Has the tragedy of the World Trade Center changed Bush's agenda for his China trip?

They have to change the agenda. These events were so traumatic for the United States. The effort to build the coalition, to fight both the individuals responsible for it and then the broader issue of terrorism, has to put terrorism [as] the number one issue on the U.S.-China agenda. ...

First, the United States is going to need China's help on the Security Council to begin to gain broad legitimacy, for whatever military action the US takes and continues to take. That's a little bit complex for several reasons.

The Chinese issued a statement within a week or so of the time of the World Trade Center, saying, "We object greatly to terrorism. This was a great tragedy. But before you take any action, you need U.N. approval, and you need to give us the evidence that Osama Bin Laden, was in fact the main perpetrator." Now so far, the administration has not been in the mood, to either seek anybody's approval or to provide any evidence outside its own council.

The second reason its important is this: China actually has a small border with Afghanistan. So any action that is taken in Afghanistan of course is going to be of particular concern to the Chinese on any number of facts. The Chinese want to cast terrorists in the same phrase as they cast separatists so they can make it seem as if the people of Taiwan are terrorists, or the Falun Gong, or any separatist movement anywhere else in China, including Tibet. They want to lump them all together. Whereas, of course, the United States, want to differentiate between true terrorists and those who are expressing a desire to move separately.

Will the Chinese be asking for anything?

Every country that's coming to this coalition is not coming to it with a blank check. Everybody wants something. ... China clearly sees this as an opportunity to move the United States more in its camp, and more away from Taiwan. That would be a big change, if it happened, because of course, President Bush indicated in the spring a tilt toward Taiwan. That was made to satisfy part of his own party. He had to back off from that a little bit. This may require him to back off from it a good deal.

Remember, Bush came to office with the world worrying that he was a unilateralist, that he was really not interested in building coalitions, that he wasn't terribly interested in working through the U.N. There was great suspicion of the IMF and the World Bank, all of these other institutions. The Chinese were particularly worried about this. This incident has forced him to be a multilateralist, to work within much broader frameworks. ...

What was happening in the White House during the early stages of the EP-3 incident?

Well, we now [see] the EP-3 incident as the first mini-crisis of the Bush administration, and in some ways a dry run for the events that began on September 11th. What was fascinating was the administration for the first time had to operate in a vacuum of information. They knew that a collision had taken place. They knew from the radio transmissions back from their own crew that the EP-3 had landed, apparently safely, on Chinese territory. Then Secretary of State Colin Powell began to make calls to his counterparts in China, and no one would call back for three or four days. They had a complete absence of any real response. This left them mystified.

The result was that the president came out initially, with some very hot comments in the Rose Garden. He basically demanded they return, said the time for action was now. He was unclear about what would happen to China, if in fact, they didn't respond.

When you talk to administration officials now about what was going on, when they reconstructed events, they have a theory. Whether it's right or wrong, we may not know for years. Their theory goes like this: that initially all of the information about the EP-3 was contained within the Chinese military. The Chinese military believed that they may be able to make good use of this internally in their own struggles within China about how did to deal with the United States, and who should succeed Jiang Zemin. So the initial story that the military put out was that their tiny little fighter jet was hit by this big American plane. The rest of the Chinese government appeared to buy this argument because they didn't really have any evidence to the contrary. As I said, this is just a theory.

By the time they began to discover that, in fact, it's just as likely that the small very mobile fighter jet hit the American plane, by getting in too close, they were already committed to this story that the fault lay on the side of the United States. Then it became an issue of face. How do you design an apology that would be acceptable to the United States, which did not believe it was at fault, and which still did not require the Chinese leadership to back off of this story? It took more than a week for Secretary of State Powell and others to put together wording that would enable the Chinese to portray there's an apology from the United States, and would enable the United States to say all we did was say that we regret that this incident happened. Which certainly we did.

What was the split in thinking in the White House, during this EP-3 incident? Were there tensions?

There were tensions in the Cabinet, but in many ways they were just reflective of the context, which was a much broader tension within the Republican Party about how to deal with China. This is a tension that has never really been resolved in the Bush administration, and remains to this day. That's what makes the trip to China, such a tricky diplomatic challenge.

Here's the fundamental tension. The Republican Party, throughout the 1990's became bifurcated [into] two different camps. One was a very business oriented camp. In some ways you could call it the Boeing camp. The camp where business executives, who wanted to increase American trade with China, saw [China] as the greatest market in Asia, and perhaps the greatest market anywhere in the world. [They] wanted an American policy that was designed to be, tough-minded militarily, but fundamentally open to the embrace of China into a capitalist system.

Now there's a second element to the Republican Party here, and that is a containment crowd, a group that believes that the portion of the administration and the Republican Party that wants closer economic ties, is naive about the growing military threat from China. This group saw in the EP-3 incident the confirmation of all that they had been saying for many years -- which is, "They want to trade with us, but boy, when it gets to a real moment, an incident, their initial instinct is not to do what they should do, which was say this was an accident, and turn the crew over." This group is based mostly in the Pentagon, but your hear [it] in the White House, and, and in places in the State Department. [They] basically wanted the president to come out and take a very tough line, to make it clear to the Chinese in their first interchange that this administration would be very tough-minded on security issues.

President Bush has split the difference. You frequently hear President Bush pick up wording that President Clinton used -- that the more we trade with China, the more we have interchange with China, the more we get the Internet into China, the more likely it is that the control of the Communist Party over the Chinese society will weaken. So he is offering that, and yet at the same time, it was President Bush, who during the campaign, charged that the Clinton and Gore White House, had been naïve about the build-up of the Chinese threat. So he is trying to straddle the two positions. No president in history, his father included, has ever managed to get away with that, because sooner or later, you have to declare yourself on one side of that argument in Washington, or another. I suspect that a lot of how that argument turns out, will depend on how China reacts in the fight against terrorism.

Can you tell me the background to how he made his quite firm statement about Taiwan?

Well, there are a couple of theories about this. The first theory is it was quite deliberate that he stepped in to say we will defend Taiwan robustly.

The second theory, which I have come over time to believe, is that, in fact, he had been given two messages to deliver in these interviews that he offered. The first message was we stand behind Taiwan, they are a great democracy. The second message was that the Taiwanese needed to know that they can't provoke China, that they cannot create a crisis, and then expect us to come to their aid. And he forgot the second part.

On the day that he first offered these interviews, we were travelling. We were down in New Orleans, and then he was moving on to a fundraiser and ultimately going to his ranch in Texas. The national security adviser sought me out. I was travelling with the president that day. We gathered in the kitchen of a hotel where this giant fundraiser was going on, and she basically laid out the full answer without ever saying what the president meant to say was. I did this on the record. And she did this in order to make it clear, that our fundamental position toward Taiwan had not changed.

Now, the Taiwanese didn't read it that way. And of course, shortly thereafter the president had to go make a decision about what kind of arms to send to Taiwan, in our annual discussion over arms sales. Here again he split the difference. He agreed to sell them a very sophisticated array of arms, but did not give them what they wanted most, which were Aegis class destroyers. That could give them a full air cover view of China. This was something that would have provoked China of course to respond with more naval might than currently it feels.

This decision on the Aegis has been postponed. Is it likely to be put off forever?

Well, it could be because it has an advantage. Here is the advantage. First of all, building these takes time. So, even if the president made the decision in the given moment, he could rescind it at any given moment by saying, "We are going to build these but not deliver them." Secondly, similar destroyers are currently being built for American forces. He could always if he decided to, divert those to Taiwan and tell the Pentagon it would have to wait a little longer to get its own. Thirdly, it keeps the Taiwanese on a string. It's a way of containing their own rhetoric, making sure they don't talk too much about independence, making sure that they don't say anything terribly inflammatory. Because he can say, "Well, we can offer these, we can also take them away."

How important is the World Trade Organization for China?

I think that this is critically important, both economically and politically. Remember it started as an economic endeavor to make sure that China was enmeshed in the world economy, and that's in its rules, because China has had a very closed economy from the perspective of the industrialized countries. [China's] entering the WTO would require almost no sacrifices on the part of the United States or other industrialized nations, but it would, over time, require China to open itself up to banking, to securities, to autos -- every single major market in which the United States and other nations are big competitors.

However, to the Chinese it was critical that they do this on their own schedule, because every time you open those markets, you create an internal risk of great displacement and upheaval. You have to close down steel factories. You have to make your own auto industry competitive on a world scale. They are not ready for that. So what they wanted to negotiate was a nice slow, gradual opening of their markets.

Now they have that schedule in place, and President Bush arrives with the agreement finished, with China just on the verge of entering the WTO. It gives them something to celebrate that took fourteen years for these two countries to come together on. Now, execution is going to be difficult and tense, because of course, once the agreement is in place, there will be forces within China, that want to slow down the opening of their markets, while enjoying the benefits of being in the world market place. That's going to be a continuing source of tension.

Is there a danger that over the next months and years of the Bush administration, that the differences within the cabinet are going to cause real serious problems?

There is that big danger, and it exists on several fronts. First of all, we don't know who is gonna win in the Chinese succession, [whether it will be] the reform crowd ... or whether the military will begin to get more hard-liners in place, who would over time begin to change the tone.

Secondly, we don't know how the battle on terrorism is going to work out. At various times we know the Chinese have been shipping parts for missiles -- in some cases maybe potential nuclear technology -- to Iran, to Pakistan. If that continues, then its completely unclear, how the U.S.-China relationship will turn on the terrorism issue.

Thirdly, we don't know whether the trade relationship is about to blossom or whether there will be enormous frustrations that will come up out of the slowness in China to actually come to terms with the meanings of the WTO agreement.

In the next year or two, the president's team is going to have to work where it stands on this. Every president in the United States who has come to power since Richard Nixon, has faced this problem. Bill Clinton came in saying that he would no longer embrace the butchers of Beijing. And what do you know? He became, over time, the greatest proponent of economic integration with China of any president in history. President Clinton articulated probably more clearly than any president had, what an interest we have in economic engagement, engagement over the Internet, and political engagement with China. I suspect that President Bush will ultimately come out to the same place. But doing so is going to require really tamping down a lot of forces within his own administration. ...