This is a rush transcript from "Special Report," December 21, 2018. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

MITCH MCCONNELL, R- KY., SENATE MAJORITY LEADER: The Senate has voted to proceed to legislation before us in order to preserve maximum flexibility for productive conversation to continue between the White House and our Democratic colleagues.

CHUCK SCHUMER, D-N.Y., SENATE MINORITY LEADER: We are willing to continue discussions with these proposals with the leader, the president, the speaker of the House, and the leader of the House.

(END VIDEO CLIP)

BAIER: So you’re saying there’s a chance? The partial government shutdown, which is less than six hours away -- five hours, 20 minutes away -- would possibly be avoided if they continue negotiating. And they come with some solution that would then have to pass the Senate and then bounce back to the House, get passed there and head to the president’s desk.

Why do we call it a partial government shutdown? It’s because a lot of the spending bills have already been passed. If you look at this pie charts, 75 percent have a ready been funded. We’re talking about 25 percent here not yet enacted. It’s still a lot of people potentially that wouldn’t get paid for some period of time depending on how long it goes. As we talked about yesterday, they got their checks this week. There’s a holiday coming up, so there is some buffer room there. But it’s still very serious.

Let’s bring in our panel, start there, Tom Rogan, commentary writer for the "Washington Examiner," Mollie Hemingway, senior editor at "The Federalist," and David Catanese, senior politics writer for "U.S. News and World Report." OK, David, so they left this vote open today because Republicans didn’t have the votes. And then they make a deal, and now they are talking. And we just don’t know where that’s going to go.

DAVID CATANESE, SENIOR POLITICS WRITER, U.S. NEWS AND WORLD REPORT: Something’s going to have to give if they can get this done in four hours. Either they can maneuver the language so it’s for border security but maybe not for exactly a wall. Maybe they throw a little money and then Trump can claim victory.

But look, I think the Democrats hold the cards here. I thought it was very telling that earlier in the day when the vice president went up there with Jared Kushner and Mick Mulvaney that the meeting was with Schumer. It is not with McConnell. It’s about getting Democrats on board. I saw in the last procedural votes, Doug Jones, the senator from Alabama, voted to move forward. So maybe there’s some opportunity to get Democratic votes, but tough to get to 60.

BAIER: Joe Manchin voted against it from West Virginia. Mollie, this is what Chuck Schumer kept on referring to today numerous times talking to performers. This is the Oval Office meeting back on December 11th.

(BEGIN VIDEO CLIP)

PRESIDENT DONALD TRUMP: You know what I’ll say? Yes. If we don’t get what we want one way or the other, whether it’s through you, through our military, through anything you want to call, I will shut down the government.

SCHUMER: OK, fair enough. We disagree. We disagree.

TRUMP: And I am proud -- and I’ll tell you what. I am proud to shut down the government for border security, Chuck, because the people of this country don’t want criminals and people that have lots of problems and drugs pouring into our country. So I will take the mantle. I will be the one to shut it down. I’m not going to blame you for it. The last time you shut it down, it didn’t work. I will take the mantle of shutting down. And I’m going to shut it down for border security.

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BAIER: So fast forward 10 days and this is the president today, "The Democrats now own the shutdown!" saying the bill had passed the House and was now in the Senate.

MOLLIE HEMINGWAY, SENIOR EDITOR, THE FEDERALIST: And what I think is really interesting is we have not solved a lot of our immigration problems because the incentive structure hasn’t been there. Both Democrats and Republicans have benefited by being able to use the issue without actually solving it.

What makes this very interesting is Donald Trump has no incentive to do anything other than wait for a bill that provides money for the border fence. He can wait as long as he wants, partly because we’ve got a government that’s 75 percent funded, but also because if he does not provide this, it is a very serious problem for him and his electoral future. And he has no incentive to accept anything other than meaningful border wall funding.

And so I think when he looks at the shutdown, he views it as something where he gets to take credit for caring enough about border security to go to this point, but Democrats, actually, they might just be playing into his hands by going into it if they aren’t willing to play. And they’ve already voted for his border security. They’re already voted for border fences. There should not be anything --

CATANESE: The wall is different. And that’s symbolic, and that’s where the opposition is. That’s where I think the horse trading has to occur, border security that is not a wall. The president even changed the language of this. He’s talking about slats and not a wall.

BAIER: Right, he tweeted out this picture of what the potential new wall would look like, steel slat barrier. Tom?

TOM ROGAN, COMMENTARY WRITER, WASHINGTON EXAMINER: I think David is correct, if we get to a shutdown, there will a fudging of language, some money. But to Mollie’s point, I think that is the critical component here. I think President Trump to a degree wants the shutdown because he feels especially in the context of Mattis, the negative coverage there, he wants to show, actually I’m the hard charging, I’m the candidate Trump. And that will matter going into that presidential election year, because whether you know it or not, or whether we know it or not, a lot of Americans did vote for him then.

I also think the president’s benefit is Democrats being seen to oppose border security from a hard left line by a lot of American perception will be negative for their candidates. So this may flip in his favor later on.

BAIER: We’ll monitor it throughout the night and you’ll see all the developments here on the FOX News Channel. You mentioned Secretary Mattis stepping down, resignation letter yesterday that was -- frankly, there were a lot of things in that letter. If you read it again, again, and again, he does not say anything positive about President Trump, and he’s very pointed about leaving because of ideological differences and specifically that Syrian troop withdrawals and then Afghanistan troop withdrawals, Mollie.

HEMINGWAY: And I think one of the things that was interesting that came out about this is we learned eight months ago, Donald Trump gave Mattis six months to get out of Syria. Not only did he not come up with a plan to get out of Syria, it seems like he took that time as an opportunity to ramp up efforts in Syria. It is fine that General Mattis has different foreign policy views than President Trump, but the American people elected President Trump to be the commander-in-chief and he has every right to have very good defense secretary and other people who actually understand that the need to provide him with good options. And so if he’d never had any intention of upholding these policies, he probably shouldn’t have taken the job, or he should have resigned at the point when he realized there was a conflict.

BAIER: However, critics would say, David, that how it happened, the process of the story leaking that this was starting to happen, and then the president tweeting it out, and the allies and the lawmakers and the oversight and the Pentagon were really in the dark.

CATANESE: Yes. And I think the story that has been told is that Mattis went over there one last time to try to change the president’s mind on Syria but then had his resignation letter written, submitted. We were talking in the green room before, though. Who gets better press in Washington than General Mattis? The guy has been getting accolades from Democrats, from liberals. So I think there some of this piling on --

BAIER: And by the way, some of them said that they were really opposed to having troops on the ground on Syria.

CATANESE: For sure.

BAIER: And now they are suddenly really behind that effort.

CATANESE: Because it’s an anti-Trump thing. So I think there’s something to that. I would just say the broader question of who replaces Mattis is going to be a huge question in 2019. The president is going to have four cabinet confirmation hearings, U.N. ambassador, defense, attorney general, and interior, all coming in 2019.

BAIER: And he’ll probably also have Mueller to deal with in the beginning of 2019 as well.

ROGAN: I do think interestingly, though, looking at the president’s foreign policy, he has obviously the right to have the defense secretary he wants. Whatever we think about the Syria decision, I don’t necessarily buy into this argument, though, that Mattis’ departure means the real America first, because if you actually look at the cabinet balance, Bolton, Pompeo, very tough on Iran. The idea of Tom Cotton being talked about as the next secretary of defense, very tough on Iran. Mattis, even though the Obama administration pushed him out for being too hawkish on Iran, was seen as the interlocutor. So we’ll see.

BAIER: We will see. Next up, winners and losers.

(COMMERCIAL BREAK)

BAIER: We are back with the panel. Winners and losers, David, winner first.

CATANESE: My winner is Martha McSally, the senator to be from Arizona who lost the Senate race but then got appointed to a seat by the governor out there. It’s a pretty great consolation prize to be the junior senator.

BAIER: Loser?

CATANESE: My loser is Mick Mulvaney, the chief of staff, the incoming acting chief of staff. I just think it is the hardest job in Washington and it’s going to get tougher in 2019. Godspeed.

BAIER: Especially when they find all these quotes that you’ve said about the president. It keeps on popping up. Tom?

ROGAN: My winter is Jared Kushner, the criminal justice reform bill, something I don’t think we would have really expected to come through a year ago. He managed to shift the line. He got Cotton on board, he got Cruz in there. It’s a big win. It’s a big win.

My loser of the week is Jose Mourinho, who is a soccer coach from Portugal who was known as the special one originally in the Premier League. He got fired from Manchester United, a great soccer team now. No longer special. The stardust is gone.

BAIER: Thank you for bringing the international flavor to the winners and losers? Mollie?

HEMINGWAY: My loser for the week is Nancy Pelosi. Last week she got a lot of acclaim for saying that Donald Trump didn’t have the votes in the House for his border wall. He did, 217 to 185 is what they voted on. And my winner is you, Bret Baier, and the Sugarhill Gang. Last night we celebrated 10 years of you hosting this show with a Christmas party, and you and the Sugarhill Gang got together for this collaboration that was audacious and totally made the whole house fall down.

BAIER: Who is that guy, and where did I get that suit?

HEMINGWAY: It is an atrocious suit, but wonderful also.

(BEGIN VIDEO CLIP)

(SINGING)

(END VIDEO CLIP)

BAIER: I learned it in high school, that’s what happened. And it’s always stuck with me. But thank you for the winner.

(LAUGHTER)

BAIER: My wife was cringing. OK, panel, thank you. Merry Christmas, happy New Year. When we come back, "Notable Quotables."

(COMMERCIAL BREAK)

BAIER: Finally tonight, it’s Friday. That means "Notable Quotables."

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: President Trump just tweeting that Secretary of Defense James Mattis will be retiring at the end of February.

SCHUMER: We know he has real disagreements with the president on Syria and on the wall.

TRUMP: We have won against ISIS. We’ve beaten them and we’ve beaten them badly.

SEN. LINDSEY GRAHAM, R-S.C.: To say they are defeated is an overstatement and is fake news.

UNIDENTIFIED FEMALE: The sentencing of the former national security adviser Michael Flynn has been put off for another 90 days.

SARAH SANDERS, WHITE HOUSE PRESS SECRETARY: Maybe he did do those things, but that doesn’t have anything to do with the president directly.

RUDY GIULIANI, PRESIDENT TRUMP’S ATTORNEY: Over my dead body.

UNIDENTIFIED MALE: Yes, I wore socks with the president’s face on them. So guilty as charge.

TRUMP: Any measure that funds the government must include border security, has to.

KELLYANNE CONWAY, COUNSELOR TO PRESIDENT TRUMP: The president has said that he is willing to do what he has to do to get that border security, including a government shutdown.

REP. PAUL RYAN, R-WIS., SPEAKER OF THE HOUSE OF REPRESENTATIVES: The president informed us that he will not sign the bill that came over from the Senate last evening.

SCHUMER: Democrats are not budging on the wall. We favor smart, effective border security, not a medieval wall.

SEN. RAND PAUL, R-KY.: We shouldn’t willy-nilly shut the government down, but we also shouldn’t just keep it open and keep spending money like there is no tomorrow.

RYAN: Today, too often, genuine disagreement quickly gives way to intense distrust.

MIKE HUCKABEE, FORMER ARKANSAS GOVERNOR: We get a lump of call, and they get a whole bunch of packages under the tree. And it makes no sense to me.

UNIDENTIFIED MALE: There are chaotic weeks, and then there’s this week.

(END VIDEO CLIP)

BAIER: Amazing, one week. And it is still continuing as this clock ticks down. You can see all the coverage here tonight about what happens.

Meantime, we are just getting word that a man climbed the national Christmas tree in Washington and wouldn’t get down. Authorities finally convinced him to get down off the national Christmas tree. Merry Christmas, Washington.

(LAUGHTER)

BAIER: Thanks for inviting us into your home tonight. That’s it for this SPECIAL REPORT, fair, balanced, and unafraid. A quick programming note, though. This weekend, tune in to our special, "Charles Krauthammer, Making His Point." You’ll see an extended interview with Daniel Krauthammer, Charles’ son who completed his dad’s book. We talked about that here, and some never-been-seen footage of my interviews with Charles over the years.

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