This is a rush transcript from "The Story," August 27, 2019. This copy may not be in its final form and may be updated.

MARTHA MACCALLUM, ANCHOR: It's a great story. Good to see you, Bret. We're up on the rooftop here. Good evening, everybody.

So, may you live in interesting times. That is said to be a Chinese curse, and no doubt, while its origin is dubious. It kind of feels like it fits the moment that we are living in. Reports tonight that Chinese officials are confused by the president, and will not come to the table right now after contradictions like this.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT: But if they don't want to trade with us anymore, that would be fine with me. It would save a lot of money.

They want to be able to make a deal, it's very important. It's going to be great for China, it's going to be great for the U.S.

(END VIDEO CLIP)

MACCALLUM: They also cite President Trump calling Xi, a great leader, one minute, and an enemy the next. Critics derived the president his supporters, say he is just keeping them guessing on purpose.

(BEGIN VIDEO CLIP)

TRUMP: Sorry, it's the way I negotiated. It's done very well for me over the years and it's doing even better for the country.

(END VIDEO CLIP)

MACCALLUM: So, we have a lot to get to here in Washington tonight. We begin with reaction straight from the White House. Kellyanne Conway, senior counselor to President Trump. Kellyanne, thanks for being here tonight. Good to have you here.

KELLYANNE CONWAY, SENIOR COUNSELOR TO PRESIDENT TRUMP: Thank you, Martha.

MACCALLUM: So, why? Why did the president say that they had called and that they wanted to come back to the table and they say they never called?

CONWAY: These trade negotiations are ongoing and everyone knows that. So, the Chinese delegation has been here in Washington many times. We certainly have had our U.S. delegation representing the president over in China many times, very recently.

MACCALLUM: But the suggestion was that they had asked to reopen the negotiation that they were ready to come to the table and talk. And they were saying that's not the case. Is there anyone -- is there anyone who thinks that China is not ready to make a deal? The president has said that they've tried to make a deal several times, the president doesn't like the deal.

This president is taking the long view on China because it was neglected for so many decades, Martha that have left us with a half a trillion-dollar trade deficit with the number two economy in the world, China.

The forced technology transfers, the stolen intellectual property --

MACCALLUM: No, there's no doubt that there has been a major issue and that the president is the first president to actually take it on.

(CROSSTALK)

CONWAY: But he's not negotiating trade by tweet -- to push back. He's got his delegation over and --

(CROSSTALK)

MACCALLUM: But now -- I get it. But now, we're sort of at the point where it's getting hard. And that is not surprising given what is being taken on here, I don't think.

So, can you give us an update on where things stand and will there be a meeting next month?

CONWAY: Well, the president certainly is open to continue talks in negotiation. He's made that very clear. He also in a series of tweets not so long ago. Put to China that this is about trade. He's also watching the protesters in Hong Kong, and he also said, you got to get your fentanyl out of this country, out of these communities and out of these kids.

We see how it's destroying 32,000 deaths just last year. But, Secretary Mnuchin, Ambassador Lighthizer, they were just over in China very recently. The president doesn't mind waiting if it's a better deal for America. I mean, other presidents didn't even bother to make any deal. This president came to this city to disrupt it and part of that is to have bilateral trade agreements that no longer screw the American worker and America employers but to make it better these things take time.

In the meantime, he know -- he thinks that tariffs are working, and look what he did with Japan at the G7 this is a huge trade agreement.

MACCALLUM: OK.

CONWAY: He secured with the agriculture, be -- but also, digital technology.

(CROSSTALK)

MACCALLUM: So, you know, is -- you know, you heard that the introduction that we did, and it went, you know, sort of back and forth between these different messages. Is it part of the president's M.O. to kind of be unpredictable and kind of leave them guessing where he stands?

CONWAY: Sure, but anybody who doesn't know where the president stands on trade with China hasn't been paying attention. For 2-1/2 years, really decades, because the president said so much of this things as a -- as a --

(CROSSTALK)

MACCALLUM: Does he consider President Xi, a friend? Does he consider him a friend or enemy?

CONWAY: He has -- he has always said that we get along well, but he is not going to allow anybody, let alone the number two economy in the world play Americans for fools, as has been done for so many years.

This president has proven he's willing to renegotiate better trade deals. He did it with South Korean chorus, he's done it with the USMCA which the people who work behind us Martha, better get back here and vote on because that will help constituents right, left, and center.

MACCALLUM: Right.

CONWAY: That renegotiates as the new modern better, bigger NAFTA. It's called the USMCA. Obviously, he's willing to do that with China. And I know many in the roller are waiting to exhale for U.S.-China trade agreement. But, why should he take off that deal? He's never done that.

(CROSSTALK)

MACCALLUM: Well, they are. I mean, the farmers are, the market is, and all that -- there's --

(CROSSTALK)

CONWAY: He's a businessman, you know, the art of the deal is preceded by the art of the negotiation.

MACCALLUM: Understood. There are some reports out of China that they say that they don't think that anything can happen before the 2020 election. Does the president want to see this happen before the election? You said he's willing to wait. But how long?

CONWAY: The president said, I think it was just today that if they're waiting out the clock after 2020, thinking that maybe he won't get reelected, they're going to be disappointed, it would be harder for them to get a deal then. And be harder for Americans to get a deal, why is this president driving such a hard bargain with China?

For all the reasons I just told you, half a trillion-dollar trade deficit force technology transfers intellectual property there, but there's another reason. The industries of the president has roaring back as part of his incredible economy.

Include industries that were flat on their back in large part because of our poor relationship with China on trade.

So, of the 6 million-plus jobs that have been created since Donald Trump is elected, Martha. 1.2 million are in combined manufacturing construction, warehouse, and mining. All these industries that were flat on their back.

He's there for the forgotten man and forgotten woman and that includes on trade with China. He can't rush these things.

MACCALLUM: What about the farmers? They have a 13 percent increase in bankruptcies this year. And there are reports that -- you know, the agriculture secretary Sonny Perdue went out there to try to -- you know, calm their fears a bit. But, how long can he calm their fears for if they continue to be under pressure and perhaps make a different choice?

CONWAY: We see that. We don't want anyone to suffer. The fact is that you have to take the long view on deals like this. What could the farmers and ranchers, and the American agricultural economy be like if we actually got a trade deal with China that works for American farmers and American ranchers?

So, and we know many of them have seen economic downturn. There's been some compensation measures. And taking the long view means waiting for the best deal possible.

The president always welcomes them to come back. And his trade team is on -- and frankly been terrific.

MACCALLUM: I mean, there's -- he has said himself that nobody else is willing to bite this off. And it's a big -- it is a big issue. I think Americans across the board agree that something has to be done.

So, President Xi has asked the people of China to pursue self-reliance. He said get ready for the next long -- for the new long march, she called it. Will the president asked the same of the American people?

You know you look at the effort during World War II. I mean, does he see this as a war? Does he see it as something that will require Americans to sacrifice a bit?

CONWAY: Well, I fail to see the analogy in this regard. The Trump economy is roaring and booming, despite the people who talked about Russia, Russia, Russia, for doing half years. Now, want to talk about recession, recession, recession.

Look at the data released by Bloomberg just today. We had the highest consumer confidence level in 19 years. You can't argue with the facts when the facts show Americans are spending money and have confidence.

(CROSSTALK)

MACCALLUM: But if things become a little bit more expensive and farmers have to, you know, take it on the chain a bit, and I know he's given billions of dollars to try to give them some relief.

CONWAY: Yes.

MACCALLUM: So, is it not -- his isn't his view that it's okay to ask people to make some sacrifices because this is such an important goal?

CONWAY: The president has made very clear that to get the best bilateral trade deal with China that benefits America, unlike the way it's been. So, non-reciprocal imbalance and unfair to America. Including the American farmers and ranchers.

To wait for that is going to take a little bit longer. But it will be worth the wait. And I think if you look at just what happened in the G7, obviously, the U.S. economy is the -- is the envy of the world, including the other G7 partners.

(CROSSTALK)

MACCALLUM: Yes, that is true.

CONWAY: How can that be any of them would love to have those figures, Martha?

MACCALLUM: Yes.

CONWAY: And at the G7, people are talking about China there and now. But at the G7, this president negotiate a major trade deal with Japan. The U.K. wants a trade deal. China is coming back to the table. U.K. wants it, they have to wait so they sort out their own Brexit.

MACCALLUM: Yes.

CONWAY: But all the people there -- the -- obviously, Justin Trudeau was there, Canada. They are agreeing to the USMCA now. We just need the Congress to vote on that. They have time to vote on the (INAUDIBLE), they have time to vote on tweets. They have no time to vote on trade.

(CROSSTALK)

MACCALLUM: Now, when they get -- when they get back. They get back from (INAUDIBLE) from their long trade.

I want to get to you a couple of other quick topics with you, if I may. President Rouhani said that he would be happy to sit down and talk to President Trump as was suggested by Emmanuel Macron.

But he needs the sanctions to be lifted before he would do that. What's the president's reaction?

CONWAY: The president's reactions as the sanctions are staying in place. But he also would be open to meeting with Mr. Rouhani if the time and circumstances were right. This president has said for many months now, years, in fact, Martha. He's willing to talk to world leaders if it helps America.

But he does not regret, in fact, he applauds and is very proud of pulling this country out of that failed Iran nuclear deal that was negotiating the last administration. He believes that Iran is a big threat to Israel and he has been in the words of Benjamin Netanyahu, the best friend Israel has ever had.

Moving that embassy to Jerusalem, recognizing it as capital, giving them the Golan Heights, and the like. And so, he's -- the president will keep the sanctions on Iran. But Iran is -- if they want to come to the table and talk about other things, that's fine. Their economy is doing terrible, just like the Chinese economy. The sanctions in these are working.

(CROSSTALK)

MACCALLUM: Well, we'll see. Yes, now it is, absolutely. We'll see if there's enough of the motivation to bring them to the table without lifting the sanctions, which as you say, the president is not going to do.

(CROSSTALK)

CONWAY: But without hurting Israel, of course.

MACCALLUM: You know, its changing gears here. It's just sort of inner, inner White House issues and politics. Anthony Scaramucci, who had a very short stay at the White House. About 11 days, I think, he was in his job has been blasting the president left and right and getting quite a bit of attention for it.

This is what he said most recently. Let's play this.

(BEGIN VIDEO CLIP)

ANTHONY SCARAMUCCI, FORMER WHITE HOUSE COMMUNICATIONS DIRECTOR: I don't understand how elected public servants of the longest-standing Republican democracy in existing world history, a 243-year-old Republican democracy could have this sort of full-blown insanity on display and not act.

(END VIDEO CLIP)

MACCALLUM: Full-blown insanity on display. He says the country must act against the president.

CONWAY: That's one person's opinion. It's a new opinion for Anthony. We all know that it's a very new opinion. But he's also just somebody who's out there -- I think, getting a lot of attention and trying to cause trouble in a way that is very unlike the Anthony that I know, who was really terrific on the campaign in so far, as helping to raise money, was a constant presence in Trump Tower there toward the end, have during transition.

MACCALLUM: Well, what happened? What happened?

CONWAY: Well, I think you see what's happened, and they've tweeted at each other, and I'll let them -- I mean, you know, when I died a long time for now, and I hope -- I pray to God, Martha, I will never say, gee, I wish I had sent one more tweet.

No, I'm never going to --those words will never come out of my mouth. So, they tweeted at each other, they've made this clear.

MACCALLUM: That's for sure. It's ugly --

CONWAY: But I asked you a question. You said he's getting attention. I asked you a question, to what end? In other words, all the people out there saying this that and the other, to what end?

And I keep hearing a number of people say, there are all these Republicans who say in private what I'm saying in public, where are they? Do they work there in the Capitol? Have them come forward, where are these people? These mysterious people.

MACCALLUM: Well, that's what you saying. People -- he --

(CROSSTALK)

CONWAY: Well, but where are they? In other words, they can get immediate attention also if they come forward. So, I keep hearing people, I keep seeing people on Twitter or hearing people on T.V. talk about analysis outside of their purview -- outside of their professional purview.

MACCALLUM: All right.

CONWAY: And I think that's pretty dangerous. I'm going to where -- I'm going to continue to work for this country, in that White House and for this president and vice president, because I believe that we can -- we are continue to be a force for good. And Anthony believes that too.

MACCALLUM: All right.

CONWAY: You know, he was there. He was -- he was loyal, he did a lot of great work.

MACCALLUM: He's obviously changed his mind and getting a lot of attention.

(CROSSTALK)

CONWAY: I saw --

(CROSSTALK)

MACCALLUM: I don't want to give him any more time than we gave him already tonight. But I want to get your answer on that.

CONWAY: It's disappointing because I know he is -- he is -- he is a guy who is very supportive of the president.

MACCALLUM: I'm sure it is. Yes.

CONWAY: And helped out as he could and was very happy to have that job at the White House.

MACCALLUM: He sure was for a short period of time. Now, for something completely different, Taylor Swift going after the White House last night at the music awards. And here is what she was talking about the Equality Act and the petition. She wants to see the Equality Act passed, and she wants the White House to get on board. Watch this.

(BEGIN VIDEO CLIP)

TAYLOR SWIFT, AMERICAN SINGER, AND SONGWRITER: At the end of this video, there was a petition, and they're still is a petition for the Equality Act that now has half a million signature, which, which is five times the amount that it would need to warrant a response from the White House.

(END VIDEO CLIP)

MACCALLUM: She's waiting. She's tapping her watch. She wants to respond in the White House.

CONWAY: I would love to ask the audience if they know what that even is, what the Equality Act is and isn't. But, she's welcome to her opinion. I will tell you there's a lot of poison pills in it.

(CROSSTALK)

MACCALLUM: Well, I mean, the LGBTQ community believes that it would give them greater equality in the workplace and elsewhere.

CONWAY: Right. And so, I actually like the new Taylor Swift song that it's called, You Need To Calm Down, and I can sing it for you in a rush she says, "If you -- if you say it on the street that's a knockout, if you put it in a tweet that's a cop-out." I love that. That's like -- that basically is Washington in a nutshell.

But she's welcome in her opinion. I think that when Hollywood and singers and they all go political, it sounds in the moment like it's very popular and we've seen so many times where it backfires and it blows up.

But she's also somebody went up against President Trump head-to-head in the United States Senate race in Tennessee and lost handily Marsha Blackburn.

MACCALLUM: Yes, she did. That's true.

CONWAY: Our United States senator from Tennessee now.

MACCALLUM: That's true, but can you give her a one answer for why the -- why doesn't the White House support the Equality Act?

CONWAY: The president and the White House support equality. We don't support pieces of legislation that have poison pills in it that can harm other people. He has -- look at this economy, it's equally open to everyone. People have job mobility. The deregulation. what he's trying to do bringing peace and prosperity around the world. That's to benefit everyone.

But when something is named -- something it -- is not always truly that. And so, we have to look at the legislation, and if she can get her signatures, that's terrific.

MACCALLUM: And she can come in and you guys can debate. So, it's what to see want to come on the show.

CONWAY: And, by the way, Taylor, if you can give a shout-out to the USMCA, that would be great.

MACCALLUM: All right, Kellyanne Conway, thanks. Good to see you tonight.

CONWAY: Thank you, Martha, great to have you here.

MACCALLUM: Great to be here. So, two deep state stories about to come to a head as federal prosecutors are about to make public, their next move against former deputy FBI director Andrew McCabe, and the long-awaited inspector general report about the origins of the Russia probe -- feels like we've been waiting for that forever, about to drop apparently. Byron York on what is next.

(COMMERCIAL BREAK)

MACCALLUM: Tonight, two stories looking into the so-called deep state are about to get their moment in the spotlight. The report suggests that federal prosecutors are very close to making a decision about whether or not they will charge former FBI Deputy Director Andrew McCabe who was fired in March of last year for misleading investigators.

Meanwhile, the DOJ Inspector General report into possible foreign surveillance abuses at the outset of the Russian investigation, that is also expected any day now and it could unleash telling and potentially damning details about the Obama Justice Department's efforts to spy on the Trump campaign.

Byron York has covered these extensively and he is the Chief Political Correspondent for the Washington Examiner and Fox News Contributor featured on the latest episode of "WISE GUYS" on Fox Nation, so check that out. So when do you think we're going to learn about Andy McCabe's fate and do you have any hunch about which way it's going to go?

BYRON YORK, CONTRIBUTOR: Well, that could happen any time. It could happen very, very quickly. Look, we know that the Inspector General said that Andrew McCabe lacks candor. That's what they call it at the FBI, lacked candor --

MACCALLUM: Just to remind everybody, about what?

YORK: He was -- he was being questioned about leaking information to the Wall Street Journal about the Hillary Clinton investigation which he had the authority to do but then he didn't tell the truth about what he had done, and this was on four separate occasions. So the Inspector General you know, pointed that out.

So the question is will he actually be charged with lying or with some other thing? We don't know. But the reason everybody got excited about this is we have been -- found out that his lawyers have talked to -- talked to very high-ranking Justice Department officials. And the idea being that they had earlier, they must have tried to convince the lower-ranking prosecutors not to pursue the case. And having failed that, they're now going up higher up the ladder.

So the question -- that seems to indicate the Justice Department is heading toward an indictment but we don't know right now.

MACCALLUM: Yes. He says he was confused. There was a lot going on at the time as we all remember, and that he never intentionally misled anyone.

YORK: Right. And that he may prevail with that case. I mean, then there's also word that Lisa Page who was you know, with Peter Strzok was a key player and all of this, said that he did not have any reason to lie. So -- I mean, this is not a done deal but these high-level meetings indicate something is going on. And we also always have to consider the possibility there's something happening we don't know.

MACCALLUM: Yes.

YORK: There's another inspector general report as you just mentioned going on. We don't know exactly what's being done.

MACCALLUM: So Bill Barr got everyone's attention when he said there was spying. So he came on the scene after Jeff Sessions left and he had a very different take when he was shown some of the background and investigation, and he said indeed there was spying.

So the Horowitz report is looking into that. And then you've also got the Durham investigation which can go even further. Can you explain that?

YORK: Well, the difference between the two investigations are Michael Horowitz who is the Inspector General of the Justice Department can only look into the Justice Department. He can look into the FBI and what everybody else did but he cannot look at the CIA.

So the big reason that Bill Barr the Attorney General commissioned this John Durham investigation is that Durham could look beyond the confines of the Justice Department and see what the entire U.S. government was doing in the lead-up to the -- to the 2016 election.

Now the spying thing that caused so much trouble when Bill Barr said it, I mean, we really know -- we know a number of things. We know that the FBI got a warrant to wiretap Carter Page.

MACCALLUM: Right.

YORK: We know that they used an informant named Stefan Halper, and we know that they sent an undercover agent, a woman who went by the alias Azra Turk to London.

MACCALLUM: And was spying on --

YORK: There you go -- to London to try to get information under George Papadopoulos. And I think one of the things that Bill Barr said when he learned these things was OK, was that it, was there more?

MACCALLUM: Right.

YORK: That's what we want to --

MACCALLUM: He's looking at that and saying you know, those are the two storylines that we see and we need to know if there was anything else going on. It seems like if there was a concerted effort, that there would be sort of other lines that would be dropped in the water to see if anybody nibbles.

YORK: He made a very persuasive point which is look, if the FBI really saw this as an all-out Russian attack on American democracy, you're telling me this is all we did. It seemed like a rather anemic effort. He used the word anemic effort. They must have done more.

So what we're hoping to find out in this Michael Horowitz report -- and this could be a while all we hear is after Labor Day which is soon but we don't hear like a day after Labor Day --

MACCALLUM: 2022 maybe.

YORK: It could be a while, yes.

MACCALLUM: All right, Byron, thank you very much. Good to see you tonight. So coming up next, Trump allies mount a counter-offensive smoking out old tweets by journalists and putting them on the hot seat. Is that fair game or foul play? Howie Kurtz has the scoop coming up next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: You know, there's a guy who we had just reporting a couple of days ago that he wants to try nuke hurricanes, right. He's just like person who's just intellectually -- not a serious person.

BRIAN STELTER, ANCHOR, CNN: I'm talking, of course, about President Trump about his behavior, about his instability, the contradictions, the lies, the complete rejection of reality.

(END VIDEO CLIP)

MACCALLUM: The White House thinks that some of the covers that they get is bias. Perhaps those are some of the examples. That has been made very clear by the White House that the president feels that way.

So now the New York Times has written a story that says that there is an inner network of Trump loyalists who are working to smoke out dirt on reporters and journalists and editors by mining their public Twitter feeds from years ago. And when they find things that are embarrassing, offensive, bias, they are starting to put it out there.

Arthur Schwartz who is an ally who is part of this effort tweeted this. If the New York Times thinks this settles the matter, we can expose a few of their other bigots. Lots more where this came from.

Here now Howie Kurtz, Host of "MediaBuzz."

Howie, good to see you tonight.

HOWARD KURTZ, HOST: Hi, Martha.

MACCALLUM: I mean, this is -- it's dirty pool. There's no doubt about it. But is it fair, is it legitimate in light of the world that we live in right now and this sort of unvarnished attacks on the president?

KURTZ: Well, first of all, I think it reeks of a double standard for Times new story to complain that Trump allies are digging up old tweets by journalists, because these are techniques that journalists use all the time against politicians including the president.

MACCALLUM: Right.

KURTZ: And it just seems to me that these are -- this is not going through somebody's garbage. The headline said dirt, but these are public posts --

MACCALLUM: They're public, yes.

KURTZ: -- made by the journalist who chose to broadcast this to the world. And the Times story says, well, it is legitimate when journalists do it to hold people in power accountable, which sounds like, it's OK for us to do it, not for you to do it against people who are actually, you know, forming public opinion through the media.

MACCALLUM: Right. But the Times is also saying that it's a clear sort of I got you, you know, look out we're coming after you kind of threat from the White House to reporters to kind of cow them, to make them, you know, more compliant. That is the suggestion in the story. What do you about that side of it?

KURTZ: Right. Times publisher, A.G. Sulzberger, said this is an effort to intimidate and embarrass the press as if many of the press don't do that to this administration all the time.

Look. I think to some extent this whole got you game is out of control, digging up stuff that people wrote maybe when they were in college 10 years ago.

MACCALLUM: Yeah. Maybe that's the part of the point of this, too.

KURTZ: Right. But if that is going to be seen as legitimate news gathering technique for journalists, then they can't very well then turn around and say, well, stuff that we've written or some of our colleagues have written is somehow magically off-limits. And you know, the back story, I know that you can explain it about the Times senior editor who did some really anti- Semitic tweets and got called out about for it and had to apologize.

MACCALLUM: Yeah. So, you know, I mean some of these you just don't want to put on the screen. None of them, really. But the point can be made. I mean these are public from his Twitter feed.

This is "New York Times" editor, Tom Wright-Piersanti, and here is just one of them. He says, "I don't hate Mohawk Indians though. I love those guys. I just hate Indians with mohawks. Different Indians, different mohawks." And that is unkind and insulting. It was written in 2009. That is the most benign of the ones that were in that list.

Now, there -- some of these guys are saying that they're 35 years old, they're 25 years old, they were teenagers or in their early 20s. Twitter was a fairly new thing. And they were just sort of -- they had 10 followers and they're just kind of joking around with their friends and that they are sorry and they apologize. Is that a legitimate response?

KURTZ: One can understand that in the age and that everything lives forever. But on the other hand, some of them were raw anti-Semitic tweets that you did not read and offended me and offended lots of lots of people. And by the way, it's not all back in college.

MACCALLUM: That's right.

KURTZ: The same group of Trump allies found the CNN editor just in 2011 tweeting this disgusting stuff of celebrating the death of what he called Jewish pigs in an attack, I guess, by Palestinians. So, I can't argue that that could be completely off-limits.

MACCALLUM: Shouldn't that person be fired? I mean that's what we've seen - -

KURTZ: Well, that person resigned under pressure from CNN.

MACCALLUM: OK. And we've seen, you know, Roseanne Barr lost her job over something that she tweeted about Valerie Jarrett. We live in a society where, you know, there's just -- people get fired for these things. So should "the New York Times" much more -- have much tougher scrutiny on these reporters and editors who work for them?

KURTZ: Yes. And in fairness, the Times recently demoted a top editor who said some things on Twitter that were provocative and turned out not to be true. I mean, Twitter is a place where all of us can say stupid things and sometimes we pay the price.

My objection is to set up this sort of fake non-equivalency where you say, well, you know, when we do it against politicians, we are carrying out our mission of journalists thing to protecting democracy.

MACCALLUM: Yeah.

KURTZ: But if somebody blows the whistle on somebody who works in one of our organizations, well, that's dirty pool.

MACCALLUM: I mean, can you imagine if they found one of the inner circle Trump people had said something like this at the "New York Times?"

KURTZ: Would there be any hesitation at all to be published in the paper?

MACCALLUM: No.

KURTZ: Absolutely not.

MACCALLUM: No. It would -- and it would never end. There will never be any, you know, OK, we're young. We were younger when you said that. There would never any of that forgiveness.

Interesting. Very interesting. Thank you, Howie. Great to see you tonight.

KURTZ: Great to see you. Thanks.

MACCALLUM: Up next is a story exclusive with the head of the National Security Division at the Justice Department, he is leading the charge and busting people on both sides who are spying for China, even using LinkedIn, the Chinese government to recruit these spies. That's next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

JAMES OLSON, FORMER CIA CHIEF OF COUNTER INTELLIGENCE: Doing (ph) espionage against the United States is massive. It's relentless. They are coming after our technology. They are coming after our political military secrets.

(END VIDEO CLIP)

MACCALLUM: That was former chief of counterintelligence at CIA headquarters James Olson responding to this disturbing report about Chinese espionage efforts in the United States, detailing the cases of three former intelligence officers who were successfully recruited by China to spy for them and they were paid thousands of dollars to hand over U.S. government secrets.

My next guest argues China wants the fruits of America's brainpower to harvest the seeds of its planned economic dominance. And he is leading the department of justice China initiative to combat the problem. John Demers serves as assistant attorney general for national security. You're on the frontlines of this, John. Great to have you here tonight.

JOHN CHARLES DEMERS, ASSISTANT ATTORNEY GENERAL FOR NATIONAL SECURITY: Thank you. Thanks for having me.

MACCALLUM: So, you know, you look at these three individuals and I think any American just looks at them, and thinks, how could you?

DEMERS: Right. Yes.

MACCALLUM: How could you betray your country when China is so clearly trying to harvest, as you say, the brainpower of America? Tell me about these three individuals.

DEMERS: So, these three -- and you're right. These are three stories of betrayal at the end of the day, betrayal of their country, and in some cases betrayal of their colleagues, their former colleagues to the Chinese intelligence officers.

So, all three of them are ex-U.S. intelligence officers, CIA, DIA, and they were all recruited by the Chinese intelligence services after they left their jobs. So you might think that they are no longer vulnerable, they are no longer of interest to the Chinese, but they are.

They still have a lot of information that the Chinese want and they still have a lot of contacts back into their intelligence community colleagues to try to get additional new information on behalf of the Chinese. So, two of these cases now have pled guilty and one went to trial and was found guilty.

MACCALLUM: You said they betrayed their colleagues. How did that end?

DEMERS: So one of them, in the case of Kevin Mallory, who went to trial and was found guilty, he tried to pass information to his Chinese handlers that would have exposed the identities of Americans, other CIA, DIA colleagues who were going to go into China on behalf of the United States.

Fortunately, he did not succeed in doing that. His communications device didn't work. So, their identities were not revealed. That would have been - -

MACCALLUM: So if they had been uncovered in China, what would have happened to them?

DEMERS: Oh, if they were uncovered in China, at the very least, they would have been imprisoned and who knows what else.

MACCALLUM: How big a problem is that, those three? What does that tell you about how many more of our former agents might be turning like this?

DEMERS: So there are three. That is unprecedented in number to have at the same time. And if you think about how few people do actually turn, it gives you a sense of how many people the Chinese have to approach in order to get three individuals. And of course there are cases that we still may be investigating in their cases that we may not know about.

So, you see what a concerted effort the Chinese are making at this time, both on the traditional espionage side, which are those three cases, also a similar effort on the economic espionage side.

MACCALLUM: I mean, you know, are we at war? Is that what you look at it in your work? How big a problem -- Most Americans are not walking around thinking about this.

DEMERS: Right.

MACCALLUM: But it is ugly and it is scary. It looks like it is an enormous problem.

DEMERS: Yeah, this is a significant problem. And it is true as I said even on the economic espionage side. What they are after is intellectual property of American companies. That may sound very abstract. But that means jobs of Americans because their strategy is to rob, replicate, and replace the U.S. products.

You rob the U.S. technology, you replicate the product in China, and then you replace that the U.S. company on the global market if all goes well.

MACCALLUM: For those of us who remember the cold war and the spy's stories of the cold war, is this larger in scale than what we saw from Russia?

DEMERS: Well, it is equivalent to what we saw from Russia on the political side. But on the economic side, it is much more significant in terms of the theft of intellectual property, really just for economic development purposes.

MACCALLUM: Yeah. I was also shocked to learn that the Chinese government uses LinkedIn, which I think --

DEMERS: Right.

MACCALLUM: Obviously, so many Americans have the resume. They are using LinkedIn to reach out to these guys?

DEMERS: Yeah, they are. I mean, it is an easy way to go on and see what types of people have the experiences that show to the Chinese intelligence officers, aha, that is someone who worked for U.S. Intelligence Agency.

Let me reach out to them, obviously they don't reach out as intelligence officers, they reach out as academics or they reach out as someone who is interested in their work who maybe wants to hire them, you know. And then invite them to China. We see that bot on the political and economic sides, invite them to China. And there they continue the cultivation of that person ultimately as a co-op to you.

MACCALLUM: Unbelievable. John Demers, thank you very much. Fascinating story.

DEMERS: Thank you.

MACCALLUM: Keep up the good work.

DEMERS: Thank you.

MACCALLUM: Thank you very much. All right, coming up next, the "Ferguson effect" is said to make police officers take a more cautious route sometimes on the streets of our cities, for fear that doing their job could lead them to losing their job.

And after the firing of Officer Daniel Pantaleo, new statistics from the NYPD suggests that this is already happening. (BEGIN VIDEO CLIP)

PATRICK LYNCH, PRESIDENT, NYC PATROLMEN'S BENEVOLENT ASSOCIATION: There is a saying within the police department that has been bantered around for some time that said, "The job is dead." In reality, the job has been dying. And today, the job is dead.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

MACCALLUM: We recently told you about the so-called "Ferguson effect," when officers fear reprisal for doing their job after investigations clear officers of guilt and controversial and often fatal encounters.

And now there is reason to believe that the "Pantaleo effect" may be taking root in New York City, where arrests have plummeted since Officer Daniel Pantaleo was fired earlier this month in the tragic Eric Garner case. Chief breaking news correspondent Trace Gallagher has that story for us tonight. Hi, Trace.

TRACE GALLAGHER, CHIEF BREAKING NEWS CORRESPONDENT: Hi, Martha. New York City police officers say there is no organized slowdown and the union representing those officers says the cops are doing their jobs and upholding their oath.

But union president, Patrick Lynch, did say "we are urging all new york city police officers to proceed with the utmost caution in this new reality, in which they may be deemed 'reckless' just for doing their job."

The union also went after Police Commissioner James O'Neill for choosing politics over the officers he claimed to lead. O'Neill responded that there would not be a slowdown in the wake of the penalty of firing although the numbers tell a different story.

From August 19th through August 25th of last year, there were 4,827 arrests. During the same period this year, there were 3,508 arrests. That is a 28 percent drop. A police officer in the Bronx told our corporate cousin, The New York Post, the stats are lower because officers are taking more time with calls after Pantaleo, quoting here, "They want to be more careful. They have to protect themselves because no one else is going to protect them."

But today on Fox News, New York State Assemblyman Mike LiPetri said the public needs police officers to do the opposite. Watch.

(BEGIN VIDEO CLIP)

MIKE LIPETRI, NEW YORK STATE ASSEMBLYMAN: You have cops that are out there being proactive, being out there in society, stopping criminals from committing the crimes in the first place because they do the investigations. Instead, what our mayor wants is for them to be reactive.

(END VIDEO CLIP)

GALLAGHER: It is also notable that in both Ferguson, Missouri and Baltimore, following the death of Freddie Gray and the prosecution of several police officers when the arrest rates went down, the crime rates went up.

New York City Commissioner O'Neill says he is confident his officers will never shy away from running towards danger. Others say hesitation is common when you are not sure who has got your back. Martha?

MACCALLUM: Very tough situation. Trace, thank you very much. Now, development to another story that we brought you after The Washington Post ran this headline that said, "Counties that hosted a 2016 Trump rally saw a 226 percent increase in hate crimes."

That is an eye-catching headline. That claim was widely circulated elsewhere, including by 2020 candidate and democratic Senator Bernie Sanders, who posted the figure adding, "Mr. President, stop your racist, hateful and anti-immigrant rhetoric. Your language creates a climate which emboldens violent extremists," he says.

But fact-checking website PolitiFact found the claim to be half true. And my next guest argues that there is a problematic reality about the underlying numbers in the study that are at the source of this headline that went viral.

Here now is Robby Soave, associate editor at Reason.com. Robby, good to have you with us. Two hundred and twenty-six percent sounds like an enormous jump in hate crimes in the places that hosted Trump rallies.

ROBBY SOAVE, ASSOCIATE EDITOR, REASON.COM: Right.

MACCALLUM: So that as I said is an eye-catching headline. What do you find when you dug into (INAUDIBLE) arrived at that number?

SOAVE: So it sounds massive, but there are actually more counties in America than there were even hate incidents counted in the study. You can have one county with zero hate crimes and then one with three, and that would actually be 200 percent increase --

MACCALLUM: Right.

SOAVE: -- which three more than one isn't that much, but 200 percent sounds like it is massive. More importantly, this study was not actually measuring hate crimes. I mean, that seems important, right? It was measuring anti-Semitic incidents reported to the Anti-Defamation League.

Some bad stuff in there, to be sure, but a lot of schoolyard bullying was actually being counted in there. Students, you know, saying mean things to each other for anti-Semitic reasons. Bad stuff but that is not a hate crime. That doesn't count as a hate crime. That is what went into the study.

I'm not sure then how that relates to what Trump says at his rallies. I understand why maybe some of the things Trump said, they are supposed to be inflaming immigrant tensions or tensions about Muslims, but this study was only looking at anti-Semitism. So, it doesn't really add up to me. MACCALLUM: Yes. So, if they had said that in places where Trump holds rallies, there has been an increase in anti-Semitic insults, bullying, attacks, that would have been an accurate headline --

SOAVE: That would have been accurate --

MACCALLUM: -- based on their -- based on the way they did it.

SOAVE: I think we all would've said why is that? You know, this is not a scientific survey. This is just people reporting these things when they happen to the ADL. So, it could be people are more interested or more attuned to what is going on politically, if Trump is in the neighborhood and we are fired up about the election.

MACCALLUM: The Bernie Sanders campaign taking off on it and putting it out there.

SOAVE: Yeah.

MACCALLUM: It doesn't seem like there is a lot of responsibility in that.

SOAVE: He made it sound like Trump showed up and then the hate crimes spiked up 200 percent. He was saying --

MACCALLUM: Running around --

SOAVE: Right.

MACCALLUM: -- hate crimes.

SOAVE: And Ilhan Omar, I believe, tweeted or shared it as well.

MACCALLUM: Yes. She said, "Mr. President, stop your racist, hateful, anti- immigrant rhetoric." We all agree that you don't want to see any of these kinds of attacks. But it is very easy to just sort of grab these numbers and sort of attribute that directly back to the president.

We have done similar stories with police brutality and all of these issues where you actually have to -- which is what you do at Reason.com is actually peel back on the numbers (ph). The people that did that study, you spoke to them, and they said that they need to revise it, correct?

SOAVE: Who they said based on questions they have gotten from me and others. They were going to get some actual hate crime data and see if it holds up. We will see. I just think you have to be careful about scaring people into thinking everything is worse than it is.

Obviously, hate crimes happen. They are bad. I hope law enforcement takes them seriously when we are talking about violence and assault, things like that. But we should not be scaring people into thinking that the country has never been in worst shape when really the statistics do not bear that out.

MACCALLUM: Well, that is important. I mean, you have to rely on the actual numbers.

SOAVE: Yes.

MACCALLUM: And when using a study that way that does not support what you're saying, obviously that is very problematic.

And just quickly before I let you go, there was a piece in The Washington Post that showed that the number of hate crimes that were being registered with the police departments in Washington was skyrocketing, but the number of prosecutions for hate crimes was falling dramatically or was only at three compared to 200 and some incidents that were reported.

And in other cities, San Francisco, Brooklyn, Seattle, those numbers are much closer together. They tend to prosecute the hate crimes more.

SOAVE: Yeah. It is a problem if people are going free when they committed assault or violence, but these people were still going to jail. They just were not being prosecuted for the additional hate crime statue, which can be very hard to prove. That is a case by case decision. It will be subjected to some second guessing.

But my bottom line is as long as violent, dangerous people are being put away, I don't really care if we are adding all these additional sentencing.

MACCALLUM: Some of the people who are the victims say that they wanted that, which you can understand.

SOAVE: Yeah.

MACCALLUM: Robby, thank you very much.

SOAVE: My pleasure.

MACCALLUM: Quick break. We will be right back.

(COMMERCIAL BREAK)

MACCALLUM: That is “The Story” for tonight, Tuesday, August 27, 2019.

Content and Programming Copyright 2019 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2019 ASC Services II Media, LLC. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of ASC Services II Media, LLC. You may not alter or remove any trademark, copyright or other notice from copies of the content.