This is a rush transcript from "Fox News Sunday," December 23, 2018. This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: I'm Chris Wallace.

A government shutdown, the stock market is in free fall and the defense secretary quits over a sudden shift in policy. Are the wheels coming off the Trump presidency?


SEN. JEFF FLAKE, R-ARIZ.: They are chaotic weeks and then there is this week.

WALLACE: From the shutdown showdown.

PRESIDENT DONALD TRUMP: It's a really Democrat shutdown because we've done our things.

SEN. CHUCK SCHUMER, D-N.Y., SENATE MINORITY LEADER: They are not getting the wall today, next week, or on January 3rd.

WALLACE: To the worst week in the market in ten years.

UNIDENTIFIED MALE: What is going on with stocks? Once pristine and going up, up, up and away, they are slip, sliding away.

WALLACE: Controversial moves in the Middle East.

SEN. LINDSEY GRAHAM, R-S.C.: It is in our national security interest not to withdraw at this time. This is akin to surrendering.

WALLACE: That led to a stunning resignation.

REP. NANCY PELOSI, D-CALIF., HOUSE MINORITY LEADER: I am shaken by the resignation by General Mattis, and what it means to our country, to the message it sends to our troops.

WALLACE: We'll discuss the current state of the Trump presidency with incoming White House Chief of Staff Mick Mulvaney. Then, we'll get perspective from a Washington veteran, former Secretary of Defense Leon Panetta.

And is President Trump opening himself up to a possible 2020 challenge? We'll talk with Ohio's Republican Governor John Kasich, a frequent Trump critic.

Plus, we'll ask our Sunday panel about news blitz between the president and the GOP on Capitol Hill.

All, right now, on "Fox News Sunday".


WALLACE: And hello again from Fox News in Washington.

We are in to day two of a partial government shutdown with no end in sight. But that's just part of a turbulent week in Washington even by Trump standards. The shutdown's main sticking point, funding for President Trump's border wall. The financial markets rattled by uncertainty over the shutdown, trade tensions with China and rising interest rates.

And then there's the fallout from Mr. Trump's decision to pull troops out of Syria and Afghanistan that led Defense Secretary James Mattis to resign. In a moment, we'll speak with the president's new chief of staff, Mick Mulvaney.

But, first, let's get the latest from Doug McKelway here in Washington -- Doug.


This morning, the capital is quiet and mostly empty after members scurried home late yesterday when it became clear there was no prospect for a deal before Christmas.


MCKELWAY: Late Saturday, leaders of both chambers decided to adjourn until Thursday, the day had begun with only a faint hope of finding common ground on a deal to fund nine remaining federal departments and a border wall. Hopes were further lifted when the White House announced a luncheon with members but the list of invitees showed only Republicans, most of them immigration hardliners.

MARK MEADOWS, R-N.C.: The president is prepared for a very long government shutdown, albeit a partial shutdown.

MCKELWAY: That while Senate Minority Leader Chuck Schumer was signaling his disdain for any bill that contained funding for a border wall.

SCHUMER: The Senate is not interested in swindling American taxpayers for an unnecessary, ineffective, and wasteful policy. What we do support, Democrats and Republicans, is real, effective border security. But not a wall.

MCKELWAY: Meanwhile, more Pentagon departures are expected following Defense Secretary Mattis and special envoy Brett McGurk, and rattled by the stock markets precipitous dive, the president has said to be infuriated over the Fed's decision to raise interest rates, even asking aides if he can take the historically unprecedented step of firing Fed Chief Jerome Powell.

As members of Congress rushed home for the holidays, President Trump tweeted: I will not be going to Florida because of the shut down. Staying in the White House. MAGA.


MCKELWAY: Yet, one of the attendees at yesterday's White House luncheon, Senator Richard Shelby of Alabama, described the president's mood as exuberant -- Chris.

WALLACE: Doug, thank you.

Joining me now, White House budget director and the president's incoming chief of staff, Mick Mulvaney.

Mick, welcome back to "FOX News Sunday".

MICK MULVANEY, WHITE HOUSE BUDGET DIRECTOR: Chris, good morning, and merry Christmas.

WALLACE: Thank you, same to you.

What is the latest on talks to end the shut down and with Congress now out at least until December 27th, how long is this going to go on?

MULVANEY: This is what Washington looks like. I saw the intro and said it was chaos in Washington. This is what Washington looks like when you have a president who refuses to sort of go along to get along.

You are seeing a fight over border security, just like we had a fight over taxes, a fight over deregulation, a fight over trade, a fight over Syria -- we'll talk about that in a little bit. So, this is what it looks like.

I met yesterday with the vice president and Mr. Schumer, met throughout the day as your story indicated. There were some Republican members to talk about where we were in the discussions. We had given an offer, a counteroffer to Mr. Schumer late yesterday afternoon, and immediately, I think thereafter, the Senate went into recess until at least Thursday. That doesn't mean a week (ph) before Thursday until we hear something back but I don't think things are going to move very quickly here the next couple of days.

WALLACE: So, are we talking a week, are we talking until the new Congress comes in on January 3rd?

MULVANEY: Yes, a couple of different things. It's Sunday right now, and government shut down mostly on a Sunday anyway. Government shut down tomorrow anyway because it's the federal holiday and Tuesday is Christmas, again, another federal holiday. So, Wednesday is really the first day that this kicks in.

The paychecks importantly will go out on the 28th. I want everybody to understand, no one is working without getting paid. Paychecks go out on the 28th. The next pay period that is impacted is January 11th. I think that is -- it's very possible that the shutdown will be on the 28th and into the new Congress.

WALLACE: Democrats are talking about $1.3 billion for border security, but none of it for the wall.

Here is Senate Democratic Leader Chuck Schumer on the subject.


SCHUMER: If you want to government, you must abandon the wall, plain and simple.


WALLACE: First of all, what's going on in the Democratic side best you can see?

MULVANEY: A couple of different things. That's an important line because it's important that everyone understands a language that everyone is using. The president tweeted out a picture yesterday the steel fence, the steel slated fence with a pointed top and so forth, that's what we want to build. And the Democrats' mind, that is not a wall.

So they have offered this $1.3 billion to build the barrier that we want but then they go on TV and say there's no money for a wall. We've already told the Democrats we want to build what the president tweeted out. It doesn't have to be a 30-foot high concrete.

WALLACE: So, you think that they would approve $1.3 billion to build this deal picket fence?

MULVANEY: Exactly. Well, the steel barriers that the president tweeted out.


MULVANEY: So, here's the problem, of course, is that as recently as two weeks ago, they had offered us $1.6 billion for that same thing. So, they're moving in the wrong direction. I think it's a really good question as to whether or not this deal can be cut before the new Congress comes in.

I think there is an implication here for Nancy Pelosi's election for the speakership. I think she's in that unfortunate position of being beholden to her left wing to where she cannot be seen as agreeing with the president on anything until after she is speaker. If that's the case, again, there's a chance we go into the next Congress.

WALLACE: So you are suggesting or maybe you're outright saying that Nancy Pelosi and her effort to ensure that she is a speaker may hold this up until she is elected speaker?

MULVANEY: I should have said that's the dynamic. We have been talking to Mr. Schumer, the leader of the Democrats in the Senate, a bill right now is in the Senate, the ball is in the Senate's court. Of course, keep in mind, any bill that comes out of the Senate on this topic will have to have 60 votes, have to have Democrats support.

But I certainly think the speaker's dynamic is in play here.

WALLACE: All right. Let's look at it from your side. The president's $5 billion, what's his bottom line? Does it have to be $5 billion or there's talk from Republicans who had lunch with the president yesterday. He might accept $2.3 billion.

MULVANEY: Again, I'm not going to say what our bottom line is and I don't know you don't expect to do that.

WALLACE: Yes, (INAUDIBLE) I like it.

MULVANEY: Yes, I will tell you this, they're in 1.3. Yesterday, we are at $5 billion a couple of days ago. And the counteroffer that we give them yesterday was between those two numbers.

WALLACE: But 2.3 --

MULVANEY: We moved off of the five and we hope they move up from their 1.3.

WALLACE: All right. President Trump has been all over the place on this whole issue with the shutdown. Here's where he was two weeks ago and where he was on Friday. Take a look.


TRUMP: I am proud to shut down the government for border security, Chuck. So, I will take the mantle. I will be the one to shut it down. I'm not going to blame you for it.

It's up to the Democrats. So it's really the Democrat shut down.


WALLACE: So, if the president is, quote, proud to shut down the government and is ready to take the mantle, why is he suddenly calling it the Democrat shutdown?

MULVANEY: First of all, he is proud to be having the fight. Let's make that very, very clear. He is proud to sort of point out that Chuck Schumer has actually voted for the exact --

WALLACE: He said he's proud to shut down the government.

MULVANEY: I get to that in a second. But, you know, he is proud to have this fight.


MULVANEY: As to where we are on the back and forth, again, the ball right now is in their corner. We made them an offer yesterday afternoon. So, the Senate Democrats have the ability right now to open the government and agree to the deal. That's where the back-and-forth is.

WALLACE: So, you don't see them flipping when he says I'm proud to shut down the government? And he's --

MULVANEY: They come back with something in the ball is on our court, it's a different dynamic. But right now, the Democrats -- the ball into their court as to what they come with.

WALLACE: You have your own record when it comes to immigration and the border wall. You knew I was going to ask you this. Here's what you said as a congressman 2015.



MULVANEY: The defense doesn't solve the problem. Is it necessary to have one? Sure. Would it help? Sure. But to just say build the darn fence and have that be the end of the immigration discussion is absurd and almost childish for someone running for president to take that simplistic view.


WALLACE: If building the wall is childish and simplistic as a solution for the immigration problem, why is it worth shutting down the government?

MULVANEY: It has to be part of a comprehensive --

WALLACE: But it isn't.

MULVANEY: Border wall absolutely is part of border security.

WALLACE: But you're not saying it's part of it. You're not saying it's part of a comprehensive immigration plan.

MULVANEY: I think in the quote you just read --

WALLACE: That's what you said, but that's --


WALLACE: But that's not what the president is saying.

MULVANEY: A border wall is necessary. We've known this since Reagan.

Reagan agreed to amnesty in exchange for border security. He gave away the amnesty, never got the border security. Everyone is aware of that. We don't want to make the same mistake.

A border wall is absolutely necessary which is why we are having the battle. So too, by the way, are changing our policies on immigration. I think one of the biggest stories that didn't get reported this week was the agreement that we reached with Mexico to have Mexico agreed to keep people seeking asylum in the United States in Mexico.

So, they come to the border right now or at least before this week, they were allowed to stay in this country pending their decision. Now Mexico will keep them in Mexico. That's going to have a tremendous deterrent effect on people coming to the border.

WALLACE: All right.

MULVANEY: We need a comprehensive solution to border security, and a border barrier, steel slat fence has to be part of that.

WALLACE: One of the reasons that I think people here in Washington are so rattled this week is because the shutdown comes exactly the same time as the president made a dramatic decision on pulling troops out of Syria and drawing down troops in Afghanistan, which led to resignation of Defense Secretary James Mattis.

I went to put up the resignation letter from Mattis in which he writes this: My views on trading allies with respect and also being clear-eyed about both malign actors and strategic competitors are strongly held and informed by over four decades of immersion in these issues.

So, Secretary Mattis is saying that he quit because his views on treating allies with respect and being clear-eyed about our enemies do not align with President Trump.

MULVANEY: I don't think it was a dramatic decision. Keep in mind, this has been something that the president has been working on since he got to office.


WALLACE: Wait one second. It's the first time a defense secretary has ever resigned over policy in the history of the country.

MULVANEY: I don't believe that to be the case. I think Chuck Hagel resigned for the same reasons.

WALLACE: I don't believe that he did resign over a matter of policy.

MULVANEY: I thought policy over ISIS as a matter of fact.

But, again, this -- it leaked out this week. In fact, it leaked out apparently from the Defense Department. This is not something that was done sort of at the drop of a hat. The president has been working on this for two years.

So, it's unfortunate that it came out the way that it did, but this is not a snap decision. And it's not a surprise to anybody because exactly what the president said he was going to do.

Now, as to Mr. Mattis' resignation, if the cabinet secretary simply has such a misalignment with the president's priorities that he cannot serve him, that is the right reason to leave. You asked --

WALLACE: I completely agree with you, but the point is he's saying the reason he left is because he believes that allies should be treated with respect and we ought to be clear about our enemies and he clearly doesn't think that President Trump feels the same way.

MULVANEY: I don't read the letter that way.

Look, let's be honest with each other. I think the relationship between these two men have been fraying. I think the president no longer relied on Mattis to be able to deliver the president's vision.

The president has to know. I don't have to agree with the president on everything he asked me to do. In fact, we're not going to. I think he hires people who disagree with him because he likes that different input, OK?

But I'm physically incapable, completely incapable of doing what he wants me to do just because I don't believe it, I cannot serve him well and I need to leave and I think that's what happened.

WALLACE: It's a very honorable thing.

But let's look -- because it wasn't just Mattis. I want to put up the U.S. envoy to the coalition to fight ISIS and the chairman of the Joint Chiefs who both in recent days had expressed were they thought about U.S. troops in Syria. Here they are.


BRETT MCGURK, U.S. ENVOY TO ANTI-ISIS COALITION: Even at the end of the physical caliphate is clearly now coming into sight, the end devices will be a much more long-term initiative.

JOSEPH DUNFORD, CHAIRMAN OF THE JOINT CHIEFS OF STAFF: We still have a long way to go and so, I would be reluctant to affix a time.


WALLACE: They both said that this month and we learned yesterday that the envoy, Brett McGurk, has just quit because he also disagreed so strongly with the president's policies.

A couple of questions, the president says in a tweet he didn't know Brett McGurk. How is it possible that the president doesn't know the envoy who has been representing the U.S. to the coalition for the last two years?

MULVANEY: Well, I think that's easy because the president is dealing with the secretary of state, the secretary of defense. I mean, that -- despite what people think, the White House is not Grand Central Station, not anybody in the administration gets into see the president. So, the president gets briefed by General Dunford --

WALLACE: So, here's the question. If he run against the recommendations of Mattis, McGurk, Dunford, the chairman of joint chiefs, apparently Pompeo and Bolton, who is he listening to?

MULVANEY: Here's -- the president listens to a bunch of different people, including the people --

WALLACE: That's his national security team.

MULVANEY: Including the people who live here, and ordinary Americans, the people he promised when he ran for office that he was going to lead. We recognize the fact that this is unpopular within the beltway. We recognize this fact it's unpopular within the Defense Department. It's very popular with ordinary American people. The people who ran when Donald Trump --

WALLACE: With all due respect to democracy and I agree with you about that, do they really know what -- do they really know what the stakes are of pulling U.S. troops out and leaving the Syrian defense force to the Turkish slaughter and what the impact is going to be on Iran? I mean, really, we are going to make this a plebiscite?

MULVANEY: Ordinary Americans have no idea about those things. They elect a president so that he does, and he has a complete understanding of what you just laid out and the decision is his.

We serve the president. I am not the president of the United States. Jim Mattis is not the president of the United States. And our job is to get him the information from all sides and believe me, he sees information from all sides. You can imagine on spending what he sees from me, and he makes the final decision.

The fact that his decision is now popular to some people is more their problem than his.

WALLACE: I've got one more question and I've got a minute for it. The stock markets have just had their worst week since the Great Recession in 2008. At least two top national security officials resigned this week and there is talk about more resignations from the Pentagon. Congressional Republicans are now breaking with the present whether it's on Syria or Saudi Arabia or even some of them about how the shutdown happened.

Does the president understand that there is growing concern in Washington, even among some people in his own party, that his presidency is in crisis?

MULVANEY: No. I don't think there is concern the presidency is in crisis. I thought you're going to ask me if these things are unpopular, people worried about them. This as -- I said at the outset, this is what having a president who is nontraditional, who's a different kind of president who looks like. He is not going to be an ordinary president and that's not what people wanted when they elected him.

As to the things you just mentioned, the fundamentals of the economy are still great. Yes, the stock market is down. We both know it goes up and down.

Unemployment is still at historic lows. Capital investment still high. Business confidence is high. GDP is still solid. So, the fundamentals are still good.

Is it going to be a rocky road with the president who is willing to mix things up to change Washington to benefit folks back home? Yes.

WALLACE: Mick, thank you. Thank you for your time, especially this holiday weekend. I hope you and your family gets a least a little time to celebrate Christmas.

And congratulations on your new job as chief of staff. I hope you will be more willing to come on and talk to us than your immediate predecessor was.

MULVANEY: Merry Christmas to you. Thanks, Chris.

WALLACE: Merry Christmas to you.

Coming up, we'll assess what the resignation of Defense Secretary Mattis means for U.S. relations with allies and adversaries. Former Defense Secretary Leon Panetta joins us, next.


WALLACE: With everything's that going on in Washington, we want to get the perspective from someone who's worked in this town since the Nixon administration.

Leon Panetta was Bill Clinton's Chief of Staff, then served as CIA Director and Defense Secretary under Barack Obama. Secretary Panetta joins us from California.

And welcome back, sir, to "Fox News Sunday".


WALLACE: You lived through the uproar over Vietnam; you lived over the crisis of Watergate. How much trouble is the Trump presidency in right now?

PANETTA: It's one of those moments if you're in the White House, where you really have to look at the situation and try to do what you can, to try to provide a little better stability for the country. There's just too much chaos, too many crises going on. I think it's very upsetting for the country, for our economy, for the world. I just think -- I think this is a moment where the president really has to focus on what steps need to be taken in order to provide a little better stability for the country.

WALLACE: We're going to drill down on each part in a moment, but when you look at the broad picture; the government shutdown, the freefall in the markets -- the real disarray and now resignations, when it comes to national security -- have you ever seen this particular kind of combination on all these different fronts?

PANETTA: Well, Chris, as you know, I've been in politics over 50 years, in a number of positions, and working under nine presidents. I've never seen a situation like this in which almost every important area that is key to this country is confronting crisis, or confronting crisis in terms of our national security. I think the -- obviously, the staff to suddenly withdraw those troops from Syria has sent a terrible message to the world about where the United States stands.

I think we're seeing the economy wracked by a crashing stock market, in the sense that the stock market is not quite sure what's going on. And we have the shutdown of the federal government -- all occurring at the same time and raising real concerns about whether or not this instability is going to shake the country, in terms of our security.

WALLACE: Well, let's talk about the national security component of it first. In your last job as Secretary of Defense, we have had these abrupt shifts in policy, pulling out of Syria, drawing down in Afghanistan, the resignation of Defense Secretary Mattis -- but President Trump did campaign, saying he did not want to be engaged in these endless wars; in that sense, isn't he keeping the campaign promise?

PANETTA: Well, the question the president has to decide is whether he upholds his oath of office as president of United States, to protect our security -- or whether he's simply going to move forward and fulfill campaign promises.

I think the more important responsibility is to protect this country and to protect our security. And that should come first. You know, a lot of presidents make campaign promises, but when they become president of the United States, their primary responsibility is to protect our country --

WALLACE: But, sir, let me --


PANETTA: -- and to do what's necessary --


WALLACE: Let me --

PANETTA: -- and to protect our national security.

WALLACE: Let me just push back on that a little bit, because we've been Afghanistan for 17 years and we're certainly still not winning. In Syria, the people that are now criticizing a lot of them, especially Democrats are criticizing President Trump for pulling out of Syria -- are the same people who were criticizing President Obama for failing to put troops in -- I mean, you could argue that maybe this is the best option.

PANETTA: Well, again, I think the fundamental question is: are we going to deal with the threats to our country?

Nine-eleven was an attack on the United States of America. We lost 3,000 people, over 3,000 people that day. We went to war as a result of that -- confronting Al Qaeda, Bin Laden, and now ISIS. We have made good progress in that fight. But it's not over.

And so, to suddenly declare victory when we have no victory -- we've made good progress, no question about it. We've made tremendous gains. But this is not a time when you're dealing with terrorist groups who can reorganize and threaten the security of our country; this is not a time to back away from that responsibility -- and that I think is the message that concerns me.

If we're sending a message to ISIS that somehow they can come back, they can be resilient, they can, at some point, come back and attack us and have us vulnerable to another 9/11 attack. That's unacceptable.

WALLACE: Let's talk about the shutdown. You've worn a lot of hats during your time in Washington and you were a budget director for Bill Clinton back in the '90s. The border wall -- five billion dollars for the border wall; the Democrats are saying, well, they've give $1.6 billion for border security. President wants five billion for the border wall.

I mean, a couple of questions here. How much of this is politics? How much of this is policy?

And when I said "politics" -- I mean "policy" on both sides, and as someone who lives in California and knows about the difficulty of trying to control illegal immigration, what's wrong with a border wall?

PANETTA: Well, I've never quite felt that an 18th century solution applies to the 21st century, in terms of building a wall. I do think it's important to have strong border security. I do think it's important to develop in many ways the technology and the other steps necessary to create what there should be a virtual wall. But the idea of spending five billion dollars to build a wall when, as we know, any wall is vulnerable to the highest ladder that goes over that wall -- it's just politics.

I realize he made a promise on this, but what's playing out now in Washington is a political confrontation between the president and the Democrats and the American people are paying the price for that. I mean, there are innocent people now, as a result of the shutdown, who are being hurt -- innocent men, women, children, families at Christmastime. Why take it out them?

The challenge for the president and the leadership and the Congress, on both sides of the aisle, is to sit down and resolve these issues and to deal with it. And yes, you know, I understand the different positions. But what's missing in all of this is a comprehensive approach to immigration.

That's what's needed. That's what's always been needed. You can't just solve this problem with a wall. You have to deal with every element that is broken now in our immigration system.

WALLACE: Finally, sir, and I've got less than a minute left, I know that you have a lot of disagreements on policy and probably on behavior, conduct with this president. But after this week and what you've seen, whether it's the shutdown or the abrupt 180-degree turns on Syria and Afghanistan - - do you have any doubts about Donald Trump's fitness to be president?

PANETTA: You know, Chris -- I believe deeply in the office of the presidency and regardless of who's president, I want that president to succeed, because if that president does not succeed, the country pays the price.

So, what I would like to do is to see President Trump recognize the chaos and crisis that we're in right now -- this period of tremendous instability that is hurting the country, in terms of our security and our economy -- and take steps. Appoint a strong chief of staff and not just an acting chief of staff. Appoint a strong Secretary of Defense.


PANETTA: Abide by the policy-making process that is important to the White House. Do what is necessary to be a strong president of the United States. That's what I want him to do.

WALLACE: Secretary Panetta, thank you. Thanks for sharing your weekend with us and sir, to you and to your family, Merry Christmas.

PANETTA: And a Merry Christmas to you, Chris, and to all of your viewers.

WALLACE: Up next, we'll bring in our Sunday group to discuss one of the wildest weeks of the Trump presidency.

Plus, what would you like to ask the panel about what the resignation of Defense Secretary Mattis means for the Trump White House.

Just go to Facebook or Twitter @FoxNewsSunday, and we may use your question on the air.


WALLACE: Coming up, the shutdown is just part of the story in Washiongon.

SCHUMER: President Trump is plunging the country into chaos.

PELOSI: Government must work, even if you're golfing for two weeks.


WALLACE: We'll ask your Sunday panel about the president's damaged relations with Democrats and his own party.



TRUMP: Let's get out, let's work together, let's be bipartisan and let's get it done them.

SCHUMER: This may have been the most chaotic week of what's undoubtedly the most chaotic presidency ever in the history of the United States.


WALLACE: Well, President Trump and the Senate Democratic Leader Chuck Schumer striking very different notes about the events this week in Washington.

And its time now for our Sunday group.

Katie Pavlich from, Mo Elleithee of Georgetown University's Institute of Politics and Public Service, Susan Page of "USA Today," and Fox News correspondent Gillian Turner.

Katie, I'm going to start with the same question that I asked Leon Panetta, how much trouble is the Trump presidency in right now?

KATIE PAVLICH, EDITOR, TOWNHALL.COM: Well, I think we tend to take weeks and blow them up into the entire Trump presidency. Now, was this week a tough one for -- for the White House? Sure. The president has made a number of very difficult decisions with serious risks and consequences potentially both on the government shutdown and in -- in Syria. But when it comes to blowing it out of proportion and saying that his -- this is going to the end. He's not going to be re-elected. The government shutdown is going to affect the next election I think is overblowing it quite significantly.

There are serious questions for both ends of the aisle on his decision to pull out troops in Syria. Just ten days ago Brett McGurk was saying, look, this is not --

WALLACE: The -- the U.S. envoy that --


WALLACE: Apparently President Trump did not know.

PAVLICH: Correct, but he was saying 10, 12 days ago that, look, we have gained significant ground in Syria but ISIS is not defeated and we need to make sure that we sustain the gains that we have made so the are not for nothing. And so you've seen Lindsey Graham come out, obviously, talk about the consequences of this, and there have been Republicans who are questioning whether we need to be leaving now. Eventually they do you want to leave and they understand that President Trump made this promise on the campaign trail, but they look at history and that shows that Barack Obama also made a campaign promise that he was going to take troops out of Iraq, which, of course, let us to this point now. And so --

WALLACE: And, of course -- and, of course, President Trump hammered Obama for doing exactly that.


WALLACE: Let me switch to Mo.

There have been a lot, as -- as Katie points out, a lot of disruptive weeks in his presidency. And you heard Acting Chief of Staff Mick Mulvaney just say, that's why people elected him to be a disruptor. So why -- or maybe you don't believe it is -- is this week different?

MO ELLEITHEE, GEORGETOWN INSTITUTE OF POLITICS AND PUBLIC SERVICE: Because we're actually seeing what -- what the Trump brand of disruption actually means. And I think for a lot of people it's -- it's disconcerting at best. I mean we're seen it both on the national security front with General Mattis, his departure, McGurk's departure, and a pretty -- a pretty difficult decision vis-a-vis Syria. We're seeing it on the economy with the stock market really taking a nosedive. And it's not just this week that that's been happening. There's been a negative trend there, which is conversed to what's happening in China, and that all began with his trade war. So we're beginning to see some of the impact of chaos and it's -- it's -- it's disconcerting.

Look, I agree with Katie that we do have a tendency to take a look at a week, take a look at a snapshot in time and try to extrapolate what it means. And we should caution against that. The problem is, every week is chaotic and every week feels disconcerting. This one particularly bad. But -- but that cumulation is going to -- is having a real impact on both politics and policy.

WALLACE: We have had other shutdowns and we've had other bad weeks or even bad months in the stock market, but what clearly set this week apart and sets a lot of people here in Washington's teeth to rattling was the sudden, abrupt shift on pulling troops out of Syria, drawing down in Afghanistan, and that led to the resignation of first Secretary Mattis and then now the special envoy, Brett McGurk.

We asked you for questions for the panel, and on this issue of Mattis quitting we got this tweet from Troy Carline. No current military officers with Mattis' experience will be aligned with a nationalist America first president. So where does Trump go to find a replacement?

Gillian, as a former staffer on the NSC for both Bush 43 and for Obama, and how do you answer Troy?

GILLIAN TURNER, CORRESPONDENT: Well, there is an option already on the table in place ready to go, and that's Patrick Shanahan, who is Mattis' current deputy. He's somebody who's been tightly aligned with President Trump on most military matters. He views -- he's a business guy like the president. He views his mission as filling the president's vision. He supported the space force, which most folks at the Pentagon, top military brass, did not support.

So there will be a secretary of defense. There's not going to be a crisis of no leadership at the Pentagon. The question is, is he going to find a Republican that is going to get in line with his agenda? Because the drawdowns he's been talking about lately sound more like they're coming from Joe Biden. You know, drawing down from Afghanistan and Syria all in one go.

WALLACE: Let's pick up on this issue of Republicans, because the other thing that set this week apart was this was the week when a lot of congressional Republicans sharply and publicly broke with the president, whether it was on precipitating the shutdown and especially over pulling troops out of war zones, here is Republican Senator Lindsey Graham.


SEN. LINDSEY GRAHAM, R-S.C.: In this war, you will not win it by quit -- by giving up. If this an akin to surrendering.


WALLACE: Susan, how much trouble do you think the president is in right now with -- clearly he satisfied some Republicans with his decision to shut down, but that also ticked off a lot of Republicans who felt that they had gotten an assurance from Mike Pence that he was going to sign the clean CR just to kick it down till February. How much trouble do you think the president is in with congressional Republicans?

SUSAN PAGE, USA TODAY: You know, he's pretty isolated and you can see by the members of Congress he invited to have lunch with him yesterday to talk about the shutdown, not only no Democrats, the congressional Republican leadership wasn't there. It was really the most conservative forces in the Republican Party and Congress who met with him. And I think that contributes to the sense of isolation.

I think one of the things that concerns people watching the president, and not just people who wish him ill, is that he seems isolated both in who he's talking to, who he's listening to, and the policies that he's pursuing. And one big problem the president has, his two big safety nets for the past two years seem about to go away. One has been the good economy and the second has been Republican control of Congress.

WALLACE: Let me just pick up on that, Katie, we got about a minute left, because the president reportedly agreed to what was going to be a clean CR. We're just going to fund this until February 8th. And -- and Mike Pence, the vice president, told Republican senators that. And -- and you got John Cornyn, the number two Republicans senator, who said he's going to sign the CR. And then he took this huge deluge of criticism from Rush Limbaugh and other talk radio hosts and also from the House Freedom Caucus.

That move, was that basically about, I'm going to shore up my core base here?

PAVLICH: Well, they're -- I don't think it's only that. Democrats were also saying that they were getting a lot out of the president in this deal that they never thought that they could. President Trump, in March, was promised that this border wall funding would then be available at the end of the year, and here we are now and he can't even get $5 billion after he'd been promised that he would never have to sign something again without it.

And the point is --

WALLACE: I'm talking about the shift, though, and we've got like 30 second.

PAVLICH: Right. But -- but to have the --

WALLACE: But the shift from where he was early in the week (ph).

PAVLICH: If anybody is -- if anybody is surprised that Donald Trump changed his mind at the last minute, you haven't been paying attention to how he operates. And when it comes to leverage, he's obviously using the government shutdown as leverage at a last minute when he knows he's -- if he doesn't get the border wall funding now, it's certainly not going to happen when there's a Democratic House because they can't even negotiate with Nancy Pelosi and Chuck Schumer at this point in time to get $5 billion of fencing, which they voted for before.

WALLACE: All right. Well, the bad news is we've got to end this panel. The good news is that we'll probably still be talking about the shutdown next Sunday.

Thank you, panel. See you next Sunday. Have a Merry Christmas, all of you.

PAVLICH: You too.

WALLACE: Up next, outgoing Ohio Republican Governor John Kasich on his political future. Will he take on President Trump in 2020?


WALLACE: The fallout from the midterm elections will hit Washington in the new year as Democrats take control of the House. And within weeks we'll be into the presidential campaign with Democratic candidates starting to announce.

But how certain is it President Trump will be the Republican nominee?

Joining me now, Ohio's outgoing Republican Governor John Kasich, a Trump critic, whose name has come up as a potential challenger in 2020.

Governor, welcome back to “Fox News Sunday.”

GOV. JOHN KASICH, R-OH: Thank you, Chris.

WALLACE: So, you've heard what we've been talking about this hour, the shutdown, the markets, resignation over the president's foreign policy shifts.

What do you make of those situations in Washington right now?

KASICH: Well, Chris, it's so much dysfunction, you know. And I -- I was just saying to one of the people with me this morning, as governor, you know, what if my communications director, my -- half of my cabinet start -- or even significant numbers of my cabinet started to leave, it would create great chaos. We would have great difficulty getting anything done. And it would communicate chaos throughout the state and in the legislature, whatever.

So it's -- it's -- it's very disturbing. And, you know, the -- the implications of what all this means long term for our foreign policy, for our domestic agendas, is really up in the air. It's -- it concerns me a great deal.

WALLACE: But President Trump campaigned on building a wall. He campaigned - - he promised the American people that he was not going to keep troops -- in fact, he was going to pull them out of endless wars, like Afghanistan. Isn't he doing what he told the American people he would do?

KASICH: Well, Chris, as you know, a president just can't get everything they want any more than a governor can get what he or she wants. And the fact of the matter is, I don't understand why he didn't make a deal. In other words, give me a couple billion for the wall, which was more than, you know, than they had previously been agreed to, and in exchange for that we -- we allow the DACA people to stay and the people who didn't come here any other way but on their own to be able to stay in America and not be given the threat of being deported. That's a deal that maybe they could get, that he would get. And I don't know why he hasn't done that. That makes an awful lot of sense to me.

In terms of Syria and troops, I think what everybody is objecting to is the precipitous nature, not informing your allies, not talking to the people who critically we need in this world. And -- but let's also face in Syria the fact that that whole operation has been a mistake for many years. The Obama administration ignoring the redline was a disaster. We've lost influence in Syria, but the precipitous nature of that withdrawal, without finally defeating ISIS or making sure they can't reformulate, is a terrible mistake.

WALLACE: All right, let's get to the main course here.

There's a lot of speculation on whether or not you're going to take on President Trump in 2020.

And here's what the president had to say about that.


UNIDENTIFIED FEMALE: I'm going to bring up John Kasich and I'm going to bring up Arizona Senator Jeff Flake because they say they may run against you in 2020.

TRUMP: I hope so.

UNIDENTIFIED FEMALE: What do you say to a Kasich or a Flake?

TRUMP: I think we (ph) have the greatest base in the history of politics.


WALLACE: So, will you run against President Trump either as a Republican in the primaries or as an independent?

KASICH: Chris, as you know, all options are on the table. And we look every day -- I have a team of people who look every day at the factors that go into a consideration like that. And I -- you know, we access it and at some point I will make a decision and I'll give folks full disclosure about how I arrived at a decision and what it is.

But, at this point, again, all options are on the table. I want to finish my job as governor. I only have a few weeks left. And -- and then we'll see what develops, you know, in terms of the politics and our nation.

Look, what I'm most considered about, Chris, is -- is having a voice. You know, when you look at Secretary Mattis' letter, I have been saying this now for almost two years, you can't ignore your allies. You can't just do things on your own, America first. I've been saying for two years that it doesn't make any sense to just engage in trade wars, particularly with our friends.

I mean a lot of the things you're beginning to hear from other Republicans now are things that I've been saying for almost two years. And what I'm really concerned about is the division in this country. I don't like that. I know people have very serious problems. I grew up in a neighborhood where I understand the problems of people who have been left behind. But you can either tell them that they're the victim of somebody else or you can tell them, yes, you have a problem and we can fix it.

Let's think about Ohio for a second. You know, the Republicans lost in Illinois. They lost in Wisconsin. They lost in Michigan and Pennsylvania and they won everything in Ohio, because we've had a program of hopefulness. Up jobs, including people who have traditionally been ignored, that's the road map. And so I'm positive about the fact that we can help people, including the people that live in Lordstown where GM announces a plant closure. I give them -- I try to give them the hope that we can see a better tomorrow.

WALLACE: All right. We're -- we've got -- we've got a couple of minutes left --


WALLACE: And I want to do like a lightning round.


WALLACE: Would it be fair to say that the idea of running for president is under active consideration?


WALLACE: You can go on a little longer than that. So active --

KASICH: Oh, well, look, we -- we just have to access it. And whether my voice can help this country. And, like I say, all options are on the table.

But I'm a Republican. I'm proud to be a Republican. I'm concerned about my party. They got smashed in the midterms because I think they moved away from the road map that my team created here in Ohio.


KASICH: So, yes, we are actively thinking about it. But I can't tell you when exactly we'll make a decision, but we'll let you know.

WALLACE: Will it be -- would you run as a Republican or might you run as an independent?

KASICH: If all options are on the table, Chris, that means they're all on the table. And we just have to see the development here. That's -- that's the only thing I can tell you at this point.

I'm not trying to be coy. We are seriously looking at it. My folks talk and meet every week about it, the people that are involved with me politically. And, you know, at the end, I'll make a decision.

WALLACE: Do you think that you could possibly beat Donald Trump in Republican primaries? He's got tremendous approval among people in his own party.

KASICH: Yes. Well, Chris, look, one thing that we know from your panel is every week it's a new story. We don't know what things are going to look like in the next month or the next two months or the next six months. We just don't know how that's all going to work.

So the way we might look at it today is -- well, frankly, you can't look at it today, you've got to think about what it's going to look like somewhere down the road.

WALLACE: Well, you say down the road, and that's my last question in this area, which is, is there a drop-dead date that you feel you have to make a decision --

KASICH: No, we don't feel -- we don't feel that there is one. We've -- we have to see with the circumstances are. And, again, it's about my being able to have a positive impact. If I assess that I would have a significant, positive impact in helping the country, that's one thing. If I assess it and think, well, maybe I won't, then -- then it leads to another decision. But it's way off. At this point, we don't know.



WALLACE: Less than a minute -- less than a minute left.

And right now you're in a veto fight with your own Republican legislature. You vetoed a bill that would've allowed abortions when people can hear a fetal heartbeat. You also vetoed a bill that would have given gun owners more rights, which raises, I think, the bigger concern about you politically, which is, are you too moderate for today's Republican Party?

KASICH: Well, look, first of all, I've signed a lot of pro-life legislation in this state, so that's a fact. Number -- and I don't want to see -- pass something that I think would probably be ruled unconstitutional.

Secondly, I'm for the Second Amendment. But let me tell you this, Chris, if you see somebody who's unstable in your business or your family and you think they pose a threat to people around you --


KASICH: And you can go to court, then I think their guns should be taken. That is not against the Second Amendment, that's common sense. And I can't get that done and I'm not signing anything else until I can get that done.

WALLACE: Governor Kasich, got to leave it there. Thank you.

KASICH: Thanks. Merry Christmas.

WALLACE: Thank you, sir.

KASICH: Happy holiday. See you soon.

WALLACE: You took it all away for me. Thank you. Same to you and your family.

KASICH: All right, sir. (INAUDIBLE).

Up next, our "Power Player of the Week," honoring America's veterans this holiday season.

Plus, another visit from the Wallace grandkids.


WALLACE: It's a Christmas tradition here to share the story of how one family has found a way to express the meaning of the holiday season. It's a moving example of love for our country and personal generosity. Once again, here is our "Power Player of the Week."


MORRILL WORCESTER, FOUNDER, WREATHS ACROSS AMERICA: We wouldn't have the opportunities if it wasn't for the people that fought for us and how gave their lives for us.

WALLACE: It's that plainspoken wisdom that has driven Morrill Worcester for years on a mission that has touched Americans heart.

Each December, Worcester places wreaths at Arlington National Cemetery, and thousands of volunteers are there to help him.

WORCESTER: I think a lot of people think like I do and they just want to, you know, they appreciate the veterans and they want to show it.

WALLACE: This story begins back in 1962 when Worcester, then a 12-year-old paperboy from Maine, won a trip to Washington. What impressed him most was Arlington, it's beauty and dignity and those rows and rows and graves.

WORCESTER: Everyone represents a life and a family and a story. They're not just tombstones. I mean those are all people.

WALLACE: Thirty years later, in 1992, Worcester was running his own wreath company in Harrington, Maine. But as Christmas approached, he had a bunch left over.

WORCESTER: These wreathes were real fresh and right just made. And I just didn't want to throw them away.

WALLACE: He thought of Arlington and all those graves. When the cemetery approved, he and a dozen volunteers drove the wreaths down and laid them on the headstones. And so it continued for years until a few Christmases back when an Air Force sergeant took this picture, which ended up on the Internet.

WORCESTER: It kind of struck a nerve and people e-mailed it to each other and it really went around the world.

WALLACE: We were there the next year as he and his workers at the Worcester Wreath Company loaded up 5,265 wreathes. Then they embark on what Worcester calls the world's longest veteran's parade, a 750 mile journey that at some points attracted more than 100 vehicles. And when they got to Arlington, so many people wanted to participate.

UNIDENTIFIED MALE: The ceremony you are about to witness is an Army Wreath Laying Ceremony to be conducted for the Worcester Wreath Company.

WALLACE: For years Worcester paid for all of the out of his own pocket. And he started Wreaths Across America, sending hundreds to cemeteries and war memorials around the country. But he will need help to reach his new goal.

WORCESTER: I think around 2.7 million graves, and that's a tall order to decorate 2.7 million graves. So --

WALLACE (on camera): But you'd like to do it, wouldn't you?

WORCESTER: I really would, yes. Sometime, I don't know how, but, hey, you know.

WALLACE: How long are you going to keep doing this?

WORCESTER: I'm going to keep doing it for as long as I work and then I know my family is going to continue. So it'll be here for a long time.


WALLACE: This is the 27th year Morrill Worcester has taken on his Christmas wreath project. This month volunteers placed 1.8 million wreaths on veteran's graves at over 1,600 locations in all 50 states, including in the rain and cold at Arlington. And for the first time, they placed American- made wreaths at the American cemetery in Normandy, France.

And now, another Christmas tradition. Here's a look from the last few years at the Wallace grandkids as they keep getting bigger and bigger. And here they are again, but something feels different this year. Let me check. Here's Sabine (ph), and Levy (ph), and Caroline (ph), and James (ph), and William (ph). What am I forgetting?

KIDS: Jack.

WALLACE: Jack. Oh, Jack Wallace making his television debut in his Christmas outfit, age three and a half months.

From our family to yours, have a very Merry Christmas and we'll see you.

UNIDENTIFIED MALE: Next “Fox News Sunday.”

WALLACE: Very good.

All right, guys, three, two, one --

ALL: Merry Christmas!

Content and Programming Copyright 2018 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2018 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.