The following transcript of FOX NEWS SUNDAY's April 8, 2001 edition was provided by emediamillworks.  Your access to the Fox News Channel's searchable video and transcript archive is just a click away at www.emediamillworks.com  

BRIT HUME, HOST: I'm Brit Hume, in for the vacationing Tony Snow, and this is FOX NEWS SUNDAY.

Stand-off with China: American officials meet again with the detained crew. Diplomats work on language to end the crisis. Is a deal in sight? We'll ask Secretary of State Colin Powell.

Senate Republicans and Democrats play a high-stakes cat-and-mouse game with the president's tax cut. Both sides claimed victory after round one. What's next? We'll discuss tax cuts and much more with Senate Minority Leader Tom Daschle.

Plus, our power panel: Fred Barnes, Mara Liasson, Mort Kondracke and Bill Kristol on the April 8 edition of FOX NEWS SUNDAY.

We'll talk with Secretary Powell after an update on the China story from Fox News senior White House correspondent Jim Angle.

Good morning, Jim.

JIM ANGLE, FOX NEWS: Good morning, Brit.

Fox News has learned that President Bush has personally responded to an angry letter from the wife of that missing Chinese pilot, the man who was apparently killed in the midair collision that began this week-long stand-off.

The wife of pilot Wang Wei sent an emotional letter to Mr. Bush blaming the U.S. for the crash and demanding an apology. Her letter, delivered to the embassy in Beijing on Friday, was answered by the president on Saturday. Sources would not describe its contents, other than to say Mr. Bush is responding "warmly and empathetically." It's being delivered to the Chinese government today.

The tensions continue to ease somewhat as American officials were allowed to see crew members for a third time and bring them e-mail from home.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The air crew is well, and they're doing fine.

We're hoping to get them out of here before too long.

(END VIDEO CLIP)

ANGLE: Meanwhile, several days of intensive diplomatic discussions seem to be inching toward a resolution, creating some optimism that the crew will soon be released.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We're working hard to bring them home through intensive discussions with the Chinese government, and we think we're making progress.

(END VIDEO CLIP)

ANGLE: In fact, as diplomats in Beijing and Washington shuttled between meetings, a possible solution started to take shape. The two sides would issue letters laying out their views of the incident. The U.S. won't apologize but will, said one official, search for other words short of an apology but stronger than regret.

The question of how the mid-air collision occurred would be delegated to a previously inactive Chinese-American military commission, which would examine the cause and look for ways to keep it from happening again. So far, Brit, Chinese officials are rejecting the American expressions of regret and continue to insist on an apology. Throughout the stand-off, President Bush has stuck to a script of carefully chosen words. The administration had two goals, one official tells Fox: We wanted to get the crew home and avoid blowing this up into a crisis from which we could not recover.

Public opinion polls support the president's handling of the matter but also point to growing irritation in both Congress and the public, and that has given, obviously, the critics of China-U.S. relations a lot of ammunition -- Brit.

HUME: Jim, there was some perception that the president was firm in his early statements, statements early in the week, but has softened his tone and seemed more hesitant as the week has gone on. What's the view of that at the White House?

ANGLE: They're trying to be very careful, Brit. There know there are lots of different factions within the Chinese government arguing about how to handle this. They do not want to say anything that would make it harder on those who would like to resolve this and get the American crew home -- Brit.

HUME: Jim, thanks very much.Now, for more on the China situation, we're pleased to be joined by Secretary of State Colin Powell.

Good morning, sir.

COLIN POWELL, U.S. SECRETARY OF STATE: Good morning, Brit. How are you?

HUME: Very well, thanks. Welcome.

POWELL: Thank you.

HUME: Give us the latest that you can. I know that there have been meetings there in Beijing this morning, or in China anyway this morning. You've been briefed. What can you tell us?

POWELL: Well, we're in intense diplomatic discussions with the Chinese Foreign Ministry. Ambassador Prueher, who I've spoken to twice so far this morning, has had two meetings with his interlocutors, and things are moving along.

We laid out a road map several days ago with the Chinese government as to how we could get through this incident and to get to a more stable situation once again. The road map, we're not moving as fast along it as I'd like, but we are moving and there has been some progress.

HUME: That has been described in various reports, including the one just now by Jim Angle, as an exchange of explanations, with us searching to say something, not an apology, but some further expression of our sorrow at what happened. Is that correct?

POWELL: Well, we have expressed regrets, we've expressed our sorrow, and we are sorry that a life was lost. The only life lost at this point was that of the Chinese pilot. And so, I think it's a very proper thing to express our regrets and sorrow over that.

The question of apology is something quite different, because then we are being asked to accept responsibility. And that we have not done, can't do, and therefore won't apologize for that. So we are exchanging our views. Things are moving along, and we're looking for the right words of art to make sure that we can get through this without damaging the relationship any more than it already has been damaged.

And the president has been deeply involved in this from the first day.

POWELL: It's not so much a matter of change of tone, it's that in an incident like this, it unfolds in a certain rhythm. And in that first 24 to 48 hours, we were getting no information about our 24 young men and women. And so, we were rather stern with the Chinese that we needed to know how they were doing.

And then we started to get information, and we started to sense what the political dynamic was. We then adjusted our statements and have been moving forward ever since on this road map, which I think will be successful at the end of the day.

HUME: Do you have reason other than just your general sense of things? I mean, is there a specific reason why you're as optimistic as you've been?

POWELL: Well, it's more than a general sense. I mean, I have exchange of letters with the vice premier of China. Some harsh language, but also language within that letter that showed some indications of how we could move forward. I'm in constant touch with our ambassador in China.

The president is in constant touch with his national security advisor. So we're all knitted up here in Washington, talking clearly to our ambassador, the president giving us the direction we need to give Joe Prueher what he needs to deal with the Chinese.

HUME: Now, the Chinese haven't been shy about releasing their correspondence, and the latest round that you've heard from the vice premier there would seem, I think, to the naked eye at least to be a rebuke or a rebuff. I gather you choose to see it otherwise?

POWELL: Well, it was a rebuff in the sense that he was insisting on an apology, but he also knows just as clearly from correspondence that I've exchanged coming from me to him that an apology is not what we are looking at at this time. We have to find a different formulation that gets us out of this.

So, he understands our position clearly. We understand his, and there is negotiation going on, serious negotiation, between those two positions to find a solution.

HUME: Now, the president, we have learned now, has written a letter to the presumed widow, at least the wife of the downed Chinese airman.

What's in that letter?

POWELL: Well, I don't want to disclose presidential correspondence, and frankly I haven't seen a final draft of the letter.

HUME: Has it gone yet?

POWELL: I don't know if it has gone yet. I'd have to refer to the White House.

HUME: What's the purpose of the letter? She called him a coward.

POWELL: The purpose of the letter is to respond in a humanitarian way, in an American way, to a widow who is grieving. Whatever you think about the politics of it, she's lost her husband. And the president saw enough in her letter to suggest to him, quite correctly, I think -- and this shows you the kind of gentleman he is and the kind of nation we are -- that he should pick up those elements in her letter that talked about hope for the future and respond along those lines. Whether the letter has gone yet, I would have to refer you to the White House.

HUME: May I take it that it will or will not be publicly released?

POWELL: I can't answer that. I will leave that to the White House.

HUME: All right. We've had three meetings now with the crew. We must know by now because a couple of them, at least, have been private, what their version of events is. What do they say happened?

POWELL: Well, from what we know from a variety of sources, is that there is no basis to believe that our crew did anything wrong, improper, and they were not the cause of the accident.

HUME: Now, that being the case, it appears, then, that this Chinese ace fighter pilot flew too close, took chances with the lives of 24 Americans. An accident occurred, or maybe not an accident, that resulted in severe damage to the aircraft. Could've killed our crew members. They now had to make an emergency landing. Why are we not asking for an apology?

POWELL: We think it best at this point to wait until this is all resolved. We have this meeting that will take place after our crew has been released, where both sides can offer their respective explanations.

And then we can see what really happened, get the truth out. And it's best to wait until that happens, rather than demanding apologies from one side to the other, even though we don't have all the facts.

We're pretty sure of our facts. We're pretty sure of what we think happened, but the place to deal with this is within that maritime committee special meeting procedure that was set up for just such purposes.

HUME: So you're convinced, sir, that our plane did not swerve or make a quick turn or anything like that to cause this?

POWELL: I have seen no evidence to suggest that our plane did anything that was improper or caused this accident.

HUME: All right, now, let me ask you about those flights. Obviously they were important enough to us that we did them for a long time. They were no secret to the Chinese, of course, but are they continuing?

POWELL: I can't tell you whether they are or they are not at this moment, and if I knew -- it's a Pentagon matter. If I knew, I probably wouldn't disclose them anyway because of the nature of those flights.

But we certainly don't intend to give up the important reconnaissance work that we do around the world in international waters. It's an important part of our national security programs and plans, and we don't intend to abandon them.

HUME: Does that mean that, whether they are continuing now or not, the United States has every intention of resuming them if it hasn't?

POWELL: The United States has every intention of continuing to do the kind of reconnaissance and surveillance work we have done for decades, well known to everyone, that is essential to protect our national security, and frankly, the security of our friends in various regions of the world. It is part of our collection system.

HUME: What you are saying, though, would seem to leave open the possibility that we might alter our course in those flights, perhaps fly at a greater distance from the Chinese shores in order to accommodate them.

POWELL: What we will do is conduct our operations in a way that we think is best and do it in a way that does not violate anybody's recognized territorial limitations. We will decide how these flights will be flown and where they will be flown and at what frequency they will be flown.

HUME: You are not suggesting that we have violated anyone anybody's territory?

POWELL: No, we have not, and that's the point. We understand what territorial integrity means and the concept of international law, not what some country's claim beyond what we think is appropriate. So we always fly these kinds of missions in ways that are consistent with the common understanding of international law, and we will continue to do so.

HUME: By the way, how much do we know about how much the crew was able to destroy data and make it impossible for the machines that are aboard the plane to reveal anything to the Chinese?

POWELL: I don't know. I would rather leave that to the Defense Department and other agencies to give an actual answer in due course. We have reason to believe, though, that the crew was able to do quite a bit on the way down. That is as far as I would like to go.

HUME: Now, your version of events and that stated consistently by the administration indicates that this was clearly something that the Chinese pilot and perhaps the Chinese deliberately caused to happen. Is there any...

POWELL: It seems unlikely that someone said, "Let's go out and bring down an American plane by ramming it," so I don't know. I mean, if that is the point of the second point of your question, I think not. But clearly, they have been following us too closely for months. We have demarched them and suggested to them previously that they need to back off. They know where we are. They come up and trail our planes over international air space. It has been going on for a long time. But we have been concerned for some time that they have been getting too close, and we demarched them.

HUME: And did they, in fact, ram our plane?

POWELL: Let's wait until all the facts are out. If ram means something that was done deliberately, that seems quite unlikely. It seems more like to be an accident that resulted from them following too closely.

HUME: And following too closely, as you point out, was conduct that we had warned them about, precipitated this event, clearly you believe. Will there be, in your view, a price paid by the Chinese for having done this?

POWELL: Let's not talk about price. Let's stick to the facts in the situation we have in front of us. We have an intense diplomatic negotiation going on, and we want to get our crew home.

Frankly, the political disagreement we are having with the Chinese government has nothing to do with the crew. The crew should be released as soon as possible. Whatever price the Chinese ultimately pay, they are making it worse in terms of delaying this situation. The sooner we clear this up, the less damage will be done to the relationship.

I mean, it is already easy to see that things are happening that are not favorable to them. Congressional delegations are canceling trips. I'm getting calls from senior former officials and businesspeople saying, "We don't think we're going to be visiting there any time soon."

There are a lot of bigger issues we have to be worrying about with respect to our relationship to China, and the longer they drag out the situation, the more difficult it is to get this relationship back on track.

HUME: Now, the administration has said that the decision about whether to ship further weapons, ships to Taiwan is a separate issue. Do you regard it as separate?

POWELL: Of course it's separate. It has to do with our obligations to Taiwan to make sure that they have what they need to defend themselves.

HUME: Do you sense that the Chinese conduct in this matter may have given them reason to believe that they would be able to exercise some leverage with regard to that decision?

POWELL: I have no idea what they were thinking when they moved down this path, but I don't know why they would reach any such conclusion.

HUME: Now, normal trade relations, because the Chinese have not gotten into the WTO, has to come up again in Congress. The cancellation of the congressional delegations to China, as you just mentioned, are a sign of discontent there. Is that an issue? And do you still plan to go forward and request that? Or is this an issue that is now on the table again because of this incident?

POWELL: Well, it remains to be seen.

We are still supporting access to WTO, but I can say that, if we have to go for a vote on normal trading relations again, this situation has not improved their chances of winning that again.

So the relationship is being damaged. The damage can be undone, but in order for the damage to be undone and no further damage to occur, we've got to bring this matter to a close as soon as possible.

HUME: Do you have any doubt, sir, about who is running things over there, who is in charge, whether Jiang Zemin, for example, has the flexibility that a leader would normally have in a situation like this?

POWELL: We have noted in the last seven days, as we've gone through this, that they seem to be very well-coordinated, with all of the channels of communication between the United States and China going through their Foreign Ministry. And they seem to be in close touch with their more senior leaders who are traveling in South America. So I have no reason to believe that they are not coordinated.

Whether there are differences of opinion within the government between the People's Liberation Army and the government bureaucrats and the political structure, I'm sure there are. But I have no reason to believe that they are not all coordinated and understand what each part of their government is saying and doing with respect to this matter and how they interact with us.

HUME: The restraint that you've shown in issuance of public statements, which is in contrast to what the Chinese have been doing, seems to have given rise to some criticism in this country.

And most conspicuously, there is an editorial in the just-printed edition of the Weekly Standard, a sister publication of Fox News, which describes this as a national humiliation. It says, quote, "No one should ignore the enormous price that will have been paid to secure their freedom" -- speaking of the crew there -- "The United States is on the path to humiliation." How would you respond to that?

POWELL: Well, I think that's absurd. We're not on any path to humiliation. We are dealing with a difficult situation that has come along, and we're trying to do it in a way that does not fracture a relationship that we're trying to improve. And first and foremost, we're trying to get our young men and women who served us so well back home to their families as quickly as possible.

And so that kind of editorial comment is interesting but not terribly accurate and not terribly relevant. Compared to doing what? Making the situation worse?

We are anxious to handle this in a way that will achieve our goals, which is to get our youngsters back and see if we can minimize the damage to the relationship.

But we're making clear to the Chinese what our position is and how serious this matter is, and that this is not the way we should be behaving between two nations such as China and the United States.

HUME: A final question to you, sir, about that. You mention getting our servicemen and women back and limiting damage to the U.S.-China relationship.

What place, if any, in the principles of our policy has the idea of making sure the world sees that we are a firm and strong nation, a true superpower that cannot be trifled with in this way?

POWELL: I think everybody knows we're a strong nation and a superpower. The world has really supported us in this matter. A number of our allies have spoken to the Chinese government and said, "You know, this is really quite inappropriate for you to keep moving down this path. You ought to resolve this as soon as you can."

And so we're on track. We know what we do. We have power, we have influence. And we're going to bring this to a successful conclusion, perhaps not as fast as I would like, but it will come to a successful conclusion, I'm reasonably confident.

HUME: I'm sorry, I need to follow up on that. One more question, if you don't mind.

You said a number of countries. I think everyone's aware that Great Britain has. There's been a lot of talk about silence in other parts of the world. Can you name some other names here of countries that have come to our support here?

POWELL: Great Britain is the principal one. There are others who have quietly gone to the Chinese government and said, this is not the way you should be handling this. And in all my conversations this week with various countries that have representatives who have visited me, I've made the same message, and have gotten assurances from a number of them that they will also pass that message.

HUME: General, Secretary, thank you very much, sir. Nice to have you.

POWELL: Thank you, Brit.

HUME: Next, the Republicans and the Democrats battle over tax cuts.

We'll be right back.

(BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D-SD), MINORITY LEADER: If this is a victory for them, we want more victories just like it.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

HUME: Senate Democrats are lead these days by a soft-spoken and mild-mannered man whom the White House and Republicans on the Hill seem to regard as the Clark Kent of American politics. Always polite, loves to talk about bipartisanship, but when the issues are joined in Congress, he seems to emerge from a phone booth to give the majority Republicans fits.

He is, of course, South Dakota Senator Tom Daschle, who joins us from his home state.

Also here with questions, our Fox News panel: Fred Barnes, Mara Liasson -- Juan Williams has the day off -- Mort Kondracke is here.

Good morning, Senator. Welcome.

DASCHLE: Thank you, Brit. Good to be here.

HUME: Now, I want to play for you something that you said after the budget vote just the other day and get you to comment on it. Let's listen for a moment.

(BEGIN VIDEO CLIP)

DASCHLE: I understand some of our Republican friends have called this a victory. If this is a victory, there ought to be more like them. We are pleased.

(END VIDEO CLIP)

HUME: Now, Senator, question: Clearly you regard this budget that was passed, containing a $1.2 trillion tax cut, as a victory for your side of the kind that you would like to see more of. The question is, Senator, if it's such a great victory for your side, why did you vote against it?

DASCHLE: Well, I voted against it because I didn't think it went far enough, Brit. I still am concerned about the investment we're making in some of our key domestic priorities, whether we're paying down the debt adequately. I don't think the mix of all those priorities is quite right yet.

But I think we've come a long way. In some ways I think you could call it a win-win. The administration got some of what they wanted; we got some of what we wanted. There is a much better investment in education than where we started, far better investment in paying down the debt. We were able to make a commitment to a prescription drug benefit that I strongly support. So, as I say, this could be called a win-win.

MORT KONDRACKE, FOX NEWS: Senator, in early 2000, you Democrats were in favor of something like $250 billion in tax cuts. You've gradually run up over a period of time to now $900 billion. This was $1.2, and the president has stuck at $1.6. Isn't this a tremendous victory for him in view of how far you've come?

DASCHLE: Well, what we've always said, Mort, was that we support a third, a third, a third -- a third of the surplus to a tax cut of some magnitude, a third to debt reduction, and a third to investments in key priorities. So as the surplus increased, so did our recognition that the tax cut could go higher.

The investment made in tax cuts the other day, I think, is an understanding that if we're going to find middle ground, we've got to go beyond where the Democratic position lies and find that place where most of our Senate feels the most comfortable at this point, and that was at $1.2.

It certainly isn't at $1.6.

MARA LIASSON, FOX NEWS: Senator Daschle, Republicans and the White House say that what was voted out of the Senate is basically the floor, that when this goes into conference committee with the House, it's going to come up and it's going to get closer to $1.6. How much farther are you willing to go towards the president's number? You've already come quite a long way, as Mort pointed out.

DASCHLE: Well, Mara, what we've always said is that we have three concerns. One is the projections and just how well you could base any tax cut on something that was no better than a weather report a couple of years from now.

Secondly, the level to which it crowds out other key priorities, and we're watching that with great interest. We won this week in large measure because we put other priorities down and made the choice between education and a tax cut, or debt reduction and a tax cut.

And then third, we want to look at the fairness of it all. Who benefits? Can we really put the emphasis where we think it belongs, to those hard working middle-class families who really deserve the bulk of the tax cut?

Those will be the issues that we'll be looking at as we look for compromise.

LIASSON: Senator Daschle, today Vice President Cheney said certainly that number is going to go up. He predicted that in the end there will be more than $1.2. It sounds like you agree with him?

DASCHLE: Well, I'm not in a position to agree with anybody at this point. I think that it was very difficult for them to find levels of support beyond where they are today.

As you may know, in the final hours of the debate on Friday, they attempted to see if we could get a $1.4 trillion tax cut, and they didn't have the votes for that.

So I'm quite confident that you can't go much higher than where we are right now and try to sustain any kind of a majority vote in the Senate. So I think we're about where we need to be, and I would caution them about whatever notions they have about going much farther than where we are right now.

HUME: So you're saying that the House will have to give in entirely to the Senate on this?

DASCHLE: Well, I don't know if it's matter of giving in. I think it's a question of finding the right balance here, as a say, with all the things we've got to consider. And I think we're pretty close to the right balance right now.

FRED BARNES, FOX NEWS: Senator, you've repeatedly called on President Bush to enter bipartisan negotiations with you and other Democratic leaders. Now, it seems to me, since you voted against the $1.2 trillion, that he did better by not joining those bipartisan negotiations than he would have if he had gotten in them with you. Isn't that true?

DASCHLE: Well, we were the ones...

BARNES: Go ahead.

DASCHLE: We were the ones who said -- go ahead.

BARNES: Well, would you have agreed to $1.2 trillion in a tax cut in a negotiation with President Bush?

DASCHLE: Well, I don't know what I would have agreed to. We never had the chance to really sit down and think about that.

All I know is that they said that, if you come one dollar below $1.6 trillion, you turn the keys of the Congress and the budget over to Tom Daschle. I didn't think that was the kind of bipartisan approach to finding common ground that I was hoping we could find. They were the ones who set that $1.6 trillion threshold as sort of the ultimate decision as to what the victory or the defeat would be.

All I said the other day was that, if you use that as the measure by which you judge success or failure, they failed. They got beat. Obviously we tried to seek common ground; we ultimately found it, but we did it the hard way.

We could have done it, I think, in a much easier way, akin to what we're doing now in education. I think we're finding the kind of bipartisan approach to process here on education that could be a model for other negotiations as well.

BARNES: Senator, the president has set another measure. He says that no one should pay more than 1/3, 33 percent, in income tax, no American should pay more than 1/3. What is your ceiling on what the top rate on individual income should be?

DASCHLE: Well, I'm told that, given the various ways with which people avoid paying the top rate, we don't have that any higher today. I don't think people pay 1/3 today in income tax. Obviously, there are state taxes and other things -- that is state taxes, not estate taxes -- that alter all of this. But by and large, in income taxes, I don't think people pay more than a third today, and I...

HUME: Well, what do you think they should pay? What do you think the top percentage anybody should pay?

DASCHLE: You know, I think really, Brit, the issue is: What do we need to do to insure that we've got a progressive system that recognizes the need that, the wealthier you are, the more responsibility you have, the more obligation there is, the more you have benefited from the great benefits of living in this country, the free society that we have, the opportunity to participate in the free- enterprise system? That all has value, and I think we've got to be proportionate as to the benefit. And that's what's happened, I think, and that's the right thing to do.

KONDRACKE: Senator, Senator Lieberman said yesterday -- noted that the Senate had increased defense spending by $100 billion and criticized the Bush administration for underfunding defense. Now, is that your position as well? I mean, do you think that the administration's not providing enough for the Pentagon?

DASCHLE: Well, the administration has been very slow to respond to the promises they made in the campaign last year about directing greater resources and investment to defense, especially with regard to our military personnel. There is broad-based support for an increase in salaries and pay and benefits. I think we need to move on with that. That takes resources. It ought to be reflected in the budget.

I think what Senator Lieberman was saying is that we could crowd out that priority, too, if this tax cut gets too large. A lot of Democrats, and myself included, have made that argument. I think we've got to be sensitive to that as we try to strike this proper balance between investments that we all care about and a tax cut that the president has advocated.

LIASSON: Senator Daschle, how do Democrats feel the president is handling the stand-off with China? I mean, you haven't heard any criticism -- certainly you heard a lot of criticisms from Republicans on many, many different areas of President Clinton's foreign-policy performance. Do you all support what he's doing?

DASCHLE: Mara, I think this is a time when we really have to demonstrate real bipartisanship. And I think, without question, Democrats and the Republicans, by and large in the Congress alike, support the president's efforts, support what you just heard the secretary of state articulate as our position.

I don't think there's any dissension, any reason to believe that there are critics out there who would try to undermine it or draw from whatever mistakes that may have been made at some point. There have been none, in our view. We're very confident that they're doing the right thing, they're doing everything they can do at this point, and we're strongly supportive.

LIASSON: Do you think that China should be punished? Do you think there should be some repercussions, the Olympics, PNTR? What should be the outcome of this?

DASCHLE: I don't know that anybody's made any conclusion as to what the next steps ought to be. I personally would not favor any kind of punishment.

DASCHLE: I don't think it's in our interests to do that. I think it's in our interest to have a good, strong economic and diplomatic relationship with China. They're growing in prestige and power both economically and politically, and we have to recognize that. It does us little good to confront them and find ways with which to punish them. It seems to me, finding and building a better relationship is in everyone's best interest.

BARNES: Senator, has this incident with China in any way changed your opinion, your view of China?

DASCHLE: Well, I think that it's a real recognition that we cannot take our relationships lightly, that we've got to be very wary. That it may be very difficult for us to reach a level of satisfaction in this relationship that would ever make us comfortable. It's a reminder of the sensitivities, as well as the complexities, of a relationship with a country that still is not a democracy and not totally a free enterprise system.

KONDRACKE: Yes, but don't you think the Chinese have acted wrongly in this whole affair?

DASCHLE: Well, I personally think they have. I think we're going to get all the facts as time unfolds, and I don't think it would be appropriate to draw any final conclusions. But certainly they've acted wrongly, and I think they've complicated their situation immensely just in the last week.

KONDRACKE: Senator, just what is your thought about running for president in 2004? There are rumors around that your wife is absolutely, adamantly against it, but are you considering it?

DASCHLE: Well, I'm not considering anything right now. I'd still like you to call me majority leader at some time, Mort, and I'm counting on that. But that's my goal now, and we're staying focused on just that goal and nothing else.

HUME: Well, Senator, we're going to let you get back into the phone booth and put your civies back on and enjoy the rest of your Sunday. Thanks very much for being with us.

DASCHLE: I enjoyed it, Brit. Thanks a lot for having me.

HUME: You bet.

In a moment, we'll talk about the two big stories of the week, and Bill Kristol joins us after a break.

(COMMERCIAL BREAK)

HUME: It's panel time now for Fred, Mara, Mort. And now joining us Bill Kristol, editor and publisher of the Weekly Standard, Fox News contributors all. As we noted earlier, Tony and Juan are off today.

Bill, let's talk a bit about this stinging editorial that you are the co-author of in this current, new edition of the Weekly Standard. Here is a piece we didn't talk about with Secretary Powell: "President Bush has revealed weakness, and he has revealed fear -- fear of the political, strategic and economic consequences of meeting a Chinese challenge. The American capitulation will also embolden others around the world who have watched this crisis carefully to see the new administration's metal tested."

That's strong stuff. Nobody else is going that far. How do you justify that, Bill?

BILL KRISTOL, "THE WEEKLY STANDARD": I justify it because you have got to say the truth. And I really think it has been a very bad week for the United States of America. And I say this in sorrow, obviously, with no sense of satisfaction.

I just think, beginning on Wednesday when we started expressing regrets, we have gone down a path of national humiliation. We expressed regrets. The Chinese respond by slapping us in the face. Secretary Powell sends a letter to the vice premier. He sends a rebuke back, as the secretary acknowledged it was today.

HUME: In part.

KRISTOL: In part.

The Chinese government drafts a letter from the widow, presumably, of the Chinese pilot who died. It's written apparently in a very fancy Chinese, it's not really conceivable she wrote it herself. They draft a letter calling the president of the United States a coward. And the president of the United States writes back a letter. And I assume, just ignoring that accusation, as if taking this expression by the widow in good faith.

It's humiliating and it will have consequences I'm afraid. This is not something we can just put it behind us and move on. It will have consequences for Chinese behavior, and it will have consequences around the world.

KONDRACKE: Well, I thought Secretary Powell, though, drew a line today. I mean the question was, would we go on? Would we apologize? We would not apologize.

It's not exactly clear what we are going to do about these flights.

But the Chinese military has been saying no more surveillance flights. He didn't say that the pattern of our flights wouldn't be altered, but we did say that we are going to choose where we're going to send our flights.

He said that if they keep this up, there will be consequences and that there already have been some. So it seems to me there is a line in the sand now, and we're not backing away any more.

LIAISSON: Right, although I thought the secretary's ambiguity about the flights was the most interesting. I mean, there's a lot of different ways that the United States could choose to do something with those flights that might accommodate the Chinese.

But the other thing that I thought was interesting that came out this week is that, what a lot of people have been wondering is: How much of this is Bush himself? How much of it is Cheney? Where are the foreign policy decisions coming from? And it sounds like that it was Bush's instinct, the president's instinct, to step back a bit after the tough tone he took for the first few days.

HUME: Couldn't that also, though, Mara, have coincided with the beginning of -- I mean, as the secretary suggested -- the first couple of days they didn't even hear from the crew. When negotiations got going, the United States, sort of in the manner of diplomats, clammed up, to some extent, publicly and didn't say anything that really went beyond what had been publicly said before. Could that not be the motivation rather than softening?

LIASSON: It could be, but it's not like it has gotten results yet, at least certainly not in public. The Chinese haven't responded any better to the softening than they did to the tough talk.

KONDRACKE: I'll have to say, if that was a line in the sand, it was certainly a fuzzy, wavy line in the sand.

KRISTOL: There is no apology.

KONDRACKE: Well, it's half an apology. I mean the Chinese aren't saying they are sorry this American plane was hurt and had to make an emergency landing and they're thankful that the 24 American crew men and women were not hurt in any way. They are not saying any of that.

Now, what is United States doing in these negotiations? They are looking for a way for the Chinese to save face while allowing the hostages to come home. Why are we worrying about that? They're the ones who have acted wrongly.

I think perhaps President Bush could have taken the stance with China that he did in the Middle East. In the Middle East, he said Arafat's got to stop the violence, or we're not going to be involved. And that's the first thing. Why shouldn't he, in the beginning, say to the Chinese, "Look, we'll discuss these flights, we'll discuss the problems you have. First send the hostages home"?

KRISTOL: Well, the first order of business for the Bush administration is to get those hostages back. The question then becomes what do we do about it. Now, if after that's over we kowtow, or we back off or we change our Taiwan policy, don't defend the Taiwanese, then that will be a humiliation. It seems to me that right now what they are trying to do is to talk the crew home. And we are not apologizing in the meantime.

KONDRACKE: I strongly disagree. The first order of business cannot be to get the hostages back. If you say that's the first order of business, you are on the road towards endless appeasement.

KRISTOL: The first order of business has to be to defend American honor and American interests. The second order of business, devoutly to be wished, obviously, is for our crewmen to come home. But once you've put total priority on getting our people back, I'm afraid you are on a road of concession after concession after concession.

HUME: Arguably that was a Jimmy Carter mistake, with making the hostages and their safe return the preeminent object of his policy which seemed to raise the value of them in the eyes of those holding them and the sense that giving them up was a big concession and that they ought to get something for it.

KONDRACKE: If there was a hint from the secretary that we were about to apologize or we were about to change our airplane flights, that we were going to discontinue them and we were going to knuckle under in order to get the hostages back, that would be bad. But in this case, we want to get the hostages back, and we're not going to do those things.

BARNES: Here's a question I have, and that is: If, as Secretary Powell said, it was the Chinese pilots who screwed up there and not the American surveillance plane, what do we regret? I mean we've regretted that this poor pilot has died and so on. It sounded like, if the Powell version is correct, it was his own fault. Why are we sending letters of regret only to have the Chinese thumb their nose at the president, at Powell, and everyone else?

HUME: Well regret, though, at loss of life seems to me to be permissible under almost any circumstances.

BARNES: But that we acted wrongly?

HUME: We never said we acted wrongly. If fact they've said, have they not, repeatedly, Fred, that we did no wrong.

BARNES: It seems to me a mistake in this particular case to have sent that letter. The Chinese aren't sending any letters of regret. Why do we have to, unlike any other nation in the world, pretend like the Chinese feelings are so fragile? They're an almost fully developed country now. Treat them like adults and not like little kids.

LIASSON: Well, this is a debate that was ongoing in the Clinton administration, sounds like it's going on right now. I mean, do you treat China's weakness as the thing to be feared and you want to make them feel secure? Or do you treat them as a rival superpower, at least in Asia, and as equals?

BARNES: But the way we're treating them is encouraging them to be irresponsible. It's encouraging the hardliners in China. They are being rewarded for behaving very badly, for holding American hostages, or detainees, now for a week.

If you want to express regret, maybe that's OK, but at least combine it with an expression of moral indignation at the fact that Americans are being held unjustly and wrongly there in China.

And the problem is it is a slippery slope. Secretary Powell has a nuanced position. But quickly you get to the minority leaders' position, which was right on the show after Secretary Powell. Well, of course there'll be no punishment, he said. I don't think he'd thought about it that much, frankly, but he just -- of course they'll be no punishment for this behavior.

HUME: Let me just this question to everybody. Don't you sense now that normal trade relations are in trouble and it deepens everyday?

KONDRACKE: Yes, I think that normal trade relations is the nuclear weapon here that we don't want to employ. I mean, the Olympics, I would think that the Olympics are shot. They can just forget about the 2008 Olympics, and that's a legitimate tit for tat.

HUME: Supposed by next Tuesday or Wednesday this is over with and the...

KONDRACKE: I think that...

HUME: Secretary Powell talked about other nations rallying to us.

Only Britain basically has done so publicly. Do you really think that the rest of the world is...

KONDRACKE: We ought to use our influence at a minimum to see to it that this country, which tortures dissidents and holds our scholars, you know, does not have a chance to be a showcase to the world at the Olympics.

Now, the question of whether we're going to give up trade and poison the relationship is another question. And Taiwan, it seems to me, has got to be decided on...

(CROSSTALK)

LIASSON: The arms sale is a crucial decision that's coming, but I wouldn't be so quick to say that normal trade relations is dead. I mean, there you're going to have a very important part of the Republican constituency arguing to keep it going. And as a matter of fact, before the newspaper editors the other day, Bush suggested he was in no mood to derail that.

HUME: Fred, normal trade relations?

BARNES: Well, there are enough votes in the House. To end normal trade relations, you'd have to get both the House and the Senate to vote to block it. In the House, you could get enough votes; it would be an embarrassment to China if it did, but...

HUME: And it could be vetoed, too?

BARNES: It would be very hard to get the Senate and then, of course, the president could veto. That's the situation.

HUME: You would need two-thirds, wouldn't you?

BARNES: No, you don't need -- well, to overturn a veto, but I don't think it would get that far.

Look, the Chinese conduct now, and I agree with Mort and Mara that this should affects on our aid to China. The Chinese have acted in a way that is an argument in favor of fully equipping the Taiwanese military with modern, up-to-date, high-technology equipment.

HUME: Bill, last word on this?

KRISTOL: No, I think, look, this happened because of Taiwan. This is what the military issue is between us and China. It's extremely important to undo some of the damage, in my view, done by this last week of regretting that we fully provide Taiwan with the arms they've requested and that they need.

HUME: All right, that's enough on this. Much more to talk about, though.

We'll be right back.

(COMMERCIAL BREAK)

HUME: And we're back with our megapanel. Topic B, of course, the tax cut and the budget.

As we noted earlier, roughly $1.2 -- something more than $1.2 -- trillion tax cut authorized, in effect, by the budget that passed the Senate. Now it must be reconciled with the House, which passed the full $1.6 trillion tax cut, as well as made room for it in the House- passed budget.

So let's take a look at what some of our media competitors thought about what happened. "The Washington Post" called this the "first major defeat" for the president. "Los Angeles Times": "blow to the cornerstone of Bush's agenda." "New York Times": "only 3/4 of what was called `essential.'" As for the networks, well, ABC: "lopped off about 1/4 of the proposed tax cuts." NBC: "not in many ways a great political victory for the president."And CBS, finally: "Is this a stinging setback for Bush?"  One of the wire services, in fact, labeled it a "stinging setback" for Bush.

So, Mort Kondracke, we rehearsed this a little bit with Minority Leader Daschle, but a defeat for the president of any consequence?

KONDRACKE: No. I think -- look, it was a victory for John Breaux, the senator from Louisiana who has been trying to form centrist coalitions for things. He's the person who provided the bridge. But the Democrats, 15 Democrats walked across that bridge and met at $1.2 trillion, which is a lot closer to $1.6 trillion that Bush had been asking for than the $250 billion that the Democrats started out with or the $500 billion that they were at a few months ago.

LIASSON: Look, this is a textbook example of what's known as "spin." Both sides are trying to convince the public that what happened was a victory for them. Now, if it was such a victory for the White House, why did they work so hard up until the very last minute to prevent it? And if it's such a great victory for the Democrats, why did they lose 15 of their members?

HUME: So what is it?

LIASSON: I think that it was a little, teeny setback for the White House, because they didn't want this to happen. It was a small bump in the road, I guess I'd say. And it sounds like the number is going to go up, because the House passed the full tax cut.

BARNES: It was a bump in the road, though. I mean, the president tried very hard to get some Democrats, and he only got one, as it turned out, Zell Miller...

(CROSSTALK)

HUME: For the full package.

BARNES: Yes, for the full package. He tried to get Ben Nelson of Nebraska, Max Cleland of Georgia and a number of others.

HUME: Well, he got them on the final package.

BARNES: Sure, but it turns out, among the 15 Democrats who voted for the $1.2 trillion, almost all of the Democrats who are up for re- election in 2002. They don't want to run on the Democratic tax cut. They'd rather run on something a lot closer to Bush's tax cut.

KRISTOL: I think 2002 is actually going to turn out to be the politically key year here. It's the next election year. The truth is, the difference between the $1.6 billion and the $1.2 billion, I can't take that seriously. Most of those differences are seven, eight, nine years from now. Our tax code's going to be changed again before then, depending on who holds Congress and who the next president is, or if Bush is re-elected.

Here's the way in which Bush was saved from himself. His original tax package had what, $6 billion in tax cuts, a tiny, tiny tax cut...

HUME: For this year.

KRISTOL: For this year, which meant that, when we are all filling out our tax forms exactly a year from now, there will be no difference in the tax code because George W. Bush would have been president for over a year. There was a bipartisan agreement -- and the Bush administration went along with this -- that we needed to front-load the tax cuts. The Democrats actually increased the first year of tax cuts. Senator Hollings, at the last moment, took it up from $60 billion to $85 billion for this year. What that means is, Bush can say, a year from now -- and voters will see, a year from now -- George W. Bush has been president for a year, and there's a real cut in my taxes.

I think that's the relevant fact, and in that respect Bush was helped a lot, less, frankly, by his own actions, and more by the bipartisan Hill consensus that we needed a tax cut now.

KONDRACKE: That is what's so curious, that he didn't see. We've got this crashing stock market at least and certainly a weakening economy, that the president would not have leapt in and said, you know, we need stimulus now and been the leader in that regard. He left that to Democrats to do.

LIASSON: I agree that he's been strangely reticent to use the bully pulpit and to really make it seem like this was his plan. But on the other hand, he's got a lot of time to do that. And he'll have a big megaphone to do it with before the next election.

BARNES: And, you know, there is this phenomenon where, when you propose something -- and remember, President Bush proposed this back, what, 16, 17 months ago -- after a while, you sort of fall in love with it, you know, the architecture, the number and everything.

(LAUGHTER)

And I think he got to like it too much. And so he couldn't go for a stimulus package despite all these Republicans on the Hill clamoring for...

(CROSSTALK)

HUME: Don't you think, Fred, that 1.6 has been a general size number, but the whole thing has been a bargaining position all along, which, as Mort's pointed out, has not served him badly?

BARNES: It's been less of a bargaining position than I thought.

LIASSON: Well, except for I think the White House likes the idea that they have a president -- they want to promote the idea that he's standing firm, he doesn't waffle like Clinton.

BARNES: I understand that.

LIASSON: That's more important than maybe jumping on some of these new ideas.

(CROSSTALK)

HUME: He's not going to say, "Read my lips," but that's the message, isn't it?

BARNES: It is true. It's clear now, we're going to get a big tax cut because of President Bush.

KRISTOL: Sounds good to me.

(LAUGHTER)

KRISTOL: Bush's political style has been to hold back, let things play out, and then, just when you think, gee, it's going to be too late, he does jump up and get on the train or maybe get a little ahead of it. And I think he'll be able to take credit, and he probably should be able to take credit, for this tax cut.

It makes you wonder, in other issues, incidentally, the way you think, on China, for example, you think he's going down one course. He is more capable than I would have expected a few months ago to sort of seem to be set on one course, but if he thinks things are moving in another direction, I think he will jump out and get ahead of it.

HUME: Bill Kristol has the last word.Thanks to Bill, Fred, Mara, Mort. We're going to take a break. But when we return, we'll see what happens when the man who makes the headlines writes the headlines. We'll be right back.

(COMMERCIAL BREAK)

HUME: Just the other day President Bush spoke to the American Society of Newspaper Editors. Since politicians often are at odds with how events are portrayed in the press, Mr. Bush offered some headlines he would like to see written.

(BEGIN VIDEO CLIP)

PRESIDENT GEORGE W. BUSH: Cheney Cloned: President has nothing to do at all now.

(LAUGHTER)

Two Million Overlooked Ballots Suggest Bush Won California.

(LAUGHTER)

Sri Lanka President Chandrika Kumaratunga Stumped by Name of U.S. President.

(LAUGHTER)

Gephardt Says Bush Tax Plan Just Makes Sense.

(LAUGHTER)

(END VIDEO CLIP)

HUME: Don't bet on it.

That's it for today. I'll see you tomorrow night on Special Report at 6 p.m. Eastern on the Fox News channel. And Tony is back here next week. So remember to start your Sundays right here on FOX NEWS SUNDAY.

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