Donald Trump has proposed a significant increase in the US defense budget to $1.5 trillion by 2027, representing a more than 50% rise from the current $901 billion approved by Congress in December. Concurrently, he outlined specific expectations for major US defense contractors regarding production speed, investment, and executive compensation, with a particular focus on Raytheon. These announcements occur amid rising global geopolitical tensions.
Proposed Defense Budget Increase
Trump communicated his intention via social media, stating that the increased spending would enable the development of a military capable of ensuring national safety and security, referring to it as a "Dream Military." He also cited "troubled and dangerous times" as a rationale for the expansion. Trump asserted that the proposed $1.5 trillion defense budget could be financed through revenue generated by tariffs. This statement was made despite economists having previously warned about the sustainability of the gap between US spending and income. Trump has advocated for higher defense spending by the US and its allies since his first term in office.
Statements Regarding Defense Contractors
Trump indicated that he would take action concerning major US defense contractors if they do not accelerate armament deliveries and construct new manufacturing facilities. He expressed concerns regarding these companies for issuing "massive" payouts to shareholders and conducting stock buybacks, suggesting these actions came at the expense of investing in production. Additionally, he proposed a cap on executive compensation, stating that no executive should earn in excess of $5 million.
Raytheon was specifically named by Trump as being the "least responsive" to America's defense needs and the slowest to increase production. He warned that Raytheon could lose its business with the Department of Defense (referred to by Trump as the "Department of War") if it does not increase upfront investment in plants and equipment.
Market Reaction
Following Trump's announcements, shares in major US defense equipment manufacturers, including Lockheed Martin, Northrop Grumman, and Raytheon, saw gains of over 5% in extended trading on the New York Stock Exchange.
Geopolitical Context
Trump's call for significantly higher defense spending coincides with increased geopolitical tensions globally. Recent events include:
- The US military's capture of a Russian-flagged oil tanker suspected of violating US sanctions.
- US forces apprehending Venezuelan leader Nicolás Maduro, who was subsequently taken to America to face drug trafficking charges.
- China conducting military drills around Taiwan, simulating the seizure and blockade of key areas. Taiwan's increased defense spending has also been a point of contention with Beijing, which considers the self-governed island its territory.