Trump Demands Increase in Defense Spending

Bloomberg's George Ferguson breaks down the market reaction to President Trump's calls for a $1.5 trillion dollar defense budget, as well as his threat to cut some of the most notable names in defense technology at the same time.

In a head-spinning series of social media posts on Wednesday, President Donald Trump demanded a $500 billion increase in annual defense spending but threatened to cut out some of the companies poised to profit the most from the boost.

The apparently contradictory string of announcements sent shares of major defense contractors tumbling as traders sought to interpret the White House’s intentions — and whether they would ever come to pass.

It all began with a demand that hit on a long-time issue for Trump: Major defense contractors that work with the government must end stock buybacks, stop issuing dividends and cap executive pay at $5 million a year until they invest more in factories and research to speed development.

Hours later, Trump signed an executive order following through on his social media posts — though it only said executive pay should be “capped at current levels.” In a separate post, he singled out RTX Corp., a maker of the popular Patriot missile system.

Raytheon, the name of RTX’s defense unit, will “no longer be doing business with Department of War” unless it “steps up” with more upfront spending on plants and equipment, he said. Shares of RTX as well as rival defense firms Northrop Grumman Corp., Lockheed Martin Corp. and General Dynamics Corp. declined.

A RTX spokesperson declined to comment when reached by telephone. Spokespeople for Northrop and Lockheed Martin didn’t immediately respond to requests for comment.

It remains unclear whether a president can mandate how private companies deploy their capital. Yet at the same time he railed against RTX, Trump also made a spending vow that would bring the company and its peers handsome profits: He demanded, again via social media, that Congress heighten annual defense spending by more than 50% to $1.5 trillion for 2027.

“This will allow us to build the ‘Dream Military’ that we have long been entitled to and, more importantly, that will keep us SAFE and SECURE, regardless of foe,” Trump wrote on social media.

The flurry of moves were both a surprise and in line with earlier remarks by Trump and Defense Secretary Pete Hegseth, who delivered a speech in November calling defense contractors to account and saying they would “fade away” if they didn’t spend more on speeding up weapons production.

At the same time, the administration has only deepened its dependence on defense companies as it’s carried out military actions in Iran, Syria, Somalia, Nigeria, Venezuela and elsewhere in Trump’s first year. The administration has overseen at least 626 air strikes so far, according to the Military Times — and that was before the operation to oust Venezuelan President Nicolas Maduro.

The statements also highlighted two contradicting imperatives held by Trump. On the one hand, he’s called repeatedly for a stronger, better-funded military. On the other, he’s sought to confront a problem that has bedeviled presidents for decades — the cost overruns and delivery delays so endemic among major US weapons systems.

The problem has become particularly acute with the advent of new technologies such as drones, with evidence that China and even Ukraine, whose defense budget is dwarfed by the US, are making advances in autonomous technology that America has been unable to match.

A day ago, the Pentagon announced that Lockheed had struck a deal potentially worth billions of dollars to triple production of the most advanced variant of the Patriot missile fired by RTX’s platform.

“This framework marks a fundamental shift in how we rapidly expand munitions production,” Michael Duffey, the Pentagon’s undersecretary for acquisition and sustainment, said in a statement.

Analysts questioned how the strong-arm tactics would help.

“Why is this expected to solve production delays?” said Byron Callan, a defense analyst with Capital Alpha Partners LLC.

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