Bannon`s War Room
Episode 5080: Live From Davos; President Trump U Turns On Chagos Islands
20 Jan 2026
Chapter 1: What are the key themes from President Trump's inauguration speech?
Please raise your right hand and repeat after me. I, Donald John Trump, do solemnly swear. I, Donald John Trump, do solemnly swear. That I will faithfully execute. That I will faithfully execute. The office of President of the United States. The office of President of the United States. And will to the best of my ability. And will to the best of my ability. Preserve, protect and defend.
Preserve, protect, and defend. The Constitution of the United States. The Constitution of the United States. So help me God. So help me God. Congratulations, Mr. President.
Trump exhaustion syndrome and dives into the nonstop and frantic development surrounding President Trump's first year back in office and how Americans just can't seem to keep up. The report chronicles Trump's attempts to expand his power over the past year and why seemingly no one has been able to stop him.
Again, I would say this is the same kind of hysteria that we heard on April 2nd. There was a panic. And what I am urging everyone here to do is sit back, take a deep breath and let things play out. As I said on April 2nd, the worst thing countries can do is escalate against the United States.
It feels, Joe, like I'm sitting here in Davos waiting for Storm Trump to arrive. And nobody really knows, is he going to come here with a message that is more conciliatory, having said he had a good conversation with Mark Rutter, the Secretary General of NATO, or is he going to come here and escalate things?
I mean, if this is a kind of reality show, what's the next plot twist going to be that he's going to offer us? And really, Europeans are bewildered. But I think what they have taken on board is that this is a permanent shift. And I think that's Something it's taken Europe a while to adjust to.
But you just heard, I was listening to the president of the European Union, Ursula von der Leyen, here in Davos, giving the opening remarks. Here's what she said. Nostalgia is part of the human condition, but nostalgia will not bring back the old order. So Europe realizes it has to prepare to defend itself. Now it has to deal with this emergency over Greenland. And you've got...
President Trump attacking some of his closest allies. We've said for a while, Joe, he has a better relationship with Macron. He has a better relationship with Starmer. When he goes and releases their private communications and attacks Keir Starmer for a great act of stupidity, it doesn't do much to shore up his relationships in Europe.
And all of this, as we've been saying, to the benefit of Russia, to the benefit of China. And the decision to de-link the U.S. dollar from gold. In an instant, the foundations of the Bretton Woods system and the entire global economic order, set up after the war, effectively collapsed. But it also had two major effects.
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Chapter 2: How is President Trump perceived during his first year back in office?
Steve, good to be with you. And, you know, I can tell you here in Davos, remember their paper a few years ago that we should all be eating insects. And given the food here, I think I'd rather eat insects. So, but to be serious, the president's got plenty to swagger about. It's been an incredible year. Peace deals, tax deals, trade deals, the Atlanta Fed GDP numbers, 5.3% forward inflation.
Looks like it could be at the Fed's target by the end of the summer. And we've got the hottest... economy on Earth. Now, the Europeans are very good at value signaling. And if you remember, probably their most strident moment, their most strident moment against Russia, Ukraine, was when they put the Ukraine, shown the Ukraine flag up on the side of the EU Parliament building.
I am sure that Vladimir Putin was quaking in his boots. So, look, the Europeans, they like to talk in these big terms, and they're our allies.
Chapter 3: What are the implications of Trump's power expansion attempts?
They want to be under the U.S. umbrella, and they will be.
I want to talk about Ursula von der Leyen. She kind of gave a history of the U.S. currency as Bretton Woods, about Nixon coming off the gold standard. She implied that that's actually going to be in question. When she talked about a new geopolitical She implied that this has to do with the U.S. currency. Then Ray Dalio came up and said, hey, you may see a reallocation.
We may be heading into a time of capital wars. Under your stewardship, it's been quite evident with the president's strategy and you executing. that the Europeans have piled into what you call the Trump trade, the America First trade, the MAGA trade.
Are you concerned at all, not just the geopolitical realignment, but the, I don't know, it's $100 trillion of assets, I think the Europeans own of our stocks and our bonds, sir?
Well, Steve, a couple of things. And I wanted to backtrack for a moment because I don't believe that the markets are going down or I don't believe the primary catalyst for the market going down is the kerfuffle over Greenland. I believe the markets are going down because the Japanese bond market had a six standard deviation move for the past two days. That would be in their 10 year bonds.
I've been in touch with my economic counterparts in Japan and urged them to take the necessary measures to stabilize their bond market. But that's spilling over into all bond markets. German yields are up. French yields are up. U.S. yields are up. And again, it's mostly the Japanese bond market. Got nothing to do with Greenland. And the Europeans can shake their fist. They love regulation.
They have low growth. And our message to them has been, come grow with us, be part of our innovation economy. Because, Steve, imagine this, that Europe has no cloud of its own. It's the US and China. How is it that 400 million people haven't been able to develop that? And it's just this over-regulation.
And in my words, Mario Draghi, the former Prime Minister of Italy, former head of the ECB, issued a gigantic report called the Draghi Competitiveness Report. And he said that he believes that goods intra-Europe are tariffed At about 50%, services are tariffed at 100%. So it is just this regulatory morass that Europe, they like to export regulations.
I've had many of our great US tech executives, some I know you take shots at, rightly, tell me that it's easier to do business in China than in the EU.
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Chapter 4: How has Europe adjusted to the new geopolitical landscape?
Here's the bet we're making. It's the last chance we've got to really do supply-side to focus on manufacturing, growing manufacturing. Also... The tariff deals, you had a brilliant defense of it, I think. We played some clips at the top of the cold open about redoing the commercial relationships and how significant that was working, also to drive manufacturing.
Today, I think, or yesterday, they announced the deficit for last year, over $2 trillion, up to $39 trillion. that you've told our audience for a long time and said, hey, look, we've got our last chance to try to grow our way out of here. Now, the Atlanta Fed is saying real growth, particularly in the private sector, is over 5%.
Do you still hold with that, that you and President Trump believe we can actually grow our way out of here and that somehow in some future time this year, later this year, next year, we're going to start getting our arms around the stimulus we're putting into the economy, the $2 trillion deficits?
Well, Steve, for the calendar year, the deficit actually went down by about $200 billion, and a big reason for that was President Trump's tariffs. So we had a fiscal contraction, and then we grew the GDP. Call it 3% with about 2.5% inflation. So the really important number to look at here is the deficit to GDP. So 2024 deficit to GDP calendar year, not fiscal year, was 6.9%.
This past year, 2025, 5.4%. So we have made a substantial dent in the deficit to GDP. That's the important number. That shows that we are growing our way out of this. So we brought the numerator down and we grew the denominator. And if we keep this up, we're well on the way to my 3% deficit to GDP by the time the president leaves office. Of course, in the war room.
Steve, the other thing that's important here, too, is what is... The reason we're not making more progress on the deficit is because we are doing the immediate expensing of equipment, of factory structures, and of farm structures. And that is productive spending. And so we take a tax hit on that upfront that business people pay.
Any of your viewers who have small businesses, they buy an office computer, they can write 100% of it off. They build a new farm shed, they can write 100% of that off. But you're increasing the tax. revenues the year after the following year. So it's not just social spending that goes out the door never to be seen again.
We are pulling the rubber band back further and further so our economic potential gets bigger and bigger.
You know, we've heard numbers thrown around, 19-tree here, 9-tree here, whatever. But are you comfortable, because this is the key to the plan, are you comfortable you're seeing from the big, beautiful bill and from the imposition of the tariffs or the redoing of commercial relationships? The capital coming back into the United States and starting to basically make the investments.
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Chapter 5: What is the significance of the Chagos Islands in current geopolitics?
They're going to be producing a lot more. We will be independent. You can't have sovereignty without controlling your supply chain. And we're seeing that again and again because after I was on your show, I went down to my hometown, Charleston, South Carolina.
Boeing is expanding their Dreamliner factory there by 50% due to all the new orders that President Trump drummed up as part of the trade deals. Every one of the trade deals, not only are we getting tariff income, but we are also encouraging ag purchases, substantial industrial purchases.
And, Steve, on the other side, with President Trump's leadership and Jameson Greer's encyclopedic knowledge of trade, he has just gone through and cut out all the tariffs, that our American exporters pay and all the non-tariff trade barriers. So we saw a big, in the third quarter of GDP, first time in years, we saw a positive contribution to trade instead of a trade deficit.
When I started in the investment business, 1980s, 1990s, trade always had a positive contribution. Then after the China shock, it never did. And I think we can get used to having a positive contribution From trade instead of, as Ross Perot said, that giant sucking sound.
That's what shocks me when you're over there and you've got these geopolitical issues about Greenland and Canada and the Arctic North and things that President Trump is geopolitically trying to work out and you're trying to. you know, assist on both the trade deals and the finances of it. China announced a over a one trillion dollar trade surplus. A lot of that comes from Europe now.
I mean, do the Europeans not really understand the kind of geoeconomic logic of our block? And obviously the American people, it's time for the Europeans to stand up and pay more for their own defense. But are they missing the fact of the interconnectivity of our capital markets, the interconnectivity of our commerce markets?
And that the sucking sound you've got, particularly for them, and especially for places like Germany, is now the Chinese Communist Party? Did they fail to understand that?
Steve, it's a complete understanding. And it goes back to, I think it was 2018, when President Trump met with the head of NATO and said, why are you doing Nord Stream 2? You are going to regret. You're going to regret. They had this cheap Russian oil, and they did. So as I continually say, the Europeans are still sending money to Russia for energy in the ultimate amount. You couldn't make it up.
It is so absurd. They are financing the war against themselves. And so it's the same kind of thing that I told when we were doing the negotiations with our European partners, Last summer, I told them, we have the tariff wall up on China, and these goods are going to come somewhere.
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Chapter 6: How does the U.S. relationship with Japan affect global markets?
still lets Chinese in without a visa. You know, that's what's going on here on the front line, America's Asian front line. So if you want to follow more about what's going on here as I travel through the region on terrible United Airlines flights, it's my name on X. Just my name, Cleo Pascal, and come along for the ride and come visit your fellow Americans, please.
They want to see you there out here. And yeah. Yep.
Working on the tariffs thing behind the scenes, I think what we'd have to do is have a special. We have to have you for one hour and walk through McKinley's influence on Trump, both on tariffs and geostrategically. McKinley was was quite he and the people around him. Those late 19th century, early 20th century Americans, just unbelievable in their foresight about the world.
Cleo, thank you so much. And thank you for being out there. And warning the American people and quite frankly, the Brits, they're now finally waking up to the fact President Trump ain't happy with the situation in D.A. Garcia.
Thank you, sir.
Thank you, ma'am. Nor Ben Laden. Larry Fink, the mayor, Scott gave him a little bit of a heads up, the secretary of treasury saying, hey, the ESG and DEI is still there, still embedded, but it's dying down a bit. Of course, Larry Fink was the single biggest driver that since he controls, I think it's two trillion dollars. Of of assets and basically money market funds and mutual funds, et cetera.
Give me a couple of minutes before we go to break. We're going to hold you over on your assessment of Davos through day two awaiting President Trump, ma'am.
Secretary Besant was quite gracious with Larry Fink and very diplomatic with him, I found in his statements. I'll be less diplomatic, I have to say, because I just think he's a total hypocrite. And his opening remarks today were clearly that hypocritical. And he's trying to toe the line between
appeasing America first, President Trump ahead of his visits, while still kowtowing to the Davos elite and Davos club. So he's playing that fine line. And his opening remarks were very interesting.
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