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Lou Dobbs Tonight

Bush Meets with Economic Leaders to Discuss Agenda; Critics Doubt Bush's Agenda; Three Companies Ordered to Surrender Documents in Oil-for-Food Probe

Aired December 15, 2004 - 18:00   ET

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

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


(BEGIN VIDEOTAPE)
LOU DOBBS, HOST (voice-over): Tonight, President Bush's second term political agenda is being threatened by some of his key allies.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We have a problem. Let's work together to deal with it.

DOBBS: We're engaged in a global war on terror. Three million illegal aliens will enter the country this year. So why isn't our government taking border security seriously?

UNIDENTIFIED MALE: It's taken more time to build just 14 miles of fence than it did to win World War II.

DOBBS: Tonight, we'll have a special report from the Tijuana River Valley in California.

And tonight, a debate on whether local police should be able to enforce immigration laws, arrest and deport illegal aliens. That's our "Face-Off" tonight.

And red star rising. We're exporting our wealth to China. Beijing is using that money to build up its military. Former U.S. ambassador to China, James Lilley, is our guest.

(END VIDEOTAPE)

ANNOUNCER: This is LOU DOBBS TONIGHT for Wednesday December 15. Here now for an hour of news, debate and opinion is Lou Dobbs.

DOBBS: Good evening.

Tonight, some of President Bush's closest allies are expressing deep concern about critical elements of his second term agenda. Several influential groups that once supported the president are now challenging some of his proposals to reform Social Security, the federal tax code and medical liability laws.

Today, President Bush declared that he will push ahead with his bold plans.

White House correspondent Dana Bash reports. (BEGIN VIDEOTAPE)

DANA BASH, CNN CORRESPONDENT (voice-over): Even with the Italian prime minister, the president talks up a top domestic priority, reforming Social Security, saying his reelection should quiet critics of his plan to create private retirement accounts for younger Americans.

BUSH: In the 2000 campaign, in the 2004 campaign, I took the message to them. They realized, like I realized, now's the time to deal with the problem.

BASH: The White House is putting on a carefully orchestrated invitation-only summit for policy and business leaders to talk up the economy.

LARRY MOCHA, PRESIDENT, AIR POWER SYSTEMS: This past year, we've had one of the most successful years we've had since the '90s.

BASH: No new policy ideas here. It's the start of a P.R. campaign for everything from the vague Bush vow to reform the tax code to the more immediate promise to curb lawsuits.

BUSH: We expect the House and the Senate to pass meaningful liability reform on asbestos, on class action and medical liability.

BASH: But it's tackling Social Security that's been stirring up the most emotion. The president insists he wants to reach across party lines.

BUSH: We have a problem. Let's work together to deal with it.

BASH: But many Democrats disagree with Mr. Bush on the scope of the problem, pointing to these figures. Social Security's trustees estimate the program won't go broke until 2042. And even then, they say recipients still get 73 percent of their benefits.

PETER ORZAG, FORMER CLINTON ECONOMIC ADVISOR: The administration is talking up the problem, or exaggerating the problem in order to build its case for private accounts. But exaggerating the size of the problem is not the way to get reform.

BASH: The White House has yet to unveil specifics on private accounts but admits it will have to borrow to pay for it. That, some insist, jeopardizes the president's promise to cut the deficit in half in five years.

And what about the $55 billion trade deficit? For that, Mr. Bush did offer a solution.

BUSH: That's easy to resolve, people can buy more United States products if they're worried about the trade deficit.

(END VIDEOTAPE)

BASH: And beyond that quip of the Oval Office, there was no discussion at the summit of exactly how the president plans to shrink that trade deficit, nor was there talk of exactly how he plans to fulfill his plans to cut the federal deficit.

Many look at his ambitious agenda, things like reforming Social Security, making tax cuts permanent, and wonder exactly how he'll get to that goal -- Lou.

DOBBS: Dana, for a second there, I thought the president must have been paying close attention to this broadcast, encouraging people to buy U.S. made products. Was he being petulant or profound in the comment?

BASH: Well, you know, I was just talking to an administration official, asking exactly what he meant by that, and essentially, I was told that he meant that he is for free trade, and that he believes that the more people -- this is what I was told. The more people buy U.S. products, not just here but around the world, the better it is for U.S. companies.

DOBBS: It's absolutely true, certainly the second part of that. But a lot of interpretation of what were really very few words. Dana Bash, thank you very much.

Some of this country's most powerful lobby groups have reversed course and are now criticizing key elements of the president's agenda. Several leading conservatives in Congress are also concerned the president may be unable to cut the federal government's massive federal deficit.

Lisa Sylvester reports.

(BEGIN VIDEOTAPE)

LISA SYLVESTER, CNN CORRESPONDENT (voice-over): President Bush wants to make tax cuts permanent and privatize Social Security, but even members of his own party are not sure how to square the president's ambitious plan with rising deficits.

REP. MICHAEL CASTLE (R), DELAWARE: The bottom line is that no matter what theory you use, in the last several years, this debt has been increasing at levels that, in my judgment, are quite unacceptable.

SYLVESTER: The trade deficit hit a monthly record of $55.5 billion in October. The current account deficit and the budget deficits are also at record levels.

At the same time, the dollar has been skidding downward, and the president's plan to reform Social Security could cost up to $2 trillion in the first decade.

Treasury Secretary John Snow argues the president can meet his goals and still slash the deficit.

JOHN SNOW, TREASURY SECRETARY: Well, you do that by growing the economy and tight control on spending. All of our budget forecasts, which call for cutting the deficit in half over the course of the next five years, include making the tax cuts permanent.

SYLVESTER: But many fiscal conservatives think the administration is dreaming if it thinks it can reform Social Security, cut taxes, pay for the war in Iraq and still cut the deficit in half.

ROBERT BIXBY, CONCORD COALITION: We need to start confronting the hard choice, not pretend that everything is an easy answer, not pretend that debt is the only answer. Because ultimately, you know, the miracle of compound interest becomes a nightmare.

SYLVESTER: Pushing his agenda through Congress will be difficult. Powerful lobbying groups like the AARP, which backed the president's plan to overhaul Medicare, are not supporting Social Security reform.

(END VIDEOTAPE)

SYLVESTER: The United States has a number of long-term financial obligations, including the war in Iraq and a new Medicare prescription drug benefit that has not fully kicked in yet, and the Baby Boomers will begin to retire in the next five years -- Lou.

DOBBS: Lisa, thank you very much. Lisa Sylvester.

President Bush today warned Syria and Iran to keep out of Iraq's internal affairs. President Bush said Iraq's neighbors should help enforce border security ahead of Iraq's election at the end of January.

The Army today said it will spend more than $4 billion in the coming months to send more armored Humvees into Iraq. Officials rejected criticism that the Army has been slow to raise production.

One general said, quote, "This is not Wal-Mart," end quote.

And the Iraqi government today asked some of Saddam Hussein's former soldiers to return to uniform. The Iraqi defense ministry wants troops from the old transport corps to serve in Iraq's new army.

New developments tonight in the widening investigations into the multibillion-dollar United Nations oil-for-food scandal. The Securities and Exchange Commission has ordered three leading companies to surrender documents relating to their dealings with the U.N. program.

Bill Tucker reports.

(BEGIN VIDEOTAPE)

BILL TUCKER, CNN CORRESPONDENT (voice-over): Tyco International ordered by the Securities and Exchange Commission to surrender any information on its participation in the U.N. oil-for-food program. The interest in Tyco not unique.

Pharmaceutical company Wyeth also confirming that it received a similar request from the SEC. And in a filing in late November El Paso says that the Securities and Exchange Commission contacted it about records related to any dealing in Iraq with Coastal Oil, which El Paso bought in 2001.

The companies are not commenting on why the SEC is interested. Tyco says it is gathering information and will fully cooperate. No indication of what dealings they might have had, except that the company does produce oil pipeline controls, as well as medical supplies.

Wyeth has disclosed it sold drugs and nutritional products to Iraq.

El Paso, it bought Iraqi oil. So did Chevron and Exxon Mobil. That doesn't mean that there was any wrongdoing.

FADEL GHETT, OIL ANALYST, OPPENHEIMER: Most companies operated through a third party. They have, really, no direct connection with the Iraqi government.

TUCKER: Between the SEC, the Department of Justice, Congress and the U.N. itself, there are some half a dozen investigations into the corruption of the oil-for-food program and the paths that corruption might have taken.

(END VIDEOTAPE)

TUCKER: Bottom line here is there are lots of investigations, Lou, but there is nary a deadline in sight to any of those ongoing investigations.

DOBBS: Not a deadline, but certainly a few important dates. Amongst those, January, when we get an interim report from the Volcker investigation, and Senator Norm Coleman and Senator Carl Levin making it clear that those dates are going to come due quickly in the course of the beginning of the new year.

Thank you very much, Bill Tucker.

Well, medical researchers tonight are questioning the government's policy on how to tackle an anthrax attack that could kill millions of Americans. The federal government is spending nearly a billion dollars on a program to vaccinate Americans against anthrax.

But a new study says it would be far more effective to inoculate Americans after an attack.

Bob Franken reports.

(BEGIN VIDEOTAPE)

BOB FRANKEN, CNN CORRESPONDENT (voice-over): No one has to convince postal worker Leroy Richmond that antibiotics can work against anthrax. He's living proof.

LEROY RICHMOND, ANTHRAX SURVIVOR: Immediately, they put me on Cipro. And then they put me on doctyclin (ph), two powerful antibiotics.

FRANKEN (on camera): Richmond survived the anthrax that contaminated this building. Five died in a series of attacks. The government would like to vaccinate 25 million.

(voice-over): But a study suggests that a new generation inoculation might be much more effective after contamination, still relying on the antibiotics.

UNIDENTIFIED MALE: Our research shows that if we could get antibiotics to people within six days of exposure to the anthrax, we could prevent 70 percent of cases.

FRANKEN: Many leading health officials criticize the fact that the response to another anthrax attack remains still in the talking stage.

JEROME HAUER, RESPONSE TO EMERGENCIES AND DISASTERS INSTITUTE: How are we going to explain to the American people that three, four or five years after September 11, we have done very little to better prepare our nation when it comes to countermeasures for threat agents.

FRANKEN: But government officials insist they're doing all they can.

LANCE BROOKS, DEPARTMENT OF HOMELAND SECURITY: Our strategy currently is geared towards early detection of such events and, as quickly and rapidly as possible, mobilizing a national stockpile.

FRANKEN: The key, experts say, is a quick diagnosis.

DR. JAMES CAMPBELL, UNIVERSITY OF MARYLAND MEDICAL SCHOOL: Most cases, when people become ill with anthrax, inhalational anthrax, you don't recognize it as anthrax right away.

UNIDENTIFIED MALE: There has to be a definitive test. When you go in, say you have a cold, they can test to make sure it's a cold and nothing other than that, other than the fact that you're feeling bad.

(END VIDEOTAPE)

FRANKEN: Leroy Richmond can only hope that the country learns from his experience, but, Lou, never has to share it.

DOBBS: Absolutely. But, Bob, implicit in your report is the suggestion that all of the servicemen who have been inoculated for anthrax, that that's entirely unnecessary and that the better treatment is actually post-attack, if you will?

FRANKEN: Well, that could be. One of the things I should point out is that this new version of the inoculation they're talking about has not been fully tested yet, so this is all highly speculative at this point.

DOBBS: Bob Franken -- thank you very much -- reporting tonight from Washington. New concerns tonight about security at our nation's airports. That's after a fake bomb made it past security at Newark International Airport and on to a Continental Airlines flight that was headed for Amsterdam. What is even worse, baggage inspectors flagged the bag at first, then they lost it.

The Transportation Security Administration says the mock explosives were part of a training exercise and never endangered any passengers. The bag was recovered in Amsterdam. We presume that the baggage handlers and screeners flunked the test.

The security failure comes less than two weeks after French authorities lost a test bag containing real explosives at a Paris airport. French officials say they still have no idea where in the world -- literally -- those explosives now are.

Still ahead here, our borders are wide open to illegal aliens and potential terrorists. So why can't the federal government secure our borders? We'll have a special report.

And "Red Star Rising." China has put hundreds of thousands of American textile workers out of work. We're exporting our wealth to China and to other places. We'll have a special report. And former U.S. ambassador to China, James Lilley, will join us here.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: In "Broken Borders" tonight, political red tape and bureaucracy are putting American lives at risk. Eight years ago, Congress and the Clinton administration approved plans to reinforce a fence at one of the most vulnerable points along the U.S./Mexican border. Incredibly, a critical four-mile long section of that fence remains unbuilt.

Peter Viles reports from the Tijuana River Valley in California.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): The old fence, 14 miles of salvaged metal, was a stopgap measure to block the favorite path of Mexican drug smugglers and illegal aliens, and it worked. Illegal traffic dropped dramatically.

But then powerful Congressman Duncan Hunter convinced the Clinton administration to build a real barrier, a second fence that cannot be cut or climbed. That was eight years ago.

The original fence falling apart in places and still four miles of that secondary fence have not been built.

GARY BECKS, AIDE TO U.S. REPRESENTATIVE DUNCAN HUNTER: It's taken more time to build this 14 miles of fence than it did to win World War II. VILES: The stick pointing point, environmental laws, endangered species of plants and birds, even claims the fence would disrupt Indian artifacts, such as these seashell fragments.

BECKS: Seashells laying in the dirt. Give me a break.

VILES (on camera): The fence debate comes down to this: Could Homeland Security simply fix this 10-year-old steel fence, or does it need to fill in some of these canyons to build 150-foot corridor with a patrol road along the border and a second fence inside the border?

(voice-over): The government believes that corridor is crucial, making the border easier to patrol and discouraging people like these guys for making a run for it. The House voted this fall to temporarily waive all environmental laws to finish the second fence.

But the Senate wouldn't go along, and environmentalists are digging in, saying this small corner of coastal mesas and canyons must be preserved.

GREG ABBOTT, CALIFORNIA PARKS & RECREATION: To have a little mesa some distance from the ocean with this sandy bay point soil is extremely rare. There's a whole little plant community to the West here that you won't find anywhere else in the United States.

VILES: There's also a border crisis here that effects every person in the United States.

Peter Viles, CNN, in the Tijuana River Valley, California.

(END VIDEOTAPE)

DOBBS: We'll have much more on the immigration crisis in this country later in the broadcast. In tonight's "Face Off," two officials will debate whether local police should be empowered to enforce our immigration laws, arrest and deport illegal aliens. That debate coming up here.

And now our special report on the rising influential of China politically, economically and militarily. The Chinese textile industry and its flood of cheap imports have already put hundreds of thousands of Americans out of work. Now global quotas on textiles will expire next month, only boosting China's dominance in the world market.

Senior Asia Correspondent Mike Chinoy reports.

(BEGIN VIDEOTAPE)

MIKE CHINOY, CNN SENIOR ASIA CORRESPONDENT (voice-over): There are 5,000 of them working 10 hours a day, six days a week, making clothes for brands like Liz Claiborne and Adidas earning an average of $73 a month. For 22-year-old Lu Chun Siya (ph) just up from the impoverished Chinese countryside, it's a fortune.

"I'm happy with this job," she says. "It helps me support my parents back in the village."

With the end of textile quotas, a combination of low-cost labor and ruthless efficiency looks set to make the "Made in China" label dominant all over the world.

HENRY TAN, LUEN THAI GOVERNMENT FACTORY: This is a new production item that we just sell about two months ago, and, basically, we are using new machinery, new technology and new engineering with manufacturing the garment.

CHINOY (on camera): But if China is where you find the winners in the global textile revolution, increasingly, the losers are going to be found in the United States.

(voice-over): Workers at this textile mill in Fort Payne, Alabama, which bills itself as the sock capital of the world are paid more in a day than Lu Chun Siya (ph) earns in a month.

TAMMY YOUNG, TEXTILE WORKER: I'm afraid that one day that I will lose my job because I don't feel like we can compete with China.

CHINOY: Even with China's recently announced self-imposed tariffs, company executives acknowledge they can't fight the Chinese export machine.

BOBBY COLE, PRESIDENT, PREWETT ASSOCIATED MILLS: We've got to take care of our customer, we've got to take care of our sales, and, if it requires us to import from China, then we're prepared to do that.

CHINOY: And the Chinese are ready. Henry Tan is tripling his workforce here and building another factory nearby. It will employ 20,000 people.

Mike Chinoy, CNN, Dongyang, China.

(END VIDEOTAPE)

DOBBS: We'll have much more here on the rise of China tonight. Former U.S. Ambassador James Lilley will join us.

Coming up next, outrage over what somewhere calling a very PC Christmas in too many places. Retailers who depend on something called a Christmas shopping season are encouraging their employees to say seasons greetings, happy holidays, instead of merry Christmas. We'll have that unbelievable story coming up next.

And then, the battle over illegal aliens living in one American community. Two county officials with very different views on the invasion face off here tonight.

(COMMERCIAL BREAK)

DOBBS: Tonight, growing outrage around the country about what many Americans say is missing from Christmas this season. Christmas. Retailers especially shunning the name of the holiday, at the same time they're hoping to gain mightily from the very same holiday.

Christine Romans has the report.

(BEGIN VIDEOTAPE)

ACTOR: What would you like me to bring you for Christmas?

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT (voice-over): This movie forever linked Macy's with Christmas. But on 34th Street these days, you're more likely to hear seasons greetings or happy holidays.

MANUEL ZAMORANO, COMMITTEE TO SAVE MERRY CHRISTMAS: When did Christmas become politically incorrect? Who decided that saying merry Christmas is wrong? It's a national holiday observed by the overwhelming majority of people in this country. Who said it was wrong?

ROMANS: The Committee to Save Merry Christmas is urging a boycott of Macy's. It says the retailer in recent years has systematically stripped the word "Christmas" from its stores and advertising, allowing political correctness to run amok.

Macy's says it doesn't ban Christmas. Witness Santa in Macy's Thanksgiving Day parade and all of its holiday decorations, but the company says the phrases "seasons greetings" and "happy holidays" embrace all religious and ethnic celebrations that take place in November and December and "these expressions of goodwill are more reflective of the multicultural society in which we live today."

SCOTT KRUGMAN, NATIONAL RETAIL FEDERATION: Retailers understand over the past 10 years or so their customers have become more diverse, celebrating multiple holidays this time of year. In order to acknowledge that, retailers have come up with one message and the simple message of happy holidays.

ROMANS: Happy and profitable holidays. Up to 40 percent of retailers' profit is earned between Thanksgiving and New Year's.

(END VIDEOTAPE)

ROMANS: Lou, Macy's is adamant it's not trying to offend anyone, just the opposite. It's doing just what other businesses do, retail and otherwise. It's trying very hard not to exclude anyone. That's why seasons greetings, happy holidays is better.

DOBBS: Well, they've just excluded everyone who is celebrating Christmas, which is, after all, the foundation of the so-called season in which they make most of their profits.

ROMANS: Moving definitely toward not offending anyone.

DOBBS: You know, when you think about it, happy holidays -- what other holidays are we celebrating right now? We're celebrating Christmas, right?

ROMANS: And they say Hanukkah, Kwanzaa... DOBBS: Kwanzaa.

ROMANS: ... also the end of Ramadan and a host of other holidays between Thanksgiving and New Year's.

DOBBS: But as we celebrate each one of those -- and each of us in this very diverse society does celebrate -- my Jewish friends say to me happy Hanukkah, I say to them merry Christmas, none of us is offended. I don't understand the reluctance to use Christmas.

ROMANS: They say happy holidays covers it all.

DOBBS: They do? Well, they're wrong. And merry Christmas. Thanks, Christine.

That brings us to the subject of our poll tonight: Do you think it's offensive to wish someone a merry Christmas? Yes or no. Cast your vote at loudobbs.com. We'll bring you results later in the show.

And save those e-mails. I'm absolutely intractable on this issue.

Coming up next, your thoughts on the critically acclaimed documentary "Farmingbill," and the immigration crisis that has gripped communities all across this country.

And then, should local police have the power to enforce federal immigration laws? Suffolk County executive Steve Levy, Suffolk County legislator Paul Tonna face off in our debate tonight.

Also ahead here, "Red Star Rising," exporting our wealth to China. Former U.S. ambassador to China James Lilley says Chinese military might could become a significant challenge to the United States in the very near future.

Stay with us.

(COMMERCIAL BREAK)

ANNOUNCER: LOU DOBBS TONIGHT continues. Here now for more news, debate and opinion, Lou Dobbs.

DOBBS: In just a moment, we'll be debating in tonight's "Face- Off," an element at least, of the immigration crisis, an important element, at the community level and the critical role that local law enforcement could be playing in the fight against illegal aliens. But first, a look at some of the day's top stories tonight.

A hostage crisis on a Greek commuter bus has ended peacefully just moments ago. Two gunmen surrendered to police in Athens, all 6 remaining hostages were released. They were all unharmed. The two hostage-takers, believed to be Albanian, had threatened to blow up the bus by tomorrow morning if their demands were not met. The hijackers were demanding more than a million dollars, safe passage as well to Russia. At least 16 other hostages were released earlier in the day unharmed. Time Warner reached an agreement with the Justice Department today to settle charges of accounting fraud at the company's AOL division. Time Warner, the parent company of this network, agreeing to pay $60 million in fines, $150 million to a compensation fund. The company also proposing a settlement with the SEC Commission in the amount of $300 million, the full commission yet to approve that tentative agreement.

Sprint today announced a deal to buy Nextel Communications. The merger will create the third largest wireless company behind Cingular and Verizon.

And the Federal Communication Commission today took the first step toward lifting the ban on cell phone use on airplanes. Are you ready? Regulators voting to solicit comments from the public about ending the ban. Can't wait to see those comments. Federal Aviation Administration administrators, however, are still concerned about the safety of cell phone use on aircraft. No decision will be made until a safety study is completed. That not expected for another 2 years. The FCC also voted to approve wireless Internet access on airplanes.

Turning now to the issue that has divided many communities all across the country and is largely ignored by most lawmakers in Washington. That is the invasion of three million illegal aliens into this country this year.

Last night we featured the critically acclaimed documentary "Farmingville" which looks at how illegal immigration divided community of Farmingville, New York. In tonight's "Face-off" two men at the center of the fight in New York Suffolk County join us.

Steve Levy is the Suffolk County executive. Levy has called for better cooperation between local police and federal authorities when it comes to managing the immigration crisis.

Paul Tonna, a Suffolk County legislator is featured in the documentary "Farmingville" and he says Steve Levy has created a climate of fear in the Latino community.

Gentlemen, we thank you both for being here. Let me turn first to you, Paul.

PAUL TONNA, SUFFOLK COUNTY LEGISLATOR: Sure.

DOBBS: What is the problem with expecting and insisting, in point of fact, that local law enforcement enforce immigration laws?

TONNA: There's a number of things that are wrong. The very first thing is that local law enforcement is there to protect its residents, there to protect the people that are there. And that means build rapport with the local community. If we have day laborers, undocumented people who feel threatened, or feel that they might be deported if they're going to speak about a crime, child abuse, wife battering, anything else, if they feel a climate of fear that they're going to be deported by giving local law enforcement information about criminal activity, then Suffolk County residents are going to be less safe, more unsafe.

DOBBS: What, Steve, do you disagree with Paul on that issue?

STEVE LEVY, (D) COUNTY EXECUTIVE SUFFOLK COUNTY: Well, there's nothing in the policy that we're talking about that would require that people who are victims of crime tell of their documented status. We're not interested in that. We're interested in those individuals who are here illegally and committing serious crimes. It's a major, major difference.

DOBBS: A major difference, but the effect could well be the same. I suppose...

LEVY: Oh, not at all. Where is the data first of all, Lou.

DOBBS: No, please.

LEVY: Where is the data that there is all this information coming forward from undocumented people to crack all of these cases? And secondly, you know, there are a number of drug dealers all the time who are giving tips to our police to go after another individual. Well that's fine, but that doesn't mean that the police now stop enforcing the law on the underlying crack problem that we might have in a community.

TONNA: Well, the data comes from our local law enforcement agencies. It's our law enforcement agencies who have said and identified this as a very, very bad idea for local police.

LEVY: No.

TONNA: To come up with this.

LEVY: Not at all.

TONNA: The other problem this is not an initiative that is put forth by sheriff's office, the district attorney's office, by the police. This is an initiative that has been put together and proposed by our county executive. The problem I see...

LEVY: If I can...

TONNA: You'll get a chance, Steve. We'll always have a time.

The problem is we're not recognizing the real problem, which is there is a large group of people who are contributing to our local economy. We have 3.7 percent unemployment in Suffolk County. You know, if we're going to be consistent, we have this underground slave labor class of people, who come here, who have an American dream about putting their blood, their sweat and their tears to be able to work and to get something done for their families. That's the problem.

DOBBS: Steve? That's the problem of the process.

LEVY: First of all, Lou. It's not law enforcement that is opposing this proposal. It's a specific police union, the correction union is very much supportive, our probation department commissioner and our police chief are all in agreement that they've had a very, very difficult time getting coordination with federal officials to find out the documented status of these individuals and that's...

DOBBS: What if I tell you that I disagree with you both on this. Since when should law enforcement be deciding which laws it enforces? Why isn't the county executive, why isn't the county legislature deal with this issue and telling law enforcement to enforce laws, period.

TONNA: You know why? Because it's a just nuance of a law. We're talking about a civil offense. We have real crime in Suffolk County, like anywhere else. That's where we need to put our resources. This proposal has basically juxtaposed and put the -- created the impression that their is some type of crime wave with undocumented workers in the Latino community, which is absolutely not true. It sets a really bad precedent.

DOBBS: That makes a lot of sense, Steve. What is your reaction to that?

LEVY: Lou, I am the one seeking to enforce the law. I am the one who's saying that when an individual is committing a serious crime here in Suffolk County, that we don't look the other way and don't give information -- let me finish now, Paul.

What's happening right now, an individual committed a crime, a judge is not even getting information before they're setting bail as to the documented status of that individual.

Let me state emphatically that this is not targeting a day laborer, it's not targeting people who work hard, but the mere fact that you work hard does not mean that we in this government or in a national government should stop enforcing our immigration or our labor laws or our local housing codes. They are two very separate issues.

DOBBS: Is it fair to say, gentlemen, that this discussion between the county executive and a county legislator would not be existing if the United States federal government was enforcing border security, and carrying out faithfully existing immigration law?

TONNA: I want to nuance that. The fact is that the stricter the immigration laws, the more abuse that you have. And it's the failure to recognize -- it's like prohibition.

DOBBS: That's not nuancing it, Paul. That's turning it on its head. Because nuance is how we got here.

TONNA: We would have better border security if the federal government lived up to their responsibility and said we have antiquated ideas and we need to change federal immigration laws.

DOBBS: Steve?

LEVY: Well, Lou, Paul and I will both agree that this emanates from a lack of will and resources at the federal government.

TONNA: Absolutely.

LEVY: That is exactly why in 1996 Congress passed the Immigration Reform Act, which actually prided local governments and states to work in cooperation with the federal government. The federal government has 2,000 to 3,000 agents to cover this entire nation. There are 650,000 local law enforcement people who can help in this regard.

DOBBS: So, if you both agree that if we had proper, proper border security.

TONNA: No, no, no, no.

DOBBS: No?

TONNA: No. If we had proper immigration laws.

DOBBS: Can you have proper immigration laws without being able to enforce the borders?

TONNA: They go hand in hand.

DOBBS: No, no, no, no. I really got to insist this time before you get off on the nuance. Here's the real deal. And so let's cut through all of the nonsense, you cannot have immigration laws that work, no matter how liberal or how conservative, if you cannot enforce the security of your border?

TONNA: I would say that if you had proper functional laws, you would be able to do a much better job with border security. Why? Because people would be able to come here...

DOBBS: What is your resistance to border security, Paul?

TONNA: It's not. It's not a resistance.

DOBBS: Then why can't we all agree? Why can't we all agree? Why is there this resistance to say we've got have security at our borders, particularly in a period of a global war on terror?

TONNA: Because there is total denial of the fact that we have a huge need for this pool of workers. And if we had good federal immigration laws, where people could legally be processed, where people could have temporary visas to come and go back and forth, we would have better border security.

DOBBS: You're fighting the wrong war here, Steve. and I don't know if you are as well. The fact of the matter is -- let me finish the question and give me an answer.

TONNA: Sure, sure.

DOBBS: Here's the question. No one is suggesting that undocumented workers who are working productively here aren't providing an important economic service. The fact of the matter is they're doing so in most cases, in most cases, for slave wages, and they're the tools of both organized labor, which is pandering to them, as well as U.S. multinationals who are exploiting them for their labor.

TONNA: I don't agree.

LEVY: You are absolutely right. My turn, Paul. You are absolutely right. Lou. And let me say that the overwhelming majority of the citizens and residents of this country, I think are pro- immigration as am I.

DOBBS: Absolutely, so am I.

LEVY: At the same time the anti-illegal immigration, and there's a big difference that a lot of the special interest, politically correct groups fail to recognize, and there has to be an enforcement. We are slowly encouraging people to work hard.

DOBBS: At the same time, isn't it ridiculous, if I may say it that way, pathetic, absurd, sad, that we have to ask local law enforcement to do that, which the U.S. federal law enforcement agents are not permitted to carry out?

TONNA: Yes.

LEVY: Yes, and one of the reasons they're not permitted is because elected officials throughout this country are scared to death to touch this issue because they're afraid they're going to be labeled as xenophobic and demonized which has happened too many times.

DOBBS: We're going to have to quit right there.

Paul Tonna, thank you. Steve Levy, thank you very much. We'll carry this on I'm sure in the months ahead.

Just ahead here. A disturbing new report says the United States is at risk of losing its lead as the world's economic superpower. Some say it has already lost that lead. We'll be talking about that and a great deal more with one of Wall Street's best known and respected economists Stephen Roach of Morgan Stanley.

And later the rising military power of China. James Lilley, former ambassador says it's a threat we should be watching carefully. I'll be talking with the ambassador and doing a lot more as well in the moments ahead. Stay with us.

(COMMERCIAL BREAK)

DOBBS: My next guest says China's rising military strength could well become a serious challenge to the United States over the next decade. James Lilley, U.S. ambassador to China between 1989 and 1991 now senior fellow at the American Enterprise Institute joining US from Washington, D.C. Good to have you with us.

JAMES LILLEY, FMR. U.S. AMBASSADOR TO CHINA: Thanks, Lou. DOBBS: The degree to which as we watch joint military exercises between China and Russia, that the United States and other powers in the world should be concerned?

LILLEY: Well, I think we should be concerned about the Chinese military buildup but I don't think we should be concerned about their exercises with the Russians. The Russians' military is very weak, very poor, very ill trained. The Chinese military is just getting there. I think the major thing to realize here is the Chinese cannot really challenge the United States on the sea, yet. They are building up their submarine force, they're building a nuclear submarine, getting multistage rockets for their land missile force. They're building these destroyers from Russia. They got real. They're getting specific weapons systems to deal with the United States.

DOBBS: And the Chinese government, although it has not given considerable note in the national media in this country is focused on achieving the highest level of technology. It is focused on raising the strength of its military, and the United States in watching this process, the last two administrations, the Bush and Clinton administrations have not taken on this issue with the Chinese for fear of disrupting trade. Is that a fair assessment?

LILLEY: I think we have kept the Chinese at arm's length, they would like nothing more than a full-blown military relationship with us like they had previously with Clinton people, and before that. They took advantage of us. They saw everything we had, we saw very little of what they had.

DOBBS: And as well, Ambassador, we're shipping some of our most advanced technology. We're turning over vast, vast elements of our productive capacity, our manufacturing base to the Chinese, this seems to me, at least, if one studies it somewhat objectively to look like a massive transfer of potential for wealth?

LILLEY: I think you can look at it that way. There's validity to that argument. I think on the other hand, we do not give Chinese our most advanced technology. They have to try to steal it as they did in Los Alamos and various other places. Also, we benefit a lot by selling them technology because they're going to get it anyway from the Japanese and Germans. It's a competitive game. So we do sell it. Also, I'd like to point out that the American businesses in China are doing well. Our businesses in China are expanding their effort, they're selling into the Chinese market. Our exports to China are going up faster than their exports to us. Also, they spend more money buying treasury certificates than they spend on their own military. I think we have got to watch this and keep it in perspective.

DOBBS: Can I ask you this because the CEOs with whom I've spoken and some of the country's largest corporations represented, say about 40 percent of them, will privately and honestly say they're very concerned about the level of their investment in China, which is massive, over the course of the past decade and they frankly don't know how they're going to repatriate their profits. They're very concerned about that. Is it a concern that you share? LILLEY: Yes, I do. It's always been a problem to repatriate profits because Chinese want you to take your profits and pour it back into China. But they also have terrible problems with their own financial system. They have a very corrupt system, they do not re -- allocate sources effectively. They have a number of problems in terms of managing their financial system, getting profit out of their very large savings rate and foreign exchange reserves. They have very serious problems and are very worried about it. They made these points very clear to us at the highest level in March this year.

DOBBS: Do you believe that this administration, and looking at this not in a partisan way, but this administration, because it happens to be in power is paying sufficient, sufficient attention to the rising political, economic, and military power of China and adopting and adjusting U.S. policy and strategy accordingly?

LILLEY: I don't think they have in the past first term. But I must say that they're taking on this problem right now, and they're going to put a major emphasis on it as far as I know. It's the old idea of getting the Chinese at the highest level, at the summit level. You've got to talk to them at the summit level and have very good specialists backing you up. I'm talking about the Nixon/Kissinger breakthrough. George Bush, Zbig Brzezinski, Brent Scowcroft, they really linked with the Chinese strategic dialogue. We got a lot of things done with them. And it seems to me we have got to work into that again with a reciprocal arrangement, not one-sided.

DOBBS: Well, one-sided it is right now. Thank you very much, Ambassador James Lilley. Come back soon.

LILLEY: All right.

DOBBS: Coming up next here, Exporting America. My next guest says we're outsourcing our nation's savings and our wealth. We can't continue to ship American jobs, he says, to those cheap overseas labor markets. I'll be joined by one of the country's top economists and thinkers. Morgan Stanley's Stephen Roach joins us. Stay with us.

(COMMERCIAL BREAK)

DOBBS: A warning tonight that the United States is losing its technological advantage to countries such as China and India. The Council on Competitiveness says America's ability to innovate is now on the decline, that our economic power is at risk. The group calls for more spending and research along with a cabinet level innovation czar. My next guest is concerned about the outsourcing of this nation from jobs to technology affecting our national savings rate.

Stephen Roach is chief economist at Morgan Stanley. Good to have you back.

STEPHEN ROACH, CHIEF ECONOMIST, MORGAN STANLEY: Good to see you, Lou.

DOBBS: The president said if we're worried about a trade deficit. $55.5 billion in October, well, we should just start buying more American product, sounds pretty reasonable to me.

ROACH: That's a total non-starter for me. It shows he doesn't have a clue about what's going on with our trade problem.

DOBBS: Or he just was annoyed with the issue itself.

ROACH: Possibly.

DOBBS: But I don't think that this administration, frankly, nor the one that preceded it has a clue about the trade deficit?

ROACH: No, to me, the trade deficit doesn't come out of thin air. It's symptomatic of a lot of forces coming into play. The most important one in my view is that America doesn't save anymore. When we don't save at home, we have to import savings from abroad to grow our economy, and we have the huge trade deficits to attract the capital.

DOBBS: You, as one of the most respected economists in the country, I expect to you say that. Because that sounds like what an economist would say.

ROACH: Sure.

DOBBS: The fact is we're buying nearly every principal staple from overseas producers. Clothing, 96 percent of it is imported. We have to spend that money, Wal-Mart is the third leading export market for China.

ROACH: Sure.

DOBBS: We have become a country that looks as though it has an insufficient manufacturing base. The Council on Competitiveness talking about our lack of innovation. Importing $2.6 billion a day in foreign capital, where in the world are we headed?

ROACH: Well, we're headed for a, number one, a manufacturing base that is going off the charts. As I look at manufacturing today less than 11 percent of our workforce is in manufacturing, less than 14 percent of our labor income is made in the manufacturing sector. These shares are down 40 percent from the mid 1980s and they're headed off the bottom of any chart you draw.

DOBBS: What in the world are we to do?

Are we to embrace this new changed world and say everything is fine, or is there a place here, a proper place for public policy that says we're going to make some changes, embrace a future with a definitive strategy and a plan, imagine that.

ROACH: Well, you spoke, when you were introducing me about this new report from the Council on Competitiveness. Ultimately, it's about innovation and pushing the envelope in new products, new markets, new concepts. We seem to be losing our way in that regard.

I mean, Chinese company just bought the IBM PC manufacturer. What's next?

DOBBS: Well, I found that to be just an amazing moment. I mean, about 70 percent of all of our -- many people trying to rationalize the idiotic so called free trade policies that have left 28 consecutive years of trade deficits, try to say we're a technology and services economy. Therefore, we can rationalize almost any kind of idiotic result and painful result. The truth is that 70 percent of our computers and our technological infrastructure is produced overseas as well. Where does that leave us?

ROACH: Well, it does leave us sort of stuck with this concept that, well, we're a special knowledge-based service, white collar economy, and we're shielded from them. But, of course, you go to Bangalore, I was there a couple of months ago, and they're moving up the value chain doing all this knowledge work we used to do so well on our own as well.

DOBBS: I wish we had that cart -- do we have the cartoon? Let me ask the producers a question. Do we have that cartoon? It's a wonderful cartoon to sort of wrap this up, Steve. If we could put that up, I'm told it's coming up right now. Suggesting -- it's Santa reporting, if you will, from Bangalore and the caption saying now, we've outsourced even Santa Claus. This has moved to a level that's concerning for all of us except those making the decisions, large U.S. multinationals, of course, and elected representatives in the White House and Washington. Any prospect of a change?

ROACH: Well, I think the issues are on the table. People are worried about imbalances. To me, the best thing we can do out of Washington is get control over our budget deficit and savings rate. And then at least we don't have to outsource our savings to our overseas creditors.

DOBBS: I look at it from a very primitive level, of course, as a television journalist. I'd like to see us stop outsourcing those jobs and start take care of the middle class of this country, which I look upon as having far more importance in the foundation of the country and its future than even savings rates.

Steve Roach, as always, good to see you.

ROACH: Good to see you, Lou. Thanks.

DOBBS: Still ahead here, we'll have the results of "Tonight's Poll" and the preview of what's ahead tomorrow. Please, stay with us.

(COMMERCIAL BREAK)

DOBBS: The results of our poll, 15 percent of you say it's offensive to wish someone a merry Christmas, 85 percent do not.

Thanks for being with us tonight, please join us here tomorrow Robert Reich, author of "Reason, Why Liberals Will Win the Battle For America" is our guest. We'll find out how that's going to happen. We hope you'll be with us. For all of us here, good night from New York. "ANDERSON COOPER 360" coming up next on CNN. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com


Aired December 15, 2004 - 18:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEOTAPE)
LOU DOBBS, HOST (voice-over): Tonight, President Bush's second term political agenda is being threatened by some of his key allies.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We have a problem. Let's work together to deal with it.

DOBBS: We're engaged in a global war on terror. Three million illegal aliens will enter the country this year. So why isn't our government taking border security seriously?

UNIDENTIFIED MALE: It's taken more time to build just 14 miles of fence than it did to win World War II.

DOBBS: Tonight, we'll have a special report from the Tijuana River Valley in California.

And tonight, a debate on whether local police should be able to enforce immigration laws, arrest and deport illegal aliens. That's our "Face-Off" tonight.

And red star rising. We're exporting our wealth to China. Beijing is using that money to build up its military. Former U.S. ambassador to China, James Lilley, is our guest.

(END VIDEOTAPE)

ANNOUNCER: This is LOU DOBBS TONIGHT for Wednesday December 15. Here now for an hour of news, debate and opinion is Lou Dobbs.

DOBBS: Good evening.

Tonight, some of President Bush's closest allies are expressing deep concern about critical elements of his second term agenda. Several influential groups that once supported the president are now challenging some of his proposals to reform Social Security, the federal tax code and medical liability laws.

Today, President Bush declared that he will push ahead with his bold plans.

White House correspondent Dana Bash reports. (BEGIN VIDEOTAPE)

DANA BASH, CNN CORRESPONDENT (voice-over): Even with the Italian prime minister, the president talks up a top domestic priority, reforming Social Security, saying his reelection should quiet critics of his plan to create private retirement accounts for younger Americans.

BUSH: In the 2000 campaign, in the 2004 campaign, I took the message to them. They realized, like I realized, now's the time to deal with the problem.

BASH: The White House is putting on a carefully orchestrated invitation-only summit for policy and business leaders to talk up the economy.

LARRY MOCHA, PRESIDENT, AIR POWER SYSTEMS: This past year, we've had one of the most successful years we've had since the '90s.

BASH: No new policy ideas here. It's the start of a P.R. campaign for everything from the vague Bush vow to reform the tax code to the more immediate promise to curb lawsuits.

BUSH: We expect the House and the Senate to pass meaningful liability reform on asbestos, on class action and medical liability.

BASH: But it's tackling Social Security that's been stirring up the most emotion. The president insists he wants to reach across party lines.

BUSH: We have a problem. Let's work together to deal with it.

BASH: But many Democrats disagree with Mr. Bush on the scope of the problem, pointing to these figures. Social Security's trustees estimate the program won't go broke until 2042. And even then, they say recipients still get 73 percent of their benefits.

PETER ORZAG, FORMER CLINTON ECONOMIC ADVISOR: The administration is talking up the problem, or exaggerating the problem in order to build its case for private accounts. But exaggerating the size of the problem is not the way to get reform.

BASH: The White House has yet to unveil specifics on private accounts but admits it will have to borrow to pay for it. That, some insist, jeopardizes the president's promise to cut the deficit in half in five years.

And what about the $55 billion trade deficit? For that, Mr. Bush did offer a solution.

BUSH: That's easy to resolve, people can buy more United States products if they're worried about the trade deficit.

(END VIDEOTAPE)

BASH: And beyond that quip of the Oval Office, there was no discussion at the summit of exactly how the president plans to shrink that trade deficit, nor was there talk of exactly how he plans to fulfill his plans to cut the federal deficit.

Many look at his ambitious agenda, things like reforming Social Security, making tax cuts permanent, and wonder exactly how he'll get to that goal -- Lou.

DOBBS: Dana, for a second there, I thought the president must have been paying close attention to this broadcast, encouraging people to buy U.S. made products. Was he being petulant or profound in the comment?

BASH: Well, you know, I was just talking to an administration official, asking exactly what he meant by that, and essentially, I was told that he meant that he is for free trade, and that he believes that the more people -- this is what I was told. The more people buy U.S. products, not just here but around the world, the better it is for U.S. companies.

DOBBS: It's absolutely true, certainly the second part of that. But a lot of interpretation of what were really very few words. Dana Bash, thank you very much.

Some of this country's most powerful lobby groups have reversed course and are now criticizing key elements of the president's agenda. Several leading conservatives in Congress are also concerned the president may be unable to cut the federal government's massive federal deficit.

Lisa Sylvester reports.

(BEGIN VIDEOTAPE)

LISA SYLVESTER, CNN CORRESPONDENT (voice-over): President Bush wants to make tax cuts permanent and privatize Social Security, but even members of his own party are not sure how to square the president's ambitious plan with rising deficits.

REP. MICHAEL CASTLE (R), DELAWARE: The bottom line is that no matter what theory you use, in the last several years, this debt has been increasing at levels that, in my judgment, are quite unacceptable.

SYLVESTER: The trade deficit hit a monthly record of $55.5 billion in October. The current account deficit and the budget deficits are also at record levels.

At the same time, the dollar has been skidding downward, and the president's plan to reform Social Security could cost up to $2 trillion in the first decade.

Treasury Secretary John Snow argues the president can meet his goals and still slash the deficit.

JOHN SNOW, TREASURY SECRETARY: Well, you do that by growing the economy and tight control on spending. All of our budget forecasts, which call for cutting the deficit in half over the course of the next five years, include making the tax cuts permanent.

SYLVESTER: But many fiscal conservatives think the administration is dreaming if it thinks it can reform Social Security, cut taxes, pay for the war in Iraq and still cut the deficit in half.

ROBERT BIXBY, CONCORD COALITION: We need to start confronting the hard choice, not pretend that everything is an easy answer, not pretend that debt is the only answer. Because ultimately, you know, the miracle of compound interest becomes a nightmare.

SYLVESTER: Pushing his agenda through Congress will be difficult. Powerful lobbying groups like the AARP, which backed the president's plan to overhaul Medicare, are not supporting Social Security reform.

(END VIDEOTAPE)

SYLVESTER: The United States has a number of long-term financial obligations, including the war in Iraq and a new Medicare prescription drug benefit that has not fully kicked in yet, and the Baby Boomers will begin to retire in the next five years -- Lou.

DOBBS: Lisa, thank you very much. Lisa Sylvester.

President Bush today warned Syria and Iran to keep out of Iraq's internal affairs. President Bush said Iraq's neighbors should help enforce border security ahead of Iraq's election at the end of January.

The Army today said it will spend more than $4 billion in the coming months to send more armored Humvees into Iraq. Officials rejected criticism that the Army has been slow to raise production.

One general said, quote, "This is not Wal-Mart," end quote.

And the Iraqi government today asked some of Saddam Hussein's former soldiers to return to uniform. The Iraqi defense ministry wants troops from the old transport corps to serve in Iraq's new army.

New developments tonight in the widening investigations into the multibillion-dollar United Nations oil-for-food scandal. The Securities and Exchange Commission has ordered three leading companies to surrender documents relating to their dealings with the U.N. program.

Bill Tucker reports.

(BEGIN VIDEOTAPE)

BILL TUCKER, CNN CORRESPONDENT (voice-over): Tyco International ordered by the Securities and Exchange Commission to surrender any information on its participation in the U.N. oil-for-food program. The interest in Tyco not unique.

Pharmaceutical company Wyeth also confirming that it received a similar request from the SEC. And in a filing in late November El Paso says that the Securities and Exchange Commission contacted it about records related to any dealing in Iraq with Coastal Oil, which El Paso bought in 2001.

The companies are not commenting on why the SEC is interested. Tyco says it is gathering information and will fully cooperate. No indication of what dealings they might have had, except that the company does produce oil pipeline controls, as well as medical supplies.

Wyeth has disclosed it sold drugs and nutritional products to Iraq.

El Paso, it bought Iraqi oil. So did Chevron and Exxon Mobil. That doesn't mean that there was any wrongdoing.

FADEL GHETT, OIL ANALYST, OPPENHEIMER: Most companies operated through a third party. They have, really, no direct connection with the Iraqi government.

TUCKER: Between the SEC, the Department of Justice, Congress and the U.N. itself, there are some half a dozen investigations into the corruption of the oil-for-food program and the paths that corruption might have taken.

(END VIDEOTAPE)

TUCKER: Bottom line here is there are lots of investigations, Lou, but there is nary a deadline in sight to any of those ongoing investigations.

DOBBS: Not a deadline, but certainly a few important dates. Amongst those, January, when we get an interim report from the Volcker investigation, and Senator Norm Coleman and Senator Carl Levin making it clear that those dates are going to come due quickly in the course of the beginning of the new year.

Thank you very much, Bill Tucker.

Well, medical researchers tonight are questioning the government's policy on how to tackle an anthrax attack that could kill millions of Americans. The federal government is spending nearly a billion dollars on a program to vaccinate Americans against anthrax.

But a new study says it would be far more effective to inoculate Americans after an attack.

Bob Franken reports.

(BEGIN VIDEOTAPE)

BOB FRANKEN, CNN CORRESPONDENT (voice-over): No one has to convince postal worker Leroy Richmond that antibiotics can work against anthrax. He's living proof.

LEROY RICHMOND, ANTHRAX SURVIVOR: Immediately, they put me on Cipro. And then they put me on doctyclin (ph), two powerful antibiotics.

FRANKEN (on camera): Richmond survived the anthrax that contaminated this building. Five died in a series of attacks. The government would like to vaccinate 25 million.

(voice-over): But a study suggests that a new generation inoculation might be much more effective after contamination, still relying on the antibiotics.

UNIDENTIFIED MALE: Our research shows that if we could get antibiotics to people within six days of exposure to the anthrax, we could prevent 70 percent of cases.

FRANKEN: Many leading health officials criticize the fact that the response to another anthrax attack remains still in the talking stage.

JEROME HAUER, RESPONSE TO EMERGENCIES AND DISASTERS INSTITUTE: How are we going to explain to the American people that three, four or five years after September 11, we have done very little to better prepare our nation when it comes to countermeasures for threat agents.

FRANKEN: But government officials insist they're doing all they can.

LANCE BROOKS, DEPARTMENT OF HOMELAND SECURITY: Our strategy currently is geared towards early detection of such events and, as quickly and rapidly as possible, mobilizing a national stockpile.

FRANKEN: The key, experts say, is a quick diagnosis.

DR. JAMES CAMPBELL, UNIVERSITY OF MARYLAND MEDICAL SCHOOL: Most cases, when people become ill with anthrax, inhalational anthrax, you don't recognize it as anthrax right away.

UNIDENTIFIED MALE: There has to be a definitive test. When you go in, say you have a cold, they can test to make sure it's a cold and nothing other than that, other than the fact that you're feeling bad.

(END VIDEOTAPE)

FRANKEN: Leroy Richmond can only hope that the country learns from his experience, but, Lou, never has to share it.

DOBBS: Absolutely. But, Bob, implicit in your report is the suggestion that all of the servicemen who have been inoculated for anthrax, that that's entirely unnecessary and that the better treatment is actually post-attack, if you will?

FRANKEN: Well, that could be. One of the things I should point out is that this new version of the inoculation they're talking about has not been fully tested yet, so this is all highly speculative at this point.

DOBBS: Bob Franken -- thank you very much -- reporting tonight from Washington. New concerns tonight about security at our nation's airports. That's after a fake bomb made it past security at Newark International Airport and on to a Continental Airlines flight that was headed for Amsterdam. What is even worse, baggage inspectors flagged the bag at first, then they lost it.

The Transportation Security Administration says the mock explosives were part of a training exercise and never endangered any passengers. The bag was recovered in Amsterdam. We presume that the baggage handlers and screeners flunked the test.

The security failure comes less than two weeks after French authorities lost a test bag containing real explosives at a Paris airport. French officials say they still have no idea where in the world -- literally -- those explosives now are.

Still ahead here, our borders are wide open to illegal aliens and potential terrorists. So why can't the federal government secure our borders? We'll have a special report.

And "Red Star Rising." China has put hundreds of thousands of American textile workers out of work. We're exporting our wealth to China and to other places. We'll have a special report. And former U.S. ambassador to China, James Lilley, will join us here.

Stay with us.

(COMMERCIAL BREAK)

DOBBS: In "Broken Borders" tonight, political red tape and bureaucracy are putting American lives at risk. Eight years ago, Congress and the Clinton administration approved plans to reinforce a fence at one of the most vulnerable points along the U.S./Mexican border. Incredibly, a critical four-mile long section of that fence remains unbuilt.

Peter Viles reports from the Tijuana River Valley in California.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): The old fence, 14 miles of salvaged metal, was a stopgap measure to block the favorite path of Mexican drug smugglers and illegal aliens, and it worked. Illegal traffic dropped dramatically.

But then powerful Congressman Duncan Hunter convinced the Clinton administration to build a real barrier, a second fence that cannot be cut or climbed. That was eight years ago.

The original fence falling apart in places and still four miles of that secondary fence have not been built.

GARY BECKS, AIDE TO U.S. REPRESENTATIVE DUNCAN HUNTER: It's taken more time to build this 14 miles of fence than it did to win World War II. VILES: The stick pointing point, environmental laws, endangered species of plants and birds, even claims the fence would disrupt Indian artifacts, such as these seashell fragments.

BECKS: Seashells laying in the dirt. Give me a break.

VILES (on camera): The fence debate comes down to this: Could Homeland Security simply fix this 10-year-old steel fence, or does it need to fill in some of these canyons to build 150-foot corridor with a patrol road along the border and a second fence inside the border?

(voice-over): The government believes that corridor is crucial, making the border easier to patrol and discouraging people like these guys for making a run for it. The House voted this fall to temporarily waive all environmental laws to finish the second fence.

But the Senate wouldn't go along, and environmentalists are digging in, saying this small corner of coastal mesas and canyons must be preserved.

GREG ABBOTT, CALIFORNIA PARKS & RECREATION: To have a little mesa some distance from the ocean with this sandy bay point soil is extremely rare. There's a whole little plant community to the West here that you won't find anywhere else in the United States.

VILES: There's also a border crisis here that effects every person in the United States.

Peter Viles, CNN, in the Tijuana River Valley, California.

(END VIDEOTAPE)

DOBBS: We'll have much more on the immigration crisis in this country later in the broadcast. In tonight's "Face Off," two officials will debate whether local police should be empowered to enforce our immigration laws, arrest and deport illegal aliens. That debate coming up here.

And now our special report on the rising influential of China politically, economically and militarily. The Chinese textile industry and its flood of cheap imports have already put hundreds of thousands of Americans out of work. Now global quotas on textiles will expire next month, only boosting China's dominance in the world market.

Senior Asia Correspondent Mike Chinoy reports.

(BEGIN VIDEOTAPE)

MIKE CHINOY, CNN SENIOR ASIA CORRESPONDENT (voice-over): There are 5,000 of them working 10 hours a day, six days a week, making clothes for brands like Liz Claiborne and Adidas earning an average of $73 a month. For 22-year-old Lu Chun Siya (ph) just up from the impoverished Chinese countryside, it's a fortune.

"I'm happy with this job," she says. "It helps me support my parents back in the village."

With the end of textile quotas, a combination of low-cost labor and ruthless efficiency looks set to make the "Made in China" label dominant all over the world.

HENRY TAN, LUEN THAI GOVERNMENT FACTORY: This is a new production item that we just sell about two months ago, and, basically, we are using new machinery, new technology and new engineering with manufacturing the garment.

CHINOY (on camera): But if China is where you find the winners in the global textile revolution, increasingly, the losers are going to be found in the United States.

(voice-over): Workers at this textile mill in Fort Payne, Alabama, which bills itself as the sock capital of the world are paid more in a day than Lu Chun Siya (ph) earns in a month.

TAMMY YOUNG, TEXTILE WORKER: I'm afraid that one day that I will lose my job because I don't feel like we can compete with China.

CHINOY: Even with China's recently announced self-imposed tariffs, company executives acknowledge they can't fight the Chinese export machine.

BOBBY COLE, PRESIDENT, PREWETT ASSOCIATED MILLS: We've got to take care of our customer, we've got to take care of our sales, and, if it requires us to import from China, then we're prepared to do that.

CHINOY: And the Chinese are ready. Henry Tan is tripling his workforce here and building another factory nearby. It will employ 20,000 people.

Mike Chinoy, CNN, Dongyang, China.

(END VIDEOTAPE)

DOBBS: We'll have much more here on the rise of China tonight. Former U.S. Ambassador James Lilley will join us.

Coming up next, outrage over what somewhere calling a very PC Christmas in too many places. Retailers who depend on something called a Christmas shopping season are encouraging their employees to say seasons greetings, happy holidays, instead of merry Christmas. We'll have that unbelievable story coming up next.

And then, the battle over illegal aliens living in one American community. Two county officials with very different views on the invasion face off here tonight.

(COMMERCIAL BREAK)

DOBBS: Tonight, growing outrage around the country about what many Americans say is missing from Christmas this season. Christmas. Retailers especially shunning the name of the holiday, at the same time they're hoping to gain mightily from the very same holiday.

Christine Romans has the report.

(BEGIN VIDEOTAPE)

ACTOR: What would you like me to bring you for Christmas?

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT (voice-over): This movie forever linked Macy's with Christmas. But on 34th Street these days, you're more likely to hear seasons greetings or happy holidays.

MANUEL ZAMORANO, COMMITTEE TO SAVE MERRY CHRISTMAS: When did Christmas become politically incorrect? Who decided that saying merry Christmas is wrong? It's a national holiday observed by the overwhelming majority of people in this country. Who said it was wrong?

ROMANS: The Committee to Save Merry Christmas is urging a boycott of Macy's. It says the retailer in recent years has systematically stripped the word "Christmas" from its stores and advertising, allowing political correctness to run amok.

Macy's says it doesn't ban Christmas. Witness Santa in Macy's Thanksgiving Day parade and all of its holiday decorations, but the company says the phrases "seasons greetings" and "happy holidays" embrace all religious and ethnic celebrations that take place in November and December and "these expressions of goodwill are more reflective of the multicultural society in which we live today."

SCOTT KRUGMAN, NATIONAL RETAIL FEDERATION: Retailers understand over the past 10 years or so their customers have become more diverse, celebrating multiple holidays this time of year. In order to acknowledge that, retailers have come up with one message and the simple message of happy holidays.

ROMANS: Happy and profitable holidays. Up to 40 percent of retailers' profit is earned between Thanksgiving and New Year's.

(END VIDEOTAPE)

ROMANS: Lou, Macy's is adamant it's not trying to offend anyone, just the opposite. It's doing just what other businesses do, retail and otherwise. It's trying very hard not to exclude anyone. That's why seasons greetings, happy holidays is better.

DOBBS: Well, they've just excluded everyone who is celebrating Christmas, which is, after all, the foundation of the so-called season in which they make most of their profits.

ROMANS: Moving definitely toward not offending anyone.

DOBBS: You know, when you think about it, happy holidays -- what other holidays are we celebrating right now? We're celebrating Christmas, right?

ROMANS: And they say Hanukkah, Kwanzaa... DOBBS: Kwanzaa.

ROMANS: ... also the end of Ramadan and a host of other holidays between Thanksgiving and New Year's.

DOBBS: But as we celebrate each one of those -- and each of us in this very diverse society does celebrate -- my Jewish friends say to me happy Hanukkah, I say to them merry Christmas, none of us is offended. I don't understand the reluctance to use Christmas.

ROMANS: They say happy holidays covers it all.

DOBBS: They do? Well, they're wrong. And merry Christmas. Thanks, Christine.

That brings us to the subject of our poll tonight: Do you think it's offensive to wish someone a merry Christmas? Yes or no. Cast your vote at loudobbs.com. We'll bring you results later in the show.

And save those e-mails. I'm absolutely intractable on this issue.

Coming up next, your thoughts on the critically acclaimed documentary "Farmingbill," and the immigration crisis that has gripped communities all across this country.

And then, should local police have the power to enforce federal immigration laws? Suffolk County executive Steve Levy, Suffolk County legislator Paul Tonna face off in our debate tonight.

Also ahead here, "Red Star Rising," exporting our wealth to China. Former U.S. ambassador to China James Lilley says Chinese military might could become a significant challenge to the United States in the very near future.

Stay with us.

(COMMERCIAL BREAK)

ANNOUNCER: LOU DOBBS TONIGHT continues. Here now for more news, debate and opinion, Lou Dobbs.

DOBBS: In just a moment, we'll be debating in tonight's "Face- Off," an element at least, of the immigration crisis, an important element, at the community level and the critical role that local law enforcement could be playing in the fight against illegal aliens. But first, a look at some of the day's top stories tonight.

A hostage crisis on a Greek commuter bus has ended peacefully just moments ago. Two gunmen surrendered to police in Athens, all 6 remaining hostages were released. They were all unharmed. The two hostage-takers, believed to be Albanian, had threatened to blow up the bus by tomorrow morning if their demands were not met. The hijackers were demanding more than a million dollars, safe passage as well to Russia. At least 16 other hostages were released earlier in the day unharmed. Time Warner reached an agreement with the Justice Department today to settle charges of accounting fraud at the company's AOL division. Time Warner, the parent company of this network, agreeing to pay $60 million in fines, $150 million to a compensation fund. The company also proposing a settlement with the SEC Commission in the amount of $300 million, the full commission yet to approve that tentative agreement.

Sprint today announced a deal to buy Nextel Communications. The merger will create the third largest wireless company behind Cingular and Verizon.

And the Federal Communication Commission today took the first step toward lifting the ban on cell phone use on airplanes. Are you ready? Regulators voting to solicit comments from the public about ending the ban. Can't wait to see those comments. Federal Aviation Administration administrators, however, are still concerned about the safety of cell phone use on aircraft. No decision will be made until a safety study is completed. That not expected for another 2 years. The FCC also voted to approve wireless Internet access on airplanes.

Turning now to the issue that has divided many communities all across the country and is largely ignored by most lawmakers in Washington. That is the invasion of three million illegal aliens into this country this year.

Last night we featured the critically acclaimed documentary "Farmingville" which looks at how illegal immigration divided community of Farmingville, New York. In tonight's "Face-off" two men at the center of the fight in New York Suffolk County join us.

Steve Levy is the Suffolk County executive. Levy has called for better cooperation between local police and federal authorities when it comes to managing the immigration crisis.

Paul Tonna, a Suffolk County legislator is featured in the documentary "Farmingville" and he says Steve Levy has created a climate of fear in the Latino community.

Gentlemen, we thank you both for being here. Let me turn first to you, Paul.

PAUL TONNA, SUFFOLK COUNTY LEGISLATOR: Sure.

DOBBS: What is the problem with expecting and insisting, in point of fact, that local law enforcement enforce immigration laws?

TONNA: There's a number of things that are wrong. The very first thing is that local law enforcement is there to protect its residents, there to protect the people that are there. And that means build rapport with the local community. If we have day laborers, undocumented people who feel threatened, or feel that they might be deported if they're going to speak about a crime, child abuse, wife battering, anything else, if they feel a climate of fear that they're going to be deported by giving local law enforcement information about criminal activity, then Suffolk County residents are going to be less safe, more unsafe.

DOBBS: What, Steve, do you disagree with Paul on that issue?

STEVE LEVY, (D) COUNTY EXECUTIVE SUFFOLK COUNTY: Well, there's nothing in the policy that we're talking about that would require that people who are victims of crime tell of their documented status. We're not interested in that. We're interested in those individuals who are here illegally and committing serious crimes. It's a major, major difference.

DOBBS: A major difference, but the effect could well be the same. I suppose...

LEVY: Oh, not at all. Where is the data first of all, Lou.

DOBBS: No, please.

LEVY: Where is the data that there is all this information coming forward from undocumented people to crack all of these cases? And secondly, you know, there are a number of drug dealers all the time who are giving tips to our police to go after another individual. Well that's fine, but that doesn't mean that the police now stop enforcing the law on the underlying crack problem that we might have in a community.

TONNA: Well, the data comes from our local law enforcement agencies. It's our law enforcement agencies who have said and identified this as a very, very bad idea for local police.

LEVY: No.

TONNA: To come up with this.

LEVY: Not at all.

TONNA: The other problem this is not an initiative that is put forth by sheriff's office, the district attorney's office, by the police. This is an initiative that has been put together and proposed by our county executive. The problem I see...

LEVY: If I can...

TONNA: You'll get a chance, Steve. We'll always have a time.

The problem is we're not recognizing the real problem, which is there is a large group of people who are contributing to our local economy. We have 3.7 percent unemployment in Suffolk County. You know, if we're going to be consistent, we have this underground slave labor class of people, who come here, who have an American dream about putting their blood, their sweat and their tears to be able to work and to get something done for their families. That's the problem.

DOBBS: Steve? That's the problem of the process.

LEVY: First of all, Lou. It's not law enforcement that is opposing this proposal. It's a specific police union, the correction union is very much supportive, our probation department commissioner and our police chief are all in agreement that they've had a very, very difficult time getting coordination with federal officials to find out the documented status of these individuals and that's...

DOBBS: What if I tell you that I disagree with you both on this. Since when should law enforcement be deciding which laws it enforces? Why isn't the county executive, why isn't the county legislature deal with this issue and telling law enforcement to enforce laws, period.

TONNA: You know why? Because it's a just nuance of a law. We're talking about a civil offense. We have real crime in Suffolk County, like anywhere else. That's where we need to put our resources. This proposal has basically juxtaposed and put the -- created the impression that their is some type of crime wave with undocumented workers in the Latino community, which is absolutely not true. It sets a really bad precedent.

DOBBS: That makes a lot of sense, Steve. What is your reaction to that?

LEVY: Lou, I am the one seeking to enforce the law. I am the one who's saying that when an individual is committing a serious crime here in Suffolk County, that we don't look the other way and don't give information -- let me finish now, Paul.

What's happening right now, an individual committed a crime, a judge is not even getting information before they're setting bail as to the documented status of that individual.

Let me state emphatically that this is not targeting a day laborer, it's not targeting people who work hard, but the mere fact that you work hard does not mean that we in this government or in a national government should stop enforcing our immigration or our labor laws or our local housing codes. They are two very separate issues.

DOBBS: Is it fair to say, gentlemen, that this discussion between the county executive and a county legislator would not be existing if the United States federal government was enforcing border security, and carrying out faithfully existing immigration law?

TONNA: I want to nuance that. The fact is that the stricter the immigration laws, the more abuse that you have. And it's the failure to recognize -- it's like prohibition.

DOBBS: That's not nuancing it, Paul. That's turning it on its head. Because nuance is how we got here.

TONNA: We would have better border security if the federal government lived up to their responsibility and said we have antiquated ideas and we need to change federal immigration laws.

DOBBS: Steve?

LEVY: Well, Lou, Paul and I will both agree that this emanates from a lack of will and resources at the federal government.

TONNA: Absolutely.

LEVY: That is exactly why in 1996 Congress passed the Immigration Reform Act, which actually prided local governments and states to work in cooperation with the federal government. The federal government has 2,000 to 3,000 agents to cover this entire nation. There are 650,000 local law enforcement people who can help in this regard.

DOBBS: So, if you both agree that if we had proper, proper border security.

TONNA: No, no, no, no.

DOBBS: No?

TONNA: No. If we had proper immigration laws.

DOBBS: Can you have proper immigration laws without being able to enforce the borders?

TONNA: They go hand in hand.

DOBBS: No, no, no, no. I really got to insist this time before you get off on the nuance. Here's the real deal. And so let's cut through all of the nonsense, you cannot have immigration laws that work, no matter how liberal or how conservative, if you cannot enforce the security of your border?

TONNA: I would say that if you had proper functional laws, you would be able to do a much better job with border security. Why? Because people would be able to come here...

DOBBS: What is your resistance to border security, Paul?

TONNA: It's not. It's not a resistance.

DOBBS: Then why can't we all agree? Why can't we all agree? Why is there this resistance to say we've got have security at our borders, particularly in a period of a global war on terror?

TONNA: Because there is total denial of the fact that we have a huge need for this pool of workers. And if we had good federal immigration laws, where people could legally be processed, where people could have temporary visas to come and go back and forth, we would have better border security.

DOBBS: You're fighting the wrong war here, Steve. and I don't know if you are as well. The fact of the matter is -- let me finish the question and give me an answer.

TONNA: Sure, sure.

DOBBS: Here's the question. No one is suggesting that undocumented workers who are working productively here aren't providing an important economic service. The fact of the matter is they're doing so in most cases, in most cases, for slave wages, and they're the tools of both organized labor, which is pandering to them, as well as U.S. multinationals who are exploiting them for their labor.

TONNA: I don't agree.

LEVY: You are absolutely right. My turn, Paul. You are absolutely right. Lou. And let me say that the overwhelming majority of the citizens and residents of this country, I think are pro- immigration as am I.

DOBBS: Absolutely, so am I.

LEVY: At the same time the anti-illegal immigration, and there's a big difference that a lot of the special interest, politically correct groups fail to recognize, and there has to be an enforcement. We are slowly encouraging people to work hard.

DOBBS: At the same time, isn't it ridiculous, if I may say it that way, pathetic, absurd, sad, that we have to ask local law enforcement to do that, which the U.S. federal law enforcement agents are not permitted to carry out?

TONNA: Yes.

LEVY: Yes, and one of the reasons they're not permitted is because elected officials throughout this country are scared to death to touch this issue because they're afraid they're going to be labeled as xenophobic and demonized which has happened too many times.

DOBBS: We're going to have to quit right there.

Paul Tonna, thank you. Steve Levy, thank you very much. We'll carry this on I'm sure in the months ahead.

Just ahead here. A disturbing new report says the United States is at risk of losing its lead as the world's economic superpower. Some say it has already lost that lead. We'll be talking about that and a great deal more with one of Wall Street's best known and respected economists Stephen Roach of Morgan Stanley.

And later the rising military power of China. James Lilley, former ambassador says it's a threat we should be watching carefully. I'll be talking with the ambassador and doing a lot more as well in the moments ahead. Stay with us.

(COMMERCIAL BREAK)

DOBBS: My next guest says China's rising military strength could well become a serious challenge to the United States over the next decade. James Lilley, U.S. ambassador to China between 1989 and 1991 now senior fellow at the American Enterprise Institute joining US from Washington, D.C. Good to have you with us.

JAMES LILLEY, FMR. U.S. AMBASSADOR TO CHINA: Thanks, Lou. DOBBS: The degree to which as we watch joint military exercises between China and Russia, that the United States and other powers in the world should be concerned?

LILLEY: Well, I think we should be concerned about the Chinese military buildup but I don't think we should be concerned about their exercises with the Russians. The Russians' military is very weak, very poor, very ill trained. The Chinese military is just getting there. I think the major thing to realize here is the Chinese cannot really challenge the United States on the sea, yet. They are building up their submarine force, they're building a nuclear submarine, getting multistage rockets for their land missile force. They're building these destroyers from Russia. They got real. They're getting specific weapons systems to deal with the United States.

DOBBS: And the Chinese government, although it has not given considerable note in the national media in this country is focused on achieving the highest level of technology. It is focused on raising the strength of its military, and the United States in watching this process, the last two administrations, the Bush and Clinton administrations have not taken on this issue with the Chinese for fear of disrupting trade. Is that a fair assessment?

LILLEY: I think we have kept the Chinese at arm's length, they would like nothing more than a full-blown military relationship with us like they had previously with Clinton people, and before that. They took advantage of us. They saw everything we had, we saw very little of what they had.

DOBBS: And as well, Ambassador, we're shipping some of our most advanced technology. We're turning over vast, vast elements of our productive capacity, our manufacturing base to the Chinese, this seems to me, at least, if one studies it somewhat objectively to look like a massive transfer of potential for wealth?

LILLEY: I think you can look at it that way. There's validity to that argument. I think on the other hand, we do not give Chinese our most advanced technology. They have to try to steal it as they did in Los Alamos and various other places. Also, we benefit a lot by selling them technology because they're going to get it anyway from the Japanese and Germans. It's a competitive game. So we do sell it. Also, I'd like to point out that the American businesses in China are doing well. Our businesses in China are expanding their effort, they're selling into the Chinese market. Our exports to China are going up faster than their exports to us. Also, they spend more money buying treasury certificates than they spend on their own military. I think we have got to watch this and keep it in perspective.

DOBBS: Can I ask you this because the CEOs with whom I've spoken and some of the country's largest corporations represented, say about 40 percent of them, will privately and honestly say they're very concerned about the level of their investment in China, which is massive, over the course of the past decade and they frankly don't know how they're going to repatriate their profits. They're very concerned about that. Is it a concern that you share? LILLEY: Yes, I do. It's always been a problem to repatriate profits because Chinese want you to take your profits and pour it back into China. But they also have terrible problems with their own financial system. They have a very corrupt system, they do not re -- allocate sources effectively. They have a number of problems in terms of managing their financial system, getting profit out of their very large savings rate and foreign exchange reserves. They have very serious problems and are very worried about it. They made these points very clear to us at the highest level in March this year.

DOBBS: Do you believe that this administration, and looking at this not in a partisan way, but this administration, because it happens to be in power is paying sufficient, sufficient attention to the rising political, economic, and military power of China and adopting and adjusting U.S. policy and strategy accordingly?

LILLEY: I don't think they have in the past first term. But I must say that they're taking on this problem right now, and they're going to put a major emphasis on it as far as I know. It's the old idea of getting the Chinese at the highest level, at the summit level. You've got to talk to them at the summit level and have very good specialists backing you up. I'm talking about the Nixon/Kissinger breakthrough. George Bush, Zbig Brzezinski, Brent Scowcroft, they really linked with the Chinese strategic dialogue. We got a lot of things done with them. And it seems to me we have got to work into that again with a reciprocal arrangement, not one-sided.

DOBBS: Well, one-sided it is right now. Thank you very much, Ambassador James Lilley. Come back soon.

LILLEY: All right.

DOBBS: Coming up next here, Exporting America. My next guest says we're outsourcing our nation's savings and our wealth. We can't continue to ship American jobs, he says, to those cheap overseas labor markets. I'll be joined by one of the country's top economists and thinkers. Morgan Stanley's Stephen Roach joins us. Stay with us.

(COMMERCIAL BREAK)

DOBBS: A warning tonight that the United States is losing its technological advantage to countries such as China and India. The Council on Competitiveness says America's ability to innovate is now on the decline, that our economic power is at risk. The group calls for more spending and research along with a cabinet level innovation czar. My next guest is concerned about the outsourcing of this nation from jobs to technology affecting our national savings rate.

Stephen Roach is chief economist at Morgan Stanley. Good to have you back.

STEPHEN ROACH, CHIEF ECONOMIST, MORGAN STANLEY: Good to see you, Lou.

DOBBS: The president said if we're worried about a trade deficit. $55.5 billion in October, well, we should just start buying more American product, sounds pretty reasonable to me.

ROACH: That's a total non-starter for me. It shows he doesn't have a clue about what's going on with our trade problem.

DOBBS: Or he just was annoyed with the issue itself.

ROACH: Possibly.

DOBBS: But I don't think that this administration, frankly, nor the one that preceded it has a clue about the trade deficit?

ROACH: No, to me, the trade deficit doesn't come out of thin air. It's symptomatic of a lot of forces coming into play. The most important one in my view is that America doesn't save anymore. When we don't save at home, we have to import savings from abroad to grow our economy, and we have the huge trade deficits to attract the capital.

DOBBS: You, as one of the most respected economists in the country, I expect to you say that. Because that sounds like what an economist would say.

ROACH: Sure.

DOBBS: The fact is we're buying nearly every principal staple from overseas producers. Clothing, 96 percent of it is imported. We have to spend that money, Wal-Mart is the third leading export market for China.

ROACH: Sure.

DOBBS: We have become a country that looks as though it has an insufficient manufacturing base. The Council on Competitiveness talking about our lack of innovation. Importing $2.6 billion a day in foreign capital, where in the world are we headed?

ROACH: Well, we're headed for a, number one, a manufacturing base that is going off the charts. As I look at manufacturing today less than 11 percent of our workforce is in manufacturing, less than 14 percent of our labor income is made in the manufacturing sector. These shares are down 40 percent from the mid 1980s and they're headed off the bottom of any chart you draw.

DOBBS: What in the world are we to do?

Are we to embrace this new changed world and say everything is fine, or is there a place here, a proper place for public policy that says we're going to make some changes, embrace a future with a definitive strategy and a plan, imagine that.

ROACH: Well, you spoke, when you were introducing me about this new report from the Council on Competitiveness. Ultimately, it's about innovation and pushing the envelope in new products, new markets, new concepts. We seem to be losing our way in that regard.

I mean, Chinese company just bought the IBM PC manufacturer. What's next?

DOBBS: Well, I found that to be just an amazing moment. I mean, about 70 percent of all of our -- many people trying to rationalize the idiotic so called free trade policies that have left 28 consecutive years of trade deficits, try to say we're a technology and services economy. Therefore, we can rationalize almost any kind of idiotic result and painful result. The truth is that 70 percent of our computers and our technological infrastructure is produced overseas as well. Where does that leave us?

ROACH: Well, it does leave us sort of stuck with this concept that, well, we're a special knowledge-based service, white collar economy, and we're shielded from them. But, of course, you go to Bangalore, I was there a couple of months ago, and they're moving up the value chain doing all this knowledge work we used to do so well on our own as well.

DOBBS: I wish we had that cart -- do we have the cartoon? Let me ask the producers a question. Do we have that cartoon? It's a wonderful cartoon to sort of wrap this up, Steve. If we could put that up, I'm told it's coming up right now. Suggesting -- it's Santa reporting, if you will, from Bangalore and the caption saying now, we've outsourced even Santa Claus. This has moved to a level that's concerning for all of us except those making the decisions, large U.S. multinationals, of course, and elected representatives in the White House and Washington. Any prospect of a change?

ROACH: Well, I think the issues are on the table. People are worried about imbalances. To me, the best thing we can do out of Washington is get control over our budget deficit and savings rate. And then at least we don't have to outsource our savings to our overseas creditors.

DOBBS: I look at it from a very primitive level, of course, as a television journalist. I'd like to see us stop outsourcing those jobs and start take care of the middle class of this country, which I look upon as having far more importance in the foundation of the country and its future than even savings rates.

Steve Roach, as always, good to see you.

ROACH: Good to see you, Lou. Thanks.

DOBBS: Still ahead here, we'll have the results of "Tonight's Poll" and the preview of what's ahead tomorrow. Please, stay with us.

(COMMERCIAL BREAK)

DOBBS: The results of our poll, 15 percent of you say it's offensive to wish someone a merry Christmas, 85 percent do not.

Thanks for being with us tonight, please join us here tomorrow Robert Reich, author of "Reason, Why Liberals Will Win the Battle For America" is our guest. We'll find out how that's going to happen. We hope you'll be with us. For all of us here, good night from New York. "ANDERSON COOPER 360" coming up next on CNN. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com