The unpredictable nature of the first Trump administration left many surprised, especially regarding the defense industrial base, a field often overlooked. Attempting to forecast the developments of a potential second Trump term would be equally challenging. Instead, we will delve into the current political landscape, reflect on the significant events of Trump’s initial term, and explore key questions that the defense industry may face should Trump return to power.
How Will Trump Engage in Defense Acquisition Strategies This Time?
During Trump’s first term, his unusual level of personal engagement in defense acquisition set him apart from previous presidents. He expressed interest in reviving “goddamn steam” catapults for the Ford-class carrier, interrogated Boeing executives about the “Super Duper Hornet” F/A-18 variant, and held personal discussions with defense CEOs aboard Air Force One regarding critical contracts like the F-35. This hands-on approach to military procurement was unprecedented in modern presidential history.
Recent reports from the Wall Street Journal indicate that Trump has resumed discussions with Boeing CEO Kelly Ortberg about the Air Force One replacement program. Additionally, the F-35 and advancements in drone warfare are back in the headlines. Given this context, it seems likely that Trump will again seek to influence significant defense initiatives, potentially pressuring contractors to showcase his deal-making prowess to the American public. If I were to place a bet, I would wager on Trump’s involvement in high-profile aerospace projects like the F-35 or Air Force One, and possibly in ongoing sixth-generation fighter jet developments for both the Navy and Air Force.
What Changes Can We Expect in Defense Spending Under Trump?
The fiscal year 2024 defense budget faced limitations due to spending caps established by last year’s Fiscal Responsibility Act. Although definitive appropriations for FY25 will not be finalized until at least spring, early indications suggest a budget that aligns with these constraints.
However, the fiscal restrictions will be lifted by FY26, marking the first opportunity for a Trump administration to influence the defense budget, albeit not from scratch. The preliminary groundwork for FY26 has been laid by the Biden-era Pentagon, raising questions about whether the incoming administration will maintain the current stagnant spending levels or seek to increase them. These decisions could serve as indicators of the administration’s long-term fiscal strategy.
Post-election analyses conducted by Breaking Defense revealed a divide among experts regarding the potential impact of Trump’s presidency on defense spending. Some, like Roman Schweizer from TD Cowen, noted the increases in defense budgets during Trump’s first term and highlighted the strong support for higher spending among Republican leaders on defense committees.
Nonetheless, the actual trajectory of defense budgets may hinge on the dynamics within the House of Representatives. The slim Republican majority has granted hardline fiscal conservatives significant leverage. Additionally, the Department of Government Efficiency, led by figures such as Elon Musk and Vivek Ramaswamy, could present challenges for defense spending advocates. Musk’s ambition to utilize DOGE to cut $2 trillion from the federal budget raises questions about the commitment to defense funding, particularly as lawmakers and military leaders express a desire to eliminate wasteful expenditures.
Will Trump Be a Supporter or Adversary of the Defense Industry, and Who Stands to Gain?
Throughout his previous term, Trump fostered strong relationships with major defense contractors, often praising the business acumen of executives like former Lockheed Martin CEO Marillyn Hewson and Boeing’s Dennis Muilenburg prior to the 737 MAX crisis. It remains uncertain whether he will extend similar favor to any current CEOs from established defense firms. However, his attention seems to be shifting towards leaders in the defense startup and venture capital sectors. Recently, Trump appointed Stephen Feinberg of Cerberus Capital Management as deputy secretary of defense, indicating a potential preference for innovative defense solutions.
Executives from companies like Anduril and Palantir may also find themselves in significant roles within the Pentagon, while Musk’s influence could lead to reduced Pentagon expenditures despite his leadership role at SpaceX. This evolving dynamic may favor less expensive, uncrewed systems that are the forte of defense startups, as opposed to the costly traditional weaponry typically produced by major contractors. Analysts like Byron Callan from Capital Alpha Partners suggest that Pentagon leaders might prioritize acquiring numerous autonomous weapons and advanced networks over traditional major systems like Virginia-class submarines or F-35 fighters.
Furthermore, the tension between fiscal conservatives and defense advocates could compel the administration to pursue cost-effective solutions, specifically in the realm of autonomous air and naval systems. The presence of individuals with backgrounds in defense technology and startups in senior administration roles could further intensify this debate. Additionally, there are ongoing discussions regarding regulatory changes, shifts in defense contracting practices, and how Trump’s trade policies may affect defense contractors. His prior administration favored a more lenient approach to antitrust regulations, leading to significant mergers and acquisitions, as seen in Northrop Grumman’s acquisition of Orbital ATK, which the Biden administration later blocked for Lockheed’s attempt to buy Aerojet Rocketdyne. Analysts anticipate that a second Trump administration could revert to a more permissive stance on mergers and acquisitions.
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