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Fareed Zakaria GPS
Trump's Sweeping New Tariffs to Take Effect This Week. Interview With Middle East Correspondent For The Economist Gregg Carlstrom; Interview With Facebook Co-Founder Chris Hughes; Global Defense Spending Rising To Highest Level Since Cold War. Aired 10-11a ET
Aired August 03, 2025 - 10:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
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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 program, President Trump's August 1st tariff deadline has come and gone. It has brought trade deals for some nations, but not all.
Can America win a trade war if its allies lose it? I'll ask "The Economist's" Zanny Minton Beddoes and Oren Cass, an influential Trump supporting intellectual.
Then the scenes of suffering continue in Gaza as the world struggles to get aid in. While Benjamin Netanyahu denies that there is starvation, the U.K., France and Canada are making moves toward recognizing a Palestinian state. And Donald Trump is pledging to work with Israel to open food hubs.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: That's the real starvation stuff. I see it.
ZAKARIA: Journalist Gregg Carlstrom will explain how the humanitarian crisis got to this point.
Finally, military spending is soaring worldwide. Can we afford the price?
(END VIDEOTAPE)
ZAKARIA: But first, here's "My Take."
In the midst of the blizzard of last-minute tariff threats and trade deals, we're losing sight of the big story here. A seismic shift is taking place in world affairs. The United States, the creator and upholder of the open global economy, now is imposing its highest average tariff rate in nearly a century. The highest of any major economy in the world. The Trump administration is reversing 80 years of American economic
and foreign policy, which consistently pushed countries to remove restrictions and taxes on trade. The effects of this policy revolution are not to be measured in today's stock prices, but rather in the kind of world that will emerge as a result.
In announcing the deals, the White House has repeatedly boasted that Donald Trump has now opened up foreign markets to American goods as if forcing open closed economies. Here are the facts. Before Trump's second term, the average tariff on American goods in the European Union was 1.35 percent, according to the European think tank Bruegel. The average American tariff on European Union goods was 1.47 percent.
Even Japan, often seen as highly protectionist, had an average tariff on American goods that was around 3 percent, compared to an average American tariff on Japanese goods that was around 1.5 percent. In other words, we were living in a free trade world where tariffs were so small as to be largely irrelevant. And yes, other countries impose non-tariff barriers on American goods, but so do we.
Markets might breathe a sigh of relief that the barriers are not nearly as high as Trump had proposed on liberation day, or they may react to the reality of permanent high tariffs. In any event, the American economy is largely domestic. In 2024, exports were worth less than 11 percent of U.S. GDP. In addition, the U.S. economy is now largely made up of services, with more than 80 percent of American non-farm jobs in the service sector, software, entertainment, tourism, finance, consulting, et cetera.
In this, the fastest growing sector of the economy, the U.S. had a nearly $300 billion trade surplus in 2024. And it escapes virtually any tariffs because for Donald Trump services don't really count. MAGA leaders have crowed that Trump has won the trade wars against the European Union, Japan and South Korea. And it's true that Donald Trump recognized that America has special leverage against those countries because of the size of its market, as well as the security it provides to its allies.
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So he used that geopolitical reality at a time of rising geopolitical threats to squeeze America's closest friends, to force them to make concessions. So tariffs on American goods in the E.U. will go from 1.35 percent to close to zero.
But to view these small gains as great American victories misunderstands economics. No one wins a trade war. The United States is now burdening its own consumers with a highly regressive tax that is likely to hit the poor hardest.
How is it a victory for the U.S. that low-income Americans will now pay a good bit more for food and clothes at places like Costco and Walmart?
The broadest effect of these tariffs will be to change the basic structure of the world economy. For 80 years, countries have been moving away from arbitrary government involvement and interference in global markets. Throughout history, governments have manipulated trade, producing massive distortions, creating domestic champions that were politically powerful, more than economically efficient.
The U.S. pushed against those tendencies, demonstrating by its success that it had chosen the best path. American technology companies have come to dominate the world, learning from investing what were once market leaders like Sony from Japan and Philips from the Netherlands in the 1980s and '90s because it was a fiercely competitive global market.
The world we're entering is different. Companies will now have to spend time and brainpower gaming the politics of the system. They will ship goods first to low tariff countries and then to the U.S. They will under invoice goods which are tariffed and over invoice various processing fees which are not. They will increase their lobbying efforts. Already America's best companies routinely go to Washington for exemptions, carveouts and special favors.
Businessmen who used to rail against taxes and regulations now cheer on as Trump's Washington dispenses favors and punishments. All governments love to have arbitrary power over the economy. It took 80 years of persistent American pressure to get them to yield to market forces, so that civil society could gain ground against the state.
The United States created a trading world in which countries had much to gain by staying at peace. It created an ecosystem in which liberal democracies were economically and geopolitically interdependent and intertwined. And now, America, the force that created this peaceful and prosperous world, is moving in the opposite direction.
Go to CNN.com/Fareed for a link to my "Washington Post" column this week. And let's get started.
President Trump's sweeping new tariffs are surely the most massive escalation of a global trade war in modern history. Starting August 7th, the Trump administration will divide countries into three main groups. These are 10 percent tariffs on most countries with which the U.S. runs a trade surplus, 15 percent tariffs on countries with which the U.S. has a trade deficit. And finally, a third, somewhat arbitrarily handpicked group with even higher rates. So Canada is at 35 percent and Brazil at 50.
To discuss all this, I'm joined by Zanny Minton Beddoes, editor-in- chief of "The Economist," and Oren Cass, the founder and chief economist of the conservative think tank American Compass.
Welcome both.
Oren, you heard my opening presentation, with which I'm sure you disagree, but I want to give you a chance to open, therefore, and tell us, is the rollout of tariffs as they are, assuming this is roughly where they stay, the kind of trade policy you have wanted for a long time?
OREN CASS, FOUNDER AND CHIEF ECONOMIST, AMERICAN COMPASS: Well, I guess you know where I would start and maybe where we disagree is, is with an understanding of the world as it is, because I think the reality is that the global economic system has been badly broken for a long time. If we look at, you know, who are the leading producers of all sorts of things, they are already all national champions that are overwhelmingly supported by state subsidies and protected markets. Right?
Taiwan semiconductors, the leading semiconductor company. Airbus is the leading aerospace company. Huawei is the leading telecommunications company. The new Chinese EV companies and battery companies and solar companies are all global leaders. That's not because of markets. That's because the free trade system is, as we might love to see it work, as we might idealize it, is just not the world we have.
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And so, you know, one thing I'm very grateful for and encouraged by is that we now have an administration that's willing to start from reality. And the question is, what do you do in this reality? The second best world that we live in, and I think a much more robust and assertive defense of American interests and insistence that if we are going to have open markets, that does need to be reciprocal, that does need to be fair, that balance does matter.
And so we are going to use tariffs to reshore manufacturing, to rebuild our own industrial base. And we are going to beat, you know, we are going to treat our friends better. We -- the kind of WTO most favored nation treat everybody the same no matter what they do is no way -- is no way to actually end up with good deals, no way to actually enforce good principles. And so we could talk about all the specifics.
I think there are all sorts of, you know, a lot of things that have improved since liberation day. Definitely places we still have a way to go, but I think we are moving in a much better direction than the kind of naive idealism that we had been living with.
ZAKARIA: All right. I do have to point out, if you look at the 10 largest companies in the world, they are all Nvidia, Microsoft, Google, you know, Apple, Walmart. These are private sector American companies exposed to fierce competition, not national champions. But I do want to resist the temptation --
CASS: But not manufacturers, Fareed. We're talking about trading goods.
ZAKARIA: All right. All right.
CASS: So that was extraordinarily misleading. Who are the top manufacturers?
ZAKARIA: Zanny, what is your reaction to all this?
ZANNY MINTON BEDDOES, EDITOR-IN-CHIEF, THE ECONOMIST: Well, I guess, Fareed, it wouldn't surprise you that I agree with your introductory take. I do think we're in a new world now. I think the good news is that we are not in a repeat of the 1930s of a catastrophic tit-for-tat tariff war, which would end in global economic catastrophe. I think what we have seen is that countries around the world are keen to do and are doing deals with the United States.
But let's be clear, as you said, we are moving away from a world that, and this is, I guess, where I disagree with Oren, has I think stood the world in good stead and America in good stead. The multilateral rules based trading system of, you know, the last 80 years has broadly, I think, been an extremely important part of global economic prosperity and U.S. prosperity. And let's not forget, the U.S. is the most successful economy in the world.
And what we have now is a new system where might makes right, which is based on deals and transactionalism, not on rules and stability. And I think it is a system that in the long run, the U.S. will lose out from. I think it will hurt U.S. consumers. I continue to believe that tariffs ultimately are a tax on consumers. I think it will make U.S. producers, it will hurt some producers. The irony of the news this week is that in some industries, it is U.S. companies that are hurt the most.
The U.S. car companies are now in a much worse position relative to their Korean and European competitors because they are paying tariffs on aluminum and steel. So I think we're in an unpredictable world from which U.S. consumers lose out, and that we'll end up with the U.S. being less competitive and in less good position than where it was. So it's not as bad as it might have been, but I think it is a heck of a lot of a worse world than it was.
ZAKARIA: Oren, let me ask you to respond to one piece of this specifically, which is the reality that manufacturing globally is done through a complicated supply chain. Nobody makes everything. And so what you have seen, right, is Ford saying they're going to have a $2 billion loss because the stuff they import to make cars, steel, aluminum and things like that have all gone up in price because of the tariffs.
We are now in the third month of manufacturing job losses as a result of these input costs. Isn't this the reality of higher input costs a significant problem for American manufacturing?
CASS: What gets missed so much in this discussion of input costs is that the goal for the United States is not to just become an assembler. The obsession with input costs is something that really developed for a lot of these economies that we're aiming to really grow through export led growth, through sort of assembling stuff for the rest of the world, and there the goal was, OK, how do you get as much cheap stuff in so that you can be competitive selling the thing out?
Frankly, for the most part, selling things into the U.S. market and undercutting U.S. producers. The challenge for the United States is very different. The United States actually needs to bring back aluminum and steel production. The United States has a massive domestic market that we are serving overwhelmingly through imports instead of through domestic production in a lot of cases.
And so while, yes, tariffs will make some input costs higher, the end result is still that the more of something you can make in the United States, the more competitive you will be in the U.S. market.
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And that's why we're seeing a lot of companies now announce that they are starting to relocate production back to the U.S.
ZAKARIA: All right. Stay with us. When we come back, I'm going to ask Zanny Minton Beddoes why Europe caved, and Oren, what we should be doing about China, when we come back.
(COMMERCIAL BREAK)
ZAKARIA: And we are back with the editor-in-chief of "The Economist," Zanny Minton Beddoes, and the pro-Trump conservative policy adviser, Oren Cass.
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Zanny, why did Europe decide not to impose tariffs of its own? European market is about the same size as the American market in some ways. What do you think went into that decision?
MINTON BEDDOES: I think a fair amount of geopolitical realpolitik. The truth is that Europe still needs the United States for national security reasons. And so there is, you know, in certain quarters, a sense that Europe caved. I have to say, as a -- as a, you know, stalwart free trader, despite this conversation, I actually think it's worth remembering that that sense that Europe has caved, sort of is essentially a Trumpian way of looking at things.
I mean, what's actually going to happen is that Europe is cutting its tariffs, which means that European consumers are going to have the benefit of cheaper American goods. And in the end, American consumers are going to be paying more for their parmesan, more for their French wine, more for all kinds of European exports. So in the long run, you know, this actually also may be a spur for Europe to cut regulation and to do more to push its own domestic economy. So I don't think it's such a bad thing for Europe.
ZAKARIA: Oren, how would you address this issue about, you know, you said you wanted a world in which we treated our friends better and we traded with them, but we recognized that there were countries not playing by the rules. And, you know, you repeatedly, I think, in your references, clearly China is what you're talking about. But it does feel like it's our allies that are getting slammed the worst because we trade with them the most.
Wouldn't the right strategy to deal with the country that I would agree with you is the largest country that doesn't play by free trade rules, that is China, to get your allies Europe and Japan as part of a free trade ecosystem, keep low tariffs on them and high tariffs on China? CASS: I think that's absolutely what we should be aiming for. If you
look at what the Trump administration has actually done, tariffs are lowest on those countries where the U.S. has actually made a deal with the country, and where in particular, there's a real focus on the idea of balance. You know, even the E.U. acknowledged there is an imbalance in the system that the E.U. bears some responsibility for addressing as well.
You know, relative to GDP, the imbalances with Germany and Japan and Korea are just as large as the imbalance with China. And so this is a systematic problem. Those countries that have acknowledged it wanted to work on it made deals. I think they're seeing the best terms. There are countries where negotiations are still ongoing. You have Canada and Mexico, where the Trump administration have already said they want to have a very strong deal, a close trading relationship.
And then I think at the other end of the spectrum, you have China, where, yes, there obviously is going to be some sort of relationship, but the administration has already treated China very differently. And I think that's where you'll see a decoupling from the United States. And you're seeing the United States start asking its partners to treat China differently, to say, if we're going to have a free trade bloc, we're all going to have to agree to keep China out.
ZAKARIA: Zanny, you made a point which I wanted you to expand on, which is that in some ways the U.S. is moving in this protectionist direction. But really interestingly, and this is so different from the last 70 or 80 years where the U.S. set the agenda, other countries are not moving down that protectionist route. Not only have they not, you know, put tariffs of their own, but they're trying to cut free trade deals. They're kind of trying to do end runs around the United States now, right?
MINTON BEDDOES: I think that's right. And I think that may end up being one of the silver linings of this whole thing. It's worth remembering that the U.S. is something on the order of 15 percent of global trade. So if everybody else, and the big question mark is, of course, China, continues along a rules based system and indeed opens barriers further between each other, then the rest of the world can carry on somewhat along the kind of the system that we have already had that has, I believe, led to this prosperity.
And the U.S., you know, the U.S. is a huge economy. It's a very wealthy country. It'll be OK behind high tariff rules, but in the end, it will be less competitive than it otherwise would be. Its companies will be flabbier and its consumers will pay more. And I think just to get to two of the points, because Oren makes as cogent a case as you can for the other side of the argument, if you will. But for me, there are two fundamental areas where I just find this argument baffling.
The first is this obsession with bilateral balance and the overall trade balance, the overall external balance of the United States is fundamentally dependent on whether the U.S., how much the U.S. saves and invests. It is a sort of macroeconomic balance. And for as long as the U.S. has these enormous budget deficits, particularly that are even bigger now, thanks to the big, beautiful bill, it is going to be running overall deficits. And so they're going to have to be somewhere.
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And second, there is a belief that the goal is to bring back jobs for American workers with a high school diploma or for sort of not the most highly educated. But if you look, even if companies really start relocating to the U.S. and I'm not sure at these tariff levels whether they actually will or not, but even if they start relocating it is very clear that these are going to be capital intensive companies, capital intensive plants that they will build with very few jobs. Probably a lot of robots and a lot of jobs for engineers, but not for the kind of Joe lunchpail job that President Trump thinks jobs are going to be created for.
ZAKARIA: All right. We're going to have to leave it there. I think this has been very, very interesting. And I hope the two of you will indulge me and come back as this tariff turmoil continues. Thank you both.
Next on GPS, this week, Donald Trump admitted that there is real starvation happening in Gaza. How did it get to this point? What is the backstory?
I will talk to "The Economist's" Middle East correspondent when we come back.
(COMMERCIAL BREAK)
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ZAKARIA: These scenes have been all over the news. Desperate people stampeding aid distribution sites, shots fired into crowds, children wasting away. This week, a U.N. backed agency said that the worst-case scenario of famine was now unfolding in Gaza. Israel has faced increasing condemnation for the situation there.
Britain's Keir Starmer says, the suffering and starvation unfolding in Gaza is unspeakable and indefensible. And even Donald Trump expressed concern this week saying, there was real starvation there. In response to the outcry, Israel announced daily pauses in fighting in parts of Gaza to distribute aid.
What has led to this rapid deterioration? Is it intentional? Joining me now to discuss is Gregg Carlstrom. He is a Middle East correspondent for the "Economist." Gregg, welcome.
There's so much emotion around all of this that I want to ask you, you know, if you were to explain to people simply how did we get here, where people are, you know, dying and rioting and shooting over access to food how would you -- where did this begin?
GREGG CARLSTROM, MIDDLE EAST CORRESPONDENT, THE ECONOMIST: I think the short answer is that it began with two choices Israel made earlier this year. The starvation is a direct result of those choices that Israel made. The first was to impose a total blockade on aid entering Gaza between the beginning of March and the end of May. Nothing was allowed to enter the territory. And even since aid has been resumed at the end of May, the quantities are much less than they were last year.
The World Food Programme says Gaza needs about 62,000 tons of aid each month in order for people to be well fed. In four months, from beginning of March until the end of June, Israel, by its own calculations, allowed in about 57,000 tons of aid. So, less than a quarter of what was needed. That's the first part of it.
And then the second thing that Israel changed was the distribution model for aid in Gaza. Last year, when the United Nations was in charge of aid distribution, you had dozens of places across Gaza where Palestinians could go and collect food. That's the model that the U.N. says has worked in conflict zones around the world for decades.
What Israel has done with this so-called Gaza Humanitarian Foundation is flip that model on its head. You have four points in southern Gaza where Palestinians can go to get food, and that's if they're all operational, which on an average day they're not all working. So, you usually have less than four locations. And so, you end up with these enormous crowds that we've seen. Desperate people overrunning aid sites, trying to get what is a very limited amount of aid.
By the Gaza Humanitarian Foundation's own figures, it's handing out less than one meal per person per day. So, the quantities are insufficient and there aren't many places to pick them up.
ZAKARIA: Now, what the Israeli government would say is that the reason they have been doing this is that Hamas is stealing all the -- all the aid. What do you think is the reality?
CARLSTROM: Israel has not presented any evidence that Hamas is stealing aid in a systemic way. Now, do I think it's possible that Hamas is diverting some quantity of aid? I think that's plausible because they've been able to feed their men over the past two years. So, they're obviously obtaining food from somewhere.
But Israel has not presented any evidence to substantiate the claim, as some Israeli officials have said that Hamas is, in a systematic fashion, diverting aid, making hundreds of millions of dollars in profit from selling it. There's just no proof that it's happening.
ZAKARIA: What do you make of the Israeli charge that the problem is that the U.N. is riddled with Hamas and, you know, that is part of the issue?
CARLSTROM: I think it's -- it's very easy for Israel to hold up the U.N. as a scapegoat here and blame it for this very real problem of starvation in Gaza. We've heard not just that charge that that the U.N. is riddled with Hamas, as you say, but we've heard a lot over the past week Israeli officials claiming that they are allowing food into Gaza but the U.N. isn't distributing that food inside of Gaza. And I think it's a -- it's a somewhat disingenuous claim because it's not so simple as the U.N. just sending a driver to the border to pick up a truck of food that Israel has cleared to enter.
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Anything that the U.N. does in Gaza has to be coordinated with Israel. If you want to move a truck from the border to a populated area inside of Gaza, the Israeli army has to approve that movement and it dictates the time and the routes by which that truck is allowed to move.
Sometimes it doesn't grant permission, sometimes it does, and then it revokes that permission at the last minute. Sometimes a driver will set out to deliver food, but he'll be stopped at a checkpoint and he'll have to wait for hours until he gets permission to move further. So, what should have been a very short journey becomes a long journey.
There's this whole military bureaucracy that the U.N. has to navigate in Gaza. It's a bureaucracy that's run by Israel. And it's a bureaucracy that, you know, at every point from the moment a truck enters Gaza until the moment a driver sets out to deliver it, that trip, that mission can be obstructed.
ZAKARIA: Is there any talk in Israel about kind of going back to the old model, not creating these four choke points, distribution centers and just flooding the zone with more aid? You know, would it -- would it take American pressure to make that happen?
CARLSTROM: There has already been a bit of a change in policy which, I think, is a tacit admission that this Gaza Humanitarian Foundation has been a failure. But to go further than that, to allow even bigger amounts of aid, I think that would take sustained international pressure, particularly American pressure. And I think it also really requires a ceasefire. The only way to really provide an effective aid operation is for the fighting to stop.
ZAKARIA: Gregg, thank you so much for helping us understand the inside of this problem. Pleasure.
CARLSTROM: Thank you for having me.
(COMMERCIAL BREAK)
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ZAKARIA: It has been a tumultuous year for the economy as businesses and consumers react to the uncertainty surrounding Trump's changing economic policies. The history of American capitalism is full of examples of policymakers who have used effective policy to actually fuel growth and prosperity. So, what can the White House learn from them?
I recently sat down with Chris Hughes, co-founder of Facebook, who has just written a book on just this subject, "Marketcrafters."
(BEGIN VIDEOTAPE)
ZAKARIA: So, Chris, I want to get at this book by asking, you talk about is the way in which America has always combined government regulation with an entrepreneurial free market. And the people who get it right are the ones who know how to get that synergy to work.
So, the Democrats are struggling with what to do, as you know, in terms of an alternative to Trump's policies, the tariffs, and the tax cuts. There are people who say, the Bernie Sanders, the AOCs of the world, the Democrats need to move way, you know, to the left. There are others who say, no, no, no, that's the wrong thing. Given what you've written, where do you think the Democratic Party should go?
CHRIS HUGHES, CO-FOUNDER, FACEBOOK: I think we've got to make a case that we've got to shape markets to bring down costs, get wages up, and also future proof against climate change, the threats of A.I. and all these things. That adds up to what I call a marketcraft. And that is, as you were saying, the big picture history of American capitalism is that we have incredibly dynamic markets that generate all kinds of productivity gains. And the state often shapes and points those markets in a certain direction. If you think about finance, banking, pharmaceuticals, health care, aerospace, I mean, we go through market after market that isn't, quote, unquote, "free," just magically working on its own, but is in partnership to make sure that, you know, it's working for the public good.
ZAKARIA: OK. So, it feels to me like what you're saying basically underlies Joe Biden's economic policy. He precisely viewed it from that point of view. He was like, I believe in markets. We're going to nudge markets. We're going to shape them. So, industrial policy to bring high end chip manufacturing back to the United States.
HUGHES: Yes.
ZAKARIA: Subsidies for electric vehicles --
HUGHES: Yes.
ZAKARIA: -- green technology. And yet --
HUGHES: And yet.
ZAKARIA: -- the Democrats lost the election.
HUGHES: Yes.
ZAKARIA: So, is -- you know, I mean, and maybe it was -- it's good economic advice, but is it good political advice? What's your -- what's your reaction to the Biden years?
HUGHES: I wasn't part of the administration, but I think a lot of those ideas were right. Now, voters rejected the Biden-Kamala vision last year. And so, I think we have to ask why. And the biggest and clearest reason to me is the price instability.
We had inflation that was at historic levels for too long, and it took the administration way too long to recognize that as a problem, and then to actually marshal the tools to conquer it. And so, it's unsurprising that people got frustrated when they didn't feel like the folks in the White House were actually speaking to their problems. ZAKARIA: So, the guy who I think would be most sympathetic to your idea of marketcrafting is Donald Trump. I mean, he is the biggest, most sweeping interventions in the market. Tariffs are for fundamentally about him trying to craft the market.
HUGHES: No, no.
ZAKARIA: Is he doing it the right way?
[10:45:00]
HUGHES: No, he's not crafting a market. I mean this is economic policy by impulse, by whim. I mean just -- they say that they want to bring American manufacturing back. And so, they're tariffing avocados and Barbie dolls. Like, that's not a targeted policy.
For me marketcraft is when the state says, we have a goal, bring semiconductor manufacturing back to the United States, or in some cases boost the production of aluminum and steel tariffs, and those kinds of targeted cases which you do see in this administration. And when you marshal public policy to do it, you can actually see some results. But by and large, the policies of the Trump administration are broad based, peripatetic, impulsive, unpredictable and not about crafting markets. They're more about smashing them.
ZAKARIA: So, in 2028, if somebody -- a Democrat wants to run against Trump and his record, what is the most plausible economic plank of that program?
HUGHES: I think it has to start with saying corporate power cannot be unrestrained. Corporations are not particularly virtuous actors, and we need them. They are the dynamic engine of American capitalism.
So, we have to figure out how -- it takes two to dance. We have to figure out how we can get corporations and government working together to stabilize costs, raise wages, and ensure that American families can make it through the climate changes that are to come, the massive labor market disruptions that I think A.I. will bring. I think that kind of message, which I think is clear eyed, reflective of the reality and also of the intense frustration that so many Americans feel is what -- is what we need.
ZAKARIA: We'll have you back when you're advising a presidential candidate and see how you do. Chris Hughes, pleasure.
HUGHES: Thanks for having me.
(END VIDEOTAPE)
ZAKARIA: Next on GPS, a new report shows that global military spending is rising to its highest level since the Cold War. Why? And can the world afford it? I'll tell you when we come back.
(COMMERCIAL BREAK)
[10:51:23] ZAKARIA: And now for the last look. Let's pause for a moment to think about the momentous change taking place in the heart of Europe, in Germany. Since World War II, for obvious reasons, Germany has embraced a strong pacifist identity, but now that era is ending. Ever since Russia invaded Ukraine in 2022, Germany has entered what former Chancellor Olaf Scholz called a zeitenwende, meaning a historic turning point.
Today, it is Europe's biggest defense spender and plays a leading role in arming Ukraine. And just this week, Berlin moved forward with plans to roughly double its military budget within four years, moving toward NATO's broader new goal that members commit five percent of their GDP annually to defense by 2035.
This realignment isn't just limited to Germany or to Europe. Military spending is surging across the world in a global arms race that is forcing countries to rethink their budgets, their priorities, and even their national identities. A recent report from the Stockholm International Peace Research Institute reveals that global defense spending climbed last year by more than nine percent in real terms from 2023. That is the sharpest annual rise since the Cold War.
Leading the charge are the two biggest rivals of the 21st century, the United States and China, which are locked in a contest for military dominance. SIPRI's data estimates that in 2024, the two countries made up almost half the world's defense spending. The Washington committed more than three times as much as Beijing. For the first time in history, the White House has proposed a defense budget that for next year exceeds $1 trillion, an increase of more than 13 percent.
So, how are governments paying for all this rearmament? Increasingly, the answer is borrowing. America's defense buildup is moving ahead without any clear plans of how to pay for it. It's coming alongside the Trump administration's harsh cuts of public services, targeting areas like education, climate, public health and humanitarian aid. But that won't be enough. With deficits already running at 6.5 percent of GDP, ballooning defense spending puts America on an unsustainable fiscal path.
In Europe, America's allies are also finding ways to fund their defense build ups. Earlier this year, Germany moved to unlock billions of euros for defense by amending a part of its constitution known as the debt brake, to allow for huge levels of government borrowing. In the U.K., the ruling Labour Party, led by Prime Minister Keir Starmer, is planning to raise its defense budget by cutting foreign aid and welfare, a move that is controversial even among members of Starmer's own party.
Some of this military spending can fuel growth through innovation and jobs, especially if the money is invested domestically. Germany, for example, stands to gain by pivoting away from its troubled auto industry to invest in defense and build tanks over cars. But even then, military spending rarely delivers the same returns that public investment in, say, education or basic science, research or infrastructure does. What's clear is that neglecting those areas while piling up debt will carry severe long term economic costs. In 1953, President Dwight David Eisenhower, who having led Allied Forces in World War II, knew the importance of a strong defense better than most, warned that the world was entering a rampant arms race.
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He said --
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DWIGHT D. EISENHOWER, FORMER PRESIDENT OF THE UNITED STATES: Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.
The cost of one modern heavy bomber is this, a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.
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ZAKARIA: That was at the dawn of the Cold War. Now, more than 70 years later, as military spending is soaring again, it is worth remembering Eisenhower's warning. Thanks to all of you for being part of my program this week. I will see you next week.
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