Trump is beginning his defense push with a $30 billion amendment to the 2017 budget for war supplies, readiness and depots, and maybe for the Boeing Super Hornet jet. This $30 billion precedes the $54 billion increase that won’t take place until October, the beginning of the 2018 fiscal year.
Defense spending has little to do with terrorist activities. Trump, like Reagan, believes that a strong military is a strong deterrent. Such spending also has a long shelf life, ranging spending commitments over periods of seven to 10 years. Fiscal 2017 ends in October, so there will be little or no benefit for the current fiscal year—but most likely, we will see major investments beginning in 2018 and blossoming in 2019 and beyond.
The spending will not just involve more people in military boots; gains are expected and there will be several technology segments that will benefit, as well as geographic ones.
Where Will the Dollars Go?
Aircraft, a myriad of Navy ships, cyber security and a huge pile of electronics will also stand to gain with increased spending. Just a handful of the beneficiaries include:
- The Navy wants 355 ships rather than its current 308—and 350 seems to be the potential level under Trump. Just the submarine portion will cost a minimum of $22 billion. General Dynamics is fulfilling a $100 billion program and that will likely increase with more missile destroyers and amphibious assault ships.
- Lockheed-Martin is delivering 53 F-35s this year and 100 in the next two years.
- Northrop Grumman is replacing the B-2 with B-21 long-range strike bombers.
- Raytheon is expecting a sales increase with missile systems, space and airborne, and integrated defense systems units, including defense electronics in Navy ships, as well as Patriot missile systems used for border protection. Raytheon typically lands the largest percentage of U.S. defense contracts awarded.
- Israeli Ebit will likely gain contracts for drones and helmet systems. Other Israeli companies set to gain include Check Point Software Technologies, Rafael, Magal Security and Israel Aerospace Industries.
- BAE Systems is building sophisticated electronics for the F-35s.
Robotics, sensors, weaponry and command and control system technologies all stand to gain, and it won’t be just the large players that will garner the benefits. One question is, will Trump have a difficult time getting Congressional approval?
Loosening or Tightening of Congressional Purse Strings?
Unstable global political woes combined with Republican control of the White House creates a fertile field in defense of defense spending. While some say that Congress won’t be so quick to pounce on Trump’s wishes and that there is sufficient bi-partisan support, there are already arguments brewing.
Trump is calling his increase “historic” while his own party is saying that his increases just aren’t enough. The amounts heard on the proverbial street are between $500 billion to $1 trillion when all is considered. Trump’s proposed spending cuts to cover the increased defense spending involve the Environmental Protection Agency and the United States Departments of Agriculture and State. Those potential cuts have the Democrats up in arms—pun intended. Many retired and active generals are saying that cuts to the State Department will seriously affect global diplomacy.
The increase, according to Mick Mulvaney, budget director, sets the Pentagon’s budget at $603 billion—a mere 3 percent higher than the $584 billion spent in fiscal 2016, and an amount just under the existing 2.5 percent inflation rate. Maybe “historic” isn’t that impressive after all.
California and Massachusetts stand to be awarded substantial contracts that will go far in improving the economies of both. Both states have a myriad of small high-tech companies that will gain from Pentagon spending.
As indicated, Israel defense and cyber security companies stand to also gain big as Trump not only wants to beef up the U.S. military, he may also want to be supporting Israel to make up for its recent treatment.
What is clear is that defense spending will need to, on some level, move from a mere consideration of “affordability” that has permeated it for the past eight years to one of gaining real performance advantages and being cost conscious as well. It’s not just the U.S. that has shown budget weakness over the past several years. It’s been prevalent in the western world. What will be interesting is how successful Trump will be at selling this plan as-is to Congress and to the American people. It may potentially be his first domestic war.