President Donald Trump issued a stark risk to defense contracting firms Wednesday, saying he would search to restrict inventory buybacks and government salaries except they enhance their supply of weapons methods to the US army, hours earlier than saying he’s determined to considerably increase the defense funds.
The pair of social media posts counsel that the Trump administration is aiming to squeeze the big defense contractors, or primes in business parlance, while rising defense spending to upwards of $1.5 trillion.
“While we make the best Military Equipment in the World (No other Country is even close!), Defense Contractors are currently issuing massive Dividends to their Shareholders and massive Stock Buybacks, at the expense and detriment of investing in Plants and Equipment,” Trump said in a post. “This situation will no longer be allowed or tolerated!”
Trump stated no government ought to “be allowed to make in excess of $5 Million Dollars.”
The information reverberated by way of Wall Street instantly as inventory for the 5 main defense companies — Boeing, Raytheon, General Dynamics, Lockheed Martin, and Northrup Grumman — all started dropping.
But shortly earlier than the markets closed, Trump adopted the message about contractor restrictions with another saying that he has determined to increase the defense funds.
“I have determined that, for the Good of our Country, especially in these very troubled and dangerous times, our Military Budget for the year 2027 should not be $1 Trillion Dollars, but rather $1.5 Trillion Dollars,” he posted on social media.
Defense shares, in flip, trended sharply upwards in after-hours buying and selling, regaining a lot of their preliminary losses. It was not clear if a broader deal with Congress, which authorizes defense spending, has been reached. Trump attributed the flexibility to afford the increase to his tariff insurance policies.
The White House and Pentagon didn’t instantly reply to requests for feedback on extra element concerning the posts.
The concern of limiting inventory buybacks, dividends and government salaries has been in dialogue in the White House for weeks, a supply acquainted with the matter advised NCS, and had been anticipated to be introduced through an government order earlier than Christmas. The plan was placed on pause as a result of pushback by Treasury Secretary Scott Bessent and others concerning the impression to the inventory market, the supply stated.
The main defense companies and a few smaller firms have been notified that an announcement was coming Tuesday night in a name with Deputy Defense Secretary Steve Feinberg, the supply acquainted with the matter stated, although what Feinberg relayed was far completely different from the president’s publish on Wednesday. While Feinberg described the bounds on inventory buybacks and dividends as one thing that might be remediated and which might solely happen if the businesses didn’t ship on their contracts, Trump’s publish didn’t embrace these caveats.
It’s unclear how Trump intends to implement the restrictions on how defense contractors can spend their cash. An government order may nonetheless be imminent, although the supply acquainted with the matter thought the social media publish might be an intimidation tactic to power the businesses to the desk for negotiations earlier than finalizing something.
If the restrictions have been to be finalized and go ahead, it will be an “extraordinary, unprecedented act of state capitalism” and an “intervention into the defense sector like nothing we’ve ever seen before,” Steven Grundman, former deputy underneath secretary of defense for industrial affairs and at present the founder and principal of Grundman Advisory, advised NCS.
“It is right on the pathway towards nationalizing prime contracting,” Grundman stated.
Trump has taken an curiosity in the difficulty because of the multi-million-dollar salaries of the chief executives of the highest 5 companies, whose enterprise makes up greater than half of the Pentagon’s practically $900 billion funds.
“The intent is right and justified, but it’s so much more nuanced than this,” the supply acquainted with the matter advised NCS. “The president is taking decisive action against the large industrial primes … but as a result of that, he is destroying and disincentivizing the industrial base of the large primes. And you know what they’re going to do? They’re going to lay people off, trim investments, pull their contracts.”
There has lengthy been frustration with the defense industrial base by lawmakers and Pentagon leaders from each events round their supply of key methods to the army. A big a part of that frustration has resulted in conversations about longer-term contracts and different measures which may present extra stability to firms for his or her hiring and investments in the defense industrial base and value certainty for the federal government.
And while some Trump administration officers believed points with the defense industrial base wanted to be addressed, the concept of limiting inventory buyback choices and government salaries was largely pushed by Defense Secretary Pete Hegseth and deputy secretary Feinberg, the supply acquainted with the discussions advised NCS. That concept drew inner criticism from officers like Bessent and Navy Secretary John Phelan.
Hegseth alluded to the transfer in a speech Monday in Newport News, saying the US would give bigger contracts to firms “that invest in more capability and more capacity, not companies that invest in stock buybacks or CEO salaries or more dividends.”
“For those who can’t adapt, who are too comfortable with the old slow ways of doing business, we wish them well in their future endeavors because we will find new partners who will adapt,” Hegseth stated in his speech on the Newport News Shipyard.
Trump additionally alluded to his frustrations in an deal with earlier than Christmas, throughout which he and Hegseth — alongside with Phelan — introduced a brand new “Trump class” fleet of Navy battleships. Trump stated he could be assembly with the defense prime contractors.
“They spent so much money on buybacks. They want to buy back their stock. I don’t want them to buy back their stock, I want them to put the money in plant and equipment so they can build these planes fast, rapidly,” Trump stated concerning the defense primes. “Like, Immediately … So we don’t want to have executives making $50 million a year issuing big dividends to everybody and also doing buybacks.”
Ultimately the transfer reaches “all the way into the strategic choices of private companies,” Grundman stated. It’s unclear how the White House would implement such restrictions, although Grundman pointed to the potential of locking firms out of {the marketplace} for sure contracts or limiting authorities reimbursement of prices past the $5 million wage restrict.