Trump demands more defense spending but threatens biggest contractors

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 codifying the decision. And 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. “Does this cause skilled management to flee working for large defense contractors and could that make the problems worse?”

As Trump looks to address those issues, Wednesday’s actions mark the latest example of his attempts to intervene in the affairs of major US companies, with the US earlier taking a 10% stake in Intel Corp. and allowing Nvidia Corp. to sell chips in China in exchange for a surcharge.

In August, Commerce Secretary Howard Lutnick sparked a minor rally in shares of defense contractors with his suggestion that the US might take ownership stakes in some of them.

“Oh, there’s a monstrous discussion about defense,” Lutnick said Tuesday on CNBC. He singled out Lockheed Martin, saying the company gets 97% of its revenue from federal contracts. “They are basically an arm of the US government,” he said.

Lutnick wasn’t quite correct - Lockheed said it got 73% of net sales from the US government in 2024 - but the point stood.

Trump’s spending demand would mark the biggest ever such increase for the US military, with national-security spending authorized at $901 billion for the current fiscal year. Congress would have to approve any such action, and Democrats were skeptical.

“He can propose whatever he wants,” said Representative Rosa DeLauro, a top Democrat on the House Appropriations Committee. “This is where we take care of that.”

The US already spends more on defense than the next nine countries put together, according to the Peter G. Peterson Foundation. The administration has also sought to bolster startup companies and other newer entrants into the defense sector, such as Anduril Industries Inc.

Anduril founder Palmer Luckey said he didn’t oppose regulations on defense companies proposed by Trump, including limits on compensation. His company has sought to challenge legacy defense contractors for Pentagon funds in recent years.

“I pay myself $100,000 a year,” Luckey said in an interview on Bloomberg Television.

Luckey added that if defense contractors were behind on targets in contracts with the US, the government should be able to make demands. “I think when you are on the dole, and effectively run on the public’s wallet, the public should be able to impose whatever restrictions they want on you.”

Defense giants such as Lockheed, RTX, Northrop and General Dynamics spent nearly $50 billion cumulatively in 2023 and 2024 on dividends and share repurchases, Jefferies analysts said in a December research note. That compares to about $39 billion they spent on research and development and capital expenditures during the same period.

Analysts immediately questioned how Trump might enforce such a move against defense companies, and who it would apply to.

“Would they be written into contracts? It seems to again be an overreach,” wrote Jefferies analysts led by Sheila Kahyaoglu in a note to investors on Wednesday. “The contractors will likely push back and point to a balanced approach rewarding all stakeholders, which can include investors as well as customer.”