What's the headline about Jimmy Carter that, you know, one should -- one should tell people who may know very little about him?

FALLOWS: Like many of us, I had the odd circumstance of writing a pre obit about two years ago when Jimmy Carter went into hospice. And Carter had the sort of mordant pleasure of seeing himself appreciated while he could still read these things.

And what I wrote then in "The Atlantic" is something I would stand by, which was he was a -- an unlucky president and a lucky man.

[10:45:06]

That luck broke against him in many ways during his time in office. You know, from the Iranian hostage situation to the rescue mission to, to many other ways. But he then had the luck to bring out the best in himself, the best in fellow citizens, the best in what he hoped to bring to the world worldwide, to see -- be around long enough to see his own record in office reassessed, and to set the kind of example he would like his life to stand for.

ZAKARIA: James Fallows, always a pleasure to talk to you. Thank you, sir.

FALLOWS: Fareed, my pleasure. Thank you.

ZAKARIA: Next on GPS, where is the global economy headed in 2025? Ruchir Sharma, the investor and the author, will give us his always sharp analysis after the break.

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[10:50:37]

ZAKARIA: What is in store for the global economy this year? The investor and writer Ruchir Sharma will publish his top trends for 2025 in the "Financial Times" this week, and he's here to give us a preview. He is the chairman of Rockefeller International and the author of "What Went Wrong with Capitalism."

Welcome, Ruchir. You are brave to do these as well as intelligent as always, because you can always be proven wrong. You begin this year's list with a few. I think the first three are really all about your prediction of the end of the American mega boom. This this extraordinary situation where the U.S. stock market has really outperformed every other market in the world for so long.

Why do you think -- what has gone up has to come down?

RUCHIR SHARMA, CHAIRMAN, ROCKEFELLER INTERNATIONAL: Well, Fareed, I've been a big fan of America, and it has had an incredible outperformance streak both in economic terms and even more so in market terms. And we have this really unusual situation today where in economic terms, if you look at America's share in the global economy is just below 30 percent.

But if you look at the global stock markets and the main indices there, America's share in that now is approaching 70 percent. And I don't disagree with that. That America is the home of capitalism in many ways and of financialization and capital markets. But if you look at the last century, in more than half of those decades, the American stock market, in fact underperformed the rest of the world.

So, it's not a straight line that America just keeps outperforming. And we go through these phases with the 2000s, the 1970s or even before that, when the rest of the world has done much better than America. But today we are in a space where there's a massive rush of capital into only one country, and there are fault lines that have been built here.

And principally in that, I think, is the debt situation that today America's debt situation is in a league of its own. No country in the world today, at least, major nation is running a budget deficit of more than six percent of GDP. And that too, when you have pretty much full employment at such an advanced stage of the economic cycle, no other country in the world would be able to get away with that.

And we're seeing the consequences of that from Brazil to U.K. to France. But America thinks that it can get away with it because it has got the world's reserve currency. It's the world's premier economy. I think that that situation is going to be proven to be unsustainable in 2025.

ZAKARIA: So, if America and the American market is likely to go down, what nations are -- what are the -- who are the new comeback kids?

SHARMA: You know, the most interesting story in 2024 and controversial one possibly has been Argentina, you know, which has really sort of gutted its economy. It has got a very controversial leader at the top and yet the best performing market in the world in dollar terms in over the past year was Argentina.

And I think that you've got a smattering of other -- of these countries in the developing world, you know, which are doing well. India gets some attention, but apart from India, there have also been some really surprising countries that are doing OK. There are some of these frontier markets from Sri Lanka to Kenya.

But more than that, even in the mainstream emerging markets, if you look at even China, a country again, I've been very bearish on and we've spoken about, I feel the bearishness on China now is really overdone. People think that China is uninvestable and yet there are some gems to be found in that market because things have gotten so ridiculously cheap.

ZAKARIA: You talk about two phenomena that you think are overly hyped. One is almost a sacrilege to say these days, which is A.I. You say that A.I. actually might have more complicated effects for technology companies. I mean, everyone has thought A.I. is booming, so of course the big tech companies will profit. But you say not so fast.

SHARMA: Yes. If you look at the past revolutions, whether it's the internet revolution or even the shale oil revolution, the established firms were never the big winners of those. There were new kids on the block that came out, and there were winners.

So, my point here is not so much about questioning A.I. as such. I think that, yes, over time A.I. will benefit a lot of people, but it's like, who's going to really make money out of this?

[10:55:06]

Because A.I. has set off this huge gold rush, particularly among American firms, where they're just spending like crazy. One question we have always had is that these mega-cap tech firms, what's going to possibly bring something to close their massive outperformance because they keep outperforming, they keep printing these great profits?

And ironically, I could be the undoing of the big cap tech firms because they spend so much on it. And investors soon begin to question, OK, where are the returns? And if history is any guide, they are not the people who are going to benefit the most from this.

ZAKARIA: Ruchir Sharma, pleasure as always.

SHARMA: Thanks, Fareed.

ZAKARIA: And that's it. Thanks to all of you for being part of my program this week. I will see you next week. Happy 2025.

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