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FAREED ZAKARIA GPS

Obama's Tax Cut Compromise; Interview With Ehud Barak

Aired December 12, 2010 - 10:00   ET

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


FAREED ZAKARIA, HOST: This is GPS, the Global Public Square. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

The best that can be said about Obama's compromise with the Republican Party on taxes is that it might not cause too much harm. The extension of unemployment benefits will keep putting money into the economy. There are some good provisions in the bill to encourage businesses to create jobs, but on the whole, a great chance has been lost to start putting America's fiscal house in order.

If we had repealed some part or the whole of the Bush tax cuts, it would have gone a long way toward reducing the structural budget deficit the United States has. And more importantly, what the bill does is to try one more time to encourage Americans to spend more money.

Now, we got into this mess because Americans borrowed and spent too much and now, we're trying to get out of it by borrowing and spending more. The Republican Party has come to power in the recent election by denouncing Keynesian economics, that is the government's effort to stimulate the economy, but it turns out they are actually as committed to Keynesian economics as the Democrats.

You see, John Maynard Keynes simply said that when businesses and consumers stop spending, the government has to step in. He advocated two kinds of government actions, public spending or tax cuts. The Republicans simply prefer the latter. In fact, the cost of their Keynesian bill is about the same as the cost of the Democrat's stimulus bill of 2009, $900 billion.

What no one is talking about as we add to the deficit by encouraging consumer spending is that the only path to long-term growth is to have consumers borrow less, get their balance sheets in order and for the economy to focus more on investments for the future in industries of the future.

And while we shy away from that kind of thinking about government funding, the fastest growing country in the world, China, has uses precisely this approach to achieve its extraordinary growth rates and now, China is moving to a whole new level. Reuters reports this week on a plan by the Chinese government to invest $1.5 trillion over the next five years in strategic industries.

Beijing wants China to move out of low wage manufacturing and has identified seven key areas where it wants to quadruple its output in five years. The targeted sectors are alternative energy, biotechnology, new generation information technology, high-end equipment manufacturing, advanced materials, alternative fuel and energy saving and environmentally-friendly technologies.

So, the Chinese will now move into these sophisticated industries while lending us the money, which we will use to give ourselves a tax break. Someone in Beijing is laughing.

We've got a great show for you today. First up, Israel's Defense Minister, Ehud Barak on Wikileaks, the peace process and Iran. Then one of the top Republican women, no, not Sarah Palin, but I'll ask Christie Todd Whitman what she thinks of Sarah Palin as a candidate for 2012 and much else.

Next up, what in the world. Glenn Beck says 10 percent of the world's Muslims are terrorists?

(BEGIN VIDEO CLIP)

GLENN BECK: What is the number of Islamic terrorists, one percent? I think it's closer to 10 percent. Why isn't it receiving coverage?

(END VIDEO CLIP)

ZAKARIA: We'll fact check that for him. Then, China flexed its muscles again this week. What is going on in that country? We gather a panel of experts. Finally, we spot a Star of David in Tehran. Let's get started.

Cut off the head of the snake. That's what Saudi Arabia's King Abdullah implored the United States to do with Iran's nuclear program according to the Wikileaks cables.

It was further evidence of what has been an open secret for years. The Arab world might be just as worried about Iran's nuclear program as Israel is. Ehud Barak is Israel's defense minister and of course, formerly its prime minister. He joins me now.

Welcome. Do you think that the fact that we now know that Saudi Arabia in particular, but other Arab countries, are so concerned about Iran's nuclear program helps in constructing the coalition?

EHUD BARAK, ISRAELI DEFENSE MINISTER: I think that they are deeply terrified in nuclear Iran. The backyard was not a secret for leaders around the world. I think that the exposure of the nuances and the world ego of such utterances might not contribute to the capacity to deal with the sensitive issues in a corporate manner.

ZAKARIA: Because they have now been embarrassed and will find it difficult.

BARAK: I think the impact of Wikileaks is to dilute the nuances and substantives of diplomatic conversations around the world, not just with America. But having said that, I think that the exposed how realistic leaders all around the Middle East about the risks of a nation, a big historically big nation like Iran, been taken over by a regime like Atoelas.

Becoming the ultimate sponsor of world terror of all types and trying to reach nuclear military capability. That's a signal of a major start to world order and I think that it should be dealt with.

ZAKARIA: Let's talk about the nature of that threat. I would say one has to recognize that for the last 10 years, roughly, from what we can tell, Israeli intelligence and even Israeli public warnings about Iran's capacity have not been true, have not been right.

In other words, every three years we hear the Israelis say in about a year or two, the Iranian will have the capacity to make nuclear weapons. So far, they still do not.

Does that mean the program is weaker than you might have thought five or six years ago? So far, they have not been able to progress as fast or as far as your government has claimed.

BARAK: You pointed to the probably full half of the glass. I'm looking on the other side. I said, that really matters -- what's really happening in front of our eyes is a repetition of what happened generation ago with Pakistan.

I still remember sitting down with Kazi when he was head of CIA - head of our intelligence community and we discussed what happened to Pakistan and we know now they have an -- whose missile and everything. Ten years ago, Clinton about the Pyonyang reactor, North Korea. Look what happens now.

Somehow, I feel that default is that Iran will succeed in defying and deceiting and deterring the rest of the world and they will -- death should be on mind. When you calibrate, the world community calibrates, the timing of sanctions, diplomacy and how long we should allow it to continue, these paradigms should be on mind.

These are chess players. They're clever enough and they will try to push you to push the whole world to a point where the whole world together can do anything.

ZAKARIA: If sanctions fail, will Israel authorize an attack on Iran?

BARAK: I don't think that we have to answer these questions. Of course, we have right of self defense and it's the basic right of individual in any country, including the continent in Europe. But to leave the - but I think that it's still in the state of diplomacy.

I still believe that much more active sanctions can curve the regime to have a second thought, but as I have said earlier, we commend to you, the Europeans, not to remove any option from the table.

ZAKARIA: Do you think that the Obama administration's offer for Prime Minister Netanyahu, which was a very generous offer, almost kind of a series of bribes for U.S. defense minister, double the number of strategic fighters you would have had in return for a very short temporary restraint on settlements in Jerusalem was a good deal? Wouldn't you have taken it if you're the prime minister?

BARAK: I tried to help it come to life and I would love to see it implemented and carried out and I don't see it as bribery. I think that the administration reflects a genuine sentiment -- the American people to help Israel, expressed by different administrations to keep its qualitative military because we are situated in a place where, you know, this -- you can never -- its territory.

You have to - so small and basically, it's not given to us in order that we'll build in some settlements. It is a powerful deception that we are going toward a comprehensive peace with the president and Israel takes opponents of much more security usual and America can come to.

ZAKARIA: A lot of people believe speaking of Brezinski among them, that the Obama administration should put forward its own settlement plan, a peace plan and then tell the two parties, let's start from this point rather than just endless process. Does that make sense?

BARAK: I don't know. I prefer something that emerges a genuinely from the players over something put on the table.

ZAKARIA: For the players to do it, we've been waiting for 43 years.

BARAK: I don't think that we have, for this -- hopefully not even for the three weeks, but we have to move. It's our responsibility. We're not doing a favor to the Palestinians by joining the move. It's not a game. I believe that we should held the bottom of activity and the join hands are the regional players and with America to jump into it.

ZAKARIA: But the Americans have tried everything. They've tried to read the Riot Act to Prime Minister Netanyahu, to make him feel pressured. It doesn't work. They offer him carrots, it doesn't work. What would it take to get a serious negotiation on the peace process?

BARAK: I think that the real issue is to be ready mentally, psychologically and politically on both sides. To take the decisions and start negotiate about the real issues. Voter security, refugees, Jerusalem, end of conflict and finality of future claims.

I think that opportunity is here and in some twisted way, even the effect that this administration takes more sophisticated positions regarding to the role of different players and what happens, what really happens in the Muslim world, could be helpful as long as America will lead and move forward and encourage both sides to come to the table and not leave it.

ZAKARIA: Ehud Barak, pleasure to have you. Thank you so much. We will be right back. (BEGIN VIDEO CLIP)

When you look at the Republican Party in Washington right now, which seems very determined to pursue its agenda, to stand up to President Obama, do you think they're on a kind of winning path? Do you think this is the right way --

UNIDENTIFIED FEMALE: No. I think they're misinterpreting this election. This election everybody suddenly didn't become a Republican.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: The Republican Party is on a roll. It won back the House last month and this week, it won on tax cuts for the most part, but is all this good for the country? Will Republicans be able to govern?

That's what I wanted to know when I sat down with Christie Todd Whitman, a member of George W. Bush's cabinet and before that the Republican governor of New Jersey.

(BEGIN VIDEOTAPE)

ZAKARIA: Governor, Whitman, thank you for joining me.

CHRISTIE WHITMAN, FORMER GOVERNOE OF NEW JERSEY: My pleasure.

ZAKARIA: When you look at the Republican Party in Washington right now, which seems very determined to pursue its agenda, to stand up to President Obama, do you think they're on a kind of winning path? Do you think this is the right way to go?

WHITMAN: No, I think they're misinterpreting this election. This election everybody suddenly didn't become a Republican. They were saying, Obama's gone too far to the left. This stuff is happening too fast. It's too much big government and I think the biggest mistake Republicans can make is standing up and saying no to everything.

You know, I guess they'll have to go through the drill of we're going to repeal health care, but most Americans don't want the health care reform repealed. They want it improved. They want it changed, but they feel basically there were some changes, basic changes that needed to have been made in it.

If Republicans say, we want to do away of it and after that, we're not going to talk, go through the motion. Do what the president veto and you won't get a veto override, so they can put that behind them.

But this idea that compromise is somehow defeat is actually it's enthuses of the way this country was founded. I mean, our founding father had very, very real differences and yet they understood there were about something bigger themselves and they found those compromise positions that gave us the declaration of independence and ultimately the constitution.

ZAKARIA: So this week, the Republicans have managed to extract concessions from President Obama on something they seem to care very deeply about, which is the extension of the Bush tax cuts.

Now what puzzles me about this is the whole idea is we were very concerned about the deficit and we have now passed a set of tax cuts when you ad in the concessions made to the Democrats on an employment insurance and payroll tax cuts is going to cost $900 billion over the next two years. I mean, this doesn't seem to me very concerned about the deficit.

WHITMAN: Well, what they'll argue and they're not wrong, totally in arguing this, is that by keeping taxes low, you will encourage more investment. You will encourage business to - to invest more because we certainly saw it in New Jersey when I cut taxes.

You'd cut taxes, people do spend. People do bring jobs back. The problem is that they'll say the problem is what they had to give on the other side in extending the unemployment benefits, but compromise is what we're about and we're going to have to find our way through it.

It's going to be very interesting to see what the new members -- you have 50 percent of the Republicans in the next Congress will be new, will be freshmen. That means very narrow or shallow reservoir of institutional understanding and coming in with an idea of we're going to say now and we're not going to spend.

The reality is, yes, you are going to spend. I mean, this is government and government has services that it has to provide. Is it overreaching? I would argue yes, in many areas. Is it spending too much? Is there waste, of course? But you're going to end up spending and how they're going to balance that?

Are they going to close down the government every time and just do continuing resolutions for budgets? I think they'll find that that's not an optimum way to proceed. So it's going to be interesting to see how they balance precisely what you're saying, this desire to show that you want to keep taxes low with a focus on reducing the deficit.

I don't know that you can do it all on supply side, but that's where they're going and it does work to a degree, certainly.

ZAKARIA: But you have a deficit now that's 10, 11 percent of GDP.

WHITMAN: Getting to a point of --

ZAKARIA: It seems difficult to imagine you could get this all out on the spending side. If you have to raise taxes, will this -- you just described these new Republicans, could you imagine them agreeing to any kind of tax cuts. WHITMAN: No, they've gotten themselves in a very difficult position. Many of these people have signed that no new taxes pledge. You've seen in the states where they've done it and then they absolutely -- they don't dare because if they do vote for any kind of a fee increase, it's considered a tax.

And they find that they're being opposed by some very strong groups with a lot of money behind them who will attack them in the primaries and go after them.

ZAKARIA: Do you think that looking forward to 2012, that Sarah Palin is likely Republican presidential nominee?

WHITMAN: I don't know if it's likely. There are a lot of people who are vying for it. I could certainly see a scenario under which, she becomes it. I mean, she's very popular in Iowa. She's very popular in New Hampshire.

You roll up good victories in those two states then you start to see your way through to the end to get the nomination, but, you know, there are a lot of people that are going to be vying for that.

Mitt Romney's out there working hard. You have a whole bunch. Every congressman and senator right now thinks they can be president.

ZAKARIA: What does it do to the Republican Party if Sarah Palin does get the nomination?

WHITMAN: I don't think she'll win nationwide, but she certainly will, when she went on the ticket with Senator McCain, she energized the base, but the base isn't big enough and Republicans should have learned that.

In this last presidential election, John McCain's election, you had over 2 million self-identified Born Again Christian Republicans, pro-life Republicans who voted in that election and voted in George Bush's re-election.

So we got them all out. The base all came out and we still got our heads handed to it. So, you can't just rely on that narrow base. You've got to start competing for the center. So far, I haven't seen a lot of outreach on the part of Sarah Palin for that.

She is more concentrated on that base and energizing them, which is fine, but it's not going to win you a general election?

ZAKARIA: Would you support her?

WHITMAN: She was a Republican candidate. She'd have to show me a lot more than I've seen thus far as an understanding of the depth and the complexity of the issues that we face. I mean, I don't know her personally, so I can't comment on that.

I mean, she was a governor, but the fact that she left office before completing her first term is just not an attitude that I think is necessarily in the best interest of your constituents, rather what's in your best interest.

ZAKARIA: Governor Whitman, thank you so much.

WHITMAN: A pleasure.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAKARIA: Now for our "What in the World" segment. What caught my attention this week was a claim by Glenn Beck. Here he is on his show last Monday.

(BEGIN VIDEO CLIP)

BECK: What's that number? What is the number of Islamic terrorists one percent? I think it's closer to 10 percent, but the rest of the PC world will tell you, no. It's minuscule.

(END VIDEO CLIP)

ZAKARIA: Let's do a bit of math here. There are 1.57 billion Muslims worldwide. Take 10 percent of those Muslims and you get 157 million. That's how many Muslim terrorists Glenn Beck is suggesting there are in the world, 157 million.

Beck wondered why this wasn't receiving any media coverage. We'll let me suggest one reason. It is total nonsense. A figure made up by Glenn Beck with absolutely no basis in fact. The United States State Department says there were approximately 11,000 terror attacks committed in 2009.

This was all terror attacks everybody where in the world including Afghanistan and Iraq, which are really war zones. But still, let's do more Math. Stay with me, Glenn. Let's be very generous and say that it took 100 people to plan and execute each of those 11,000 attacks.

In fact, most of the attacks were solo and most involving two or three people, but let's be generous. One hundred people times 11,000 terror attacks equals 1,100,000 people. But Glenn Beck's figure is 157 times higher than that. If in fact there are 157 million Muslim terrorists in the world. What would the other 155,900,000 of them doing last year?

We asked CNN's National Security Analyst, Peter Bergen. Bergen has spent decades studying Muslim terrorists. He has interviewed Osama Bin Laden. He travels frequently across the world to refresh his knowledge. We found Bergen in Afghanistan. He e-mailed us to say the Beck's estimate is off by 1,000 percent.

Bergen says most estimates would say 0.1 percent of all Muslims are terrorists or insurgents. Now after Beck made this claim, his producer got beck off on a technicality, saying, well, the dictionary.com definition of a terrorist includes people who advocate or support terrorism. Of course, the FBI, the State Department and most other organizations define terrorists in the more common sense that they are well, terrorists, but never mind. And this guy cited some polls that many don't like us and wish us harm.

Yes, many of us have been pointing that out for over a decade now. I wrote a "Newsweek" cover I say two weeks after 9/11 titled "Why They Hate Us," to explain that, but hating America is not the same thing as being a terrorist.

Believe me, if we had 157 million Muslim terrorists active across the world, we would be hearing more about it. But Beck made another claim in his discourse on terrorism.

(BEGIN VIDEO CLIP)

BECK: You don't think 1 percent, half a percent here in the United States of radicals, of people who want to violently overthrow the government is a problem? Of course it is. Why isn't it receiving coverage? Why?

(END VIDEO CLIP)

ZAKARIA: Well, Glenn, again, maybe because it just isn't true. I can't find any poll or study or shred of data that suggests that 1.5 million Americans, which is what that number would work out to, want to violently overthrow their government.

Now, there is a Pugh poll from March and some similar ones from other groups that find that about 20 percent of America is angry with the federal government. Does supporting such anger against the American government make one a terrorist?

According to Glenn Beck's producer and his dictionary.com definition, maybe, but in that case, how would one describe a man who has been fuelling such singer against the American government on television daily for the last two years? How, in other words, would one describe Glenn Beck? We'll be right back.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Granting the Nobel Peace Prize, awarding the Nobel Peace Prize was a real embarrassment for the Chinese regime. They're awarding this person who's in a Chinese jail.

(COMMERCIAL BREAK)

ZAKARIA: Many were on hand in Oslo on Friday when the Nobel Committee awarded its peace prize to a Chinese dissident in absentia. More interesting perhaps were who wasn't there. China, of course, skipped the ceremony, but so did Russia, Saudi Arabia, Pakistan, Iraq and Iran, almost 20 countries in total, yet another sign of China's rising power.

To talk about that and all else that's going on in China, Martin Jacques, a columnist whose recent book, "When China Rules the World," was recommended on this program a couple of weeks ago, Minxin Pei is the director of the Keck Center for International and Strategic Studies at Claremont McKenna College. And Elizabeth Economy is a senior fellow for Asia studies at the Council on Foreign Relations. Welcome all.

Minxin, why are the Chinese mounting this very, very spirited campaign to get countries to not even attend the Nobel Peace Prize ceremonies, the announcement of their own prize? Do they really think that they can discredit the Nobel Peace Prize?

MINXIN PEI, CLAREMONT MCKENNA COLLEGE: It's largely for domestic reasons. Apparently, the Chinese government wants to show to the Chinese people that no amount of Western pressure can make the current Chinese government to change its policy on human rights and on democracy. And technically speaking, I think there must be a consensus at the highest level of the Chinese government on a very tough position on this issue.

ELIZABETH ECONOMY, COUNCIL ON FOREIGN RELATIONS: My sense also, I think, probably along with Minxin is that, you know, granting the Nobel Peace Prize, awarding the Nobel Peace Prize to Liu Xiaobo was a real embarrassment for the Chinese regime, right? They're awarding this person who's in jail, in a Chinese jail. And I think, you know, the Chinese have long admired the peace prize, have long admired the Nobel Prize, and so to have the first Chinese who wins the Nobel be someone who's in a Chinese jail, I think, was a real slap in the face for them.

ZAKARIA: Is he the first Chinese to...

ECONOMY: There's a Chinese who was in France, a literary...

(CROSSTALK)

ECONOMY: A writer, right? Who are the others?

PEI: Including the Dalai Lama.

ECONOMY: Ah! OK.

PEI: OK? Another Chinese emigre won Nobel literature prize, and the Chinese disowned him.

ECONOMY: Right.

ZAKARIA: Gosh, so this really is...

(CROSSTALK)

PEI: There's a tradition of trouble with the Nobel prize.

ECONOMY: He's the first one living China.

PEI: Living in China.

ECONOMY: How about that? PEI: But not living freely.

ECONOMY: But they could have taken -- right, they could have taken the high road, right? They could have taken it as looking at how Martin Luther King won the Nobel Peace Prize here in this country, sort of as a note to the -- to Beijing to try to live up to Beijing's best ideals, right, as embodied in the Chinese constitution. We were not living up to our own best ideals here in the United States, and the Chinese could do better, too. But they elected not to look at it that way and to do what Minxin said, which is reactionary and reflexive.

ZAKARIA: And what you're saying, Minxin, is that it seems as though, right now, that they're moving in a -- or staying in a very conservative place.

PEI: Oh, yes. If you look at what, politically, the Chinese government is doing, it's not -- they're not talking about political reform. Even the premier, who talked about political reform on this show, was censored. They are now doing things on the Liu Xiaobo issue which indicates that the government is taking a position that is at odds with the majority of the governments and the societies around the world. And that's not very, very encouraging for people who want China to move simultaneously toward economic modernization and political change.

ZAKARIA: What do you think is going on? Is this part of a power struggle preceding the -- you know, 2012, the leadership changes, the current president and premier cycle out, new president and premier? Is there a kind of no one wants to seem to be the wimpy liberal right now?

MARTIN JACQUES, AUTHOR, "WHEN CHINA RULES THE WORLD": Well, it could certainly be mixed up with that. But I think that, you know, the Chinese have a very clear position that they don't want to be interfered with. They regard what's happened to be gross interference in their affairs. And actually, their reaction has been very, very aggressive, but also, you know, quite strategic in the sense that they've mobilized as many nations as they could to boycott it, and secondly, they've established this Confucius Peace Prize.

Exactly what lies behind that, I don't know. But actually, the choice of the prize winner, Chan Lien, the old vice president of Taiwan, is -- under the circumstances, is quite an imaginative choice. The only question of what's happening...

ZAKARIA: Because he's -- he was a -- he was a Taiwanese, and so -- I mean, that's -- that's extraordinary, but a Taiwanese who advocates peaceful reconciliation between the mainland and...

JACQUES: Yes. He -- he...

ZAKARIA: You were shaking your...

ECONOMY: No, but he hasn't acknowledged the prize. I mean...

PEI: He doesn't know that he's (INAUDIBLE)

ECONOMY: ... his office -- right. His office said, Well, we've certainly heard of Confucius, but we don't know anything about this prize and he definitely won't be attending the ceremony. So he wasn't even there to receive it.

I guess I would point out that the countries that China managed to rally behind it, right, not to attend...

PEI: A list of rogue states.

ECONOMY: Exactly. It's like a coalition of the weak and the ugly, right?

JACQUES: Well, one of America's closet allies is Saudi Arabia.

ECONOMY: The Philippines -- oh, well, I thought you were going to say the Philippines, but Saudi Arabia...

(CROSSTALK)

ECONOMY: Like I said, a coalition of the ugly and the weak. But -- so I don't think that the message that's being sent to the international community or even to the Chinese people is a particularly strong one by those, you know, 18, 19 countries that are sitting with China.

JACQUES: I think it's a significant move nonetheless because what the Chinese are demonstrating, again, even in this instance, when they're on the back court, when they're in a difficult situation, especially as far as Western opinion is concerned, they can -- they will act and they count -- they are beginning to galvanize, in a new context, nations around them. And I think that is significant. But basically, it's a confident regime.

ZAKARIA: And -- and...

JACQUES: It's got a lot to be confident about.

ZAKARIA: Right. Growth continues to go like gangbusters. The places seems -- I mean, it still seems reasonably stable.

PEI: Well, I disagree a little bit because if you look from the outside, look only at the growth numbers, you think that this is a government that should feel confident. But then imagine yourself in the Kujing (ph) House office. The inbox is piling up with reports of riots (INAUDIBLE) in Jiabao's (ph) office, you have reports coming of all kinds of economic numbers that are not very reassuring. For example, inflation is rising. You have the real estate bubble. You have trade frictions.

So I think this is clearly a government that has done a lot to be proud of, but it is also a government that is under tremendous pressure. And the most important of all is its source of fundamental legitimacy. It can deliver growth, but it's not an elected government. It can be replaced at any moment by its own people. ECONOMY: Right. Beijing has no mandate to lead from its people. I mean, absolutely, they've accomplished extraordinary things...

(CROSSTALK)

ZAKARIA: The Pew survey, for instance, shows that Chinese support for their government is stronger than any other country in the world. Now, are all those numbers -- and this has been true in poll after poll. Are all the numbers phony?

ECONOMY: Well, I think the Pew survey is skewed as to where it goes. Undoubtedly, it's skewed as to, you know, who feels comfortable answering the questions. So I -- I'm not confident about...

(CROSSTALK)

ZAKARIA: ... that delivered 9 percent growth for 30 years would probably be supported by (INAUDIBLE)

ECONOMY: Well, here's -- here -- I mean, Minxin mentioned protests. Over 100,000 protests in a county? I mean, that's like a lid sitting on a boiling pot of water, like this, right? I mean, look at the way that they deal with the Internet, right? One (ph) attempt to counteract, you know, popular opinion, a green (ph) dam initiative, you know, trying to get everybody to register. Everything speaks, at least to me, politically of a fearful, insecure regime, not of a confident regime.

ZAKARIA: This is an argument we will doubtless have time to come back to. When we come back, however, we're going to talk about China's foreign policy towards the United States, Japan and whether or not there is a new Chinese arrogance afoot. When we come back.

(BEGIN VIDEOTAPE)

PEI: What really worries me is China's position on Korea because this is, actually, a fundamental strategic choice. What are you going to do with a client state that is damaging your national interest? And China's position is, We're going to stay with -- we're going to stick with this regime, no matter what.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(NEWSBREAK)

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Martin Jacques, Minxin Pei and Elizabeth Economy to talk about China and its foreign policy.

So one of the things that's been happening over the last few months, which I've been very struck by because I've been traveling in Asia, is the rising concern in Asia about the way China is behaving -- you know, the incident in the -- over the -- in the East China Sea over the Japanese fishing trawler -- the Chinese fishing trawler -- sorry -- that went into those waters.

Do you think that there is some kind of a concerted Chinese effort to sort of assert itself, or is this all miscalculation?

ECONOMY: Well, I think maybe it's a combination of both, frankly. I think there was a sense within China that the United States had really not quite withdrawn from Asia but certainly wasn't paying Asia the kind of attention that it used to, like, we're mired in a war in Afghanistan. We're still withdrawing from Iraq. And obviously, we're still in the midst of the global financial crisis, so our attention was elsewhere.

So I think to some extent, there was a mood to seize an opportunity, all right? And so I think some of this is simply the potential for the PLA to flex a little of its muscle...

ZAKARIA: The army.

ECONOMY: The army, right, the People's Liberation Army. I think do think that there is a greater confidence within China when it comes to their foreign policy, and I think there's a greater sense they want to control events outside their borders. It used to be enough to, you know, keep their head low, right, you know, "Hide brightness, cherish obscurity." And I think that Deng Xiaoping dictum is rapidly, you know, fading.

And so I think there's a sense now that in order to ensure China's domestic security and continued growth, it has to do more outside its own boundaries, whether we're talking economically or in the security realm, or even, frankly, in its media outreach, right? So I think those are all things that the Chinese government is reaching outward now in a way that they have not before.

ZAKARIA: Repeat that Deng Xioaping dictum, because I think this is -- he had -- this was his -- his...

ECONOMY: Right, his famous "tao guang yang wei (ph)", right?

ZAKARIA: Which is -- and he applied it to foreign policy, and it says what...

ECONOMY: Exactly. Basically, hide brightness, cherish obscurity. It's actually 24 characters long. Maybe Minxin can pitch in with the rest of it, you know?

PEI: Also, "Grow your strengths quietly."

ECONOMY: Yes.

ZAKARIA: They have not released this 9,000-word essay by the equivalent of China's foreign minister. The foreign minister's actually not that powerful, the state councilor, which is basically saying, We're actually very -- we are not threatening. We don't want to replace the United States as the dominant hegemon.

PEI: It's too late. The damage has been already done. And (INAUDIBLE) if you look at (INAUDIBLE) actions (ph), South China Sea, Japan and Korea, you say, South China thing may be a trial balloon. It was simply in rhetorical terms. We're going to view this as part of a (INAUDIBLE) see what happens. In practical terms, China has not done that much. Japan I will excuse as a technical error. They overreacted, and it caused a lot of damage.

What really worries me is China's position on Korea because this is actually a fundamental, strategic choice. What are you going to do with a client state that is damaging your national interest? And China's position is, We're going to stay with -- we're going to stick with this regime, no matter what, because the Chinese government appears to have made a fundamental strategic decision that links its own survival with the survival of the North Korean regime. And that's a fundamental strategic choice.

ZAKARIA: Because they think if they allow a communist regime, North Korea, to collapse, it sets a precedent for a kind of similar process to happen in China.

PEI: Because it will unleash very risky dynamics for the Chinese Communist Party.

(CROSSTALK)

ECONOMY: There was a really interesting article that just came out by a Chinese -- one of China's top scholars, Ju Fung (ph). You probably know him. And it was about this issue of North Korea. He said there is no foreign policy issue that is being more debated within the Chinese sort of foreign policy community than this issue of how to manage North Korea.

And his argument for why China elected to take this kind of reactionary, very conservative stance, not, you know, condemn North Korea for its aggression, was really because of inertia, that the foreign policy -- that the ministry of foreign affairs and the broader foreign policy community can't seem to take a step back and sort of recalculate and reconfigure and think about a new strategy, even though many people know that they very much need a new strategy.

And indeed, if you look at the WikiLeaks, you can find people like Hu Yafei (ph) and others saying that North Korea's behaving like a spoiled child. So I think there's a lot of thinking about North Korea within the foreign policy community, about how to do things differently, but they can't quite get their arms around coalescing to a new strategic effort.

ZAKARIA: Final thought. What strikes me about this conversation is at the very least, China's foreign policy does not appear to be nearly as sophisticated as the impression your book leaves one with, right? I mean, it seems somewhat amateurish. They're making mistakes. They're overreacting. They're...

JACQUES: Well, I don't think -- I don't think it looks amateurish. I think that they've -- you know, they've -- my view is that they've made a bit of a mistake in the South China Sea. I think -- I don't think they made a particular mistake over Japan. I think, you know, it was a predictable situation. And this is going to be locked in for a long time, this Sino-Japanese problem.

I don't see this being -- and I don't think by any means all the problems lie on the Chinese side. I think the Japanese attitude is a big problem historically because, you know, they've never come to terms with their role in the war. And that's -- that's not just a problem with China, it's also with Korea and it's also with the whole region, actually. So I think that -- I think that, clearly, what we're witnessing now also is Chinese foreign policy -- you know, it has got to deal with a lot more -- a lot of new situations. I mean, a new world is unfolding.

ZAKARIA: And it's become much more powerful in that world.

JACQUES: It's become much more powerful in a post-financial crisis world. It's got a whole new set of relationships that it never used to have. So you know, it's learning on the job. But never underestimate the Chinese state. It's very sophisticated.

ZAKARIA: Never underestimate the Chinese -- a good note to end on. Liz Economy, Martin Jacques, Minxin Pei, thank you very much.

We will be right back.

(COMMERCIAL BREAK)

ZAKARIA: Our question this week from "GPS Challenge" is, This week, China awarded its own alternative to the Nobel Peace Prize. What nations have done something similar in the past? A, Stalin's Russia, B, Hitler's Germany, C, Milosevic's Serbia, or D, Ceausescu's Romania. Stay tuned and we'll tell you the correct answer. Make sure you go to CNN.com/gps for 10 more challenging questions. While you're there, don't forget to check out our podcast. You can also subscribe to it on iTunes. That way, you won't miss a show. And it is, of course, free.

Our book this week is called "Winner Take All Politics" by Jacob Hacker and Paul Pierson. It is about the dramatic rise in income inequality in America over the last few decades. The authors have a powerful argument. I'm not sure I agree with it entirely. I think they missed certain features. But it is a powerfully argued book about a critically important subject, and I guarantee you it will make you think.

Now for the "Last Look." The symbols of Teheran, the Azadi tower, the Grand Mosque, the Iranian flag, and Star of David. Yes, that is a Star of David, the symbol of Iran's sworn enemy, Israel, on the roof of the Tehran headquarters of Iran Air. So how did it get there?

It's been reported that the building was built by Israeli engineers before the Islamic revolution. The Shah's Iran and Israel had decent relations. Apparently, nobody noticed it until very recently, which is odd because as you can see, the building is right next to the airport.

The correct answer to our "GPS Challenge" question, by the way, was A and B, both Stalin and Hitler established alternatives to the Nobel Prize in their respective countries. Go to our Web site for more questions and answers.

Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "RELIABLE SOURCES."