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U.S. President Donald Trump has stirred the defense sector by indicating a significant potential reduction in military spending. In remarks made during a gathering at the White House, he proposed that the United States could consider halving its defense budget in the foreseeable future.
Trump’s comments emerged as he discussed an upcoming summit aimed at addressing defense expenditures with leaders from China and Russia. He stated, “At some point, when things settle down, I’m going to meet with China and I’m going to meet with Russia, in particular those two, and I’m going to say there’s no reason for us to be spending almost $1 trillion on the military … and I’m going to say we can spend this on other things.”
He further emphasized his intent to engage in dialogue with President Xi Jinping of China and President Vladimir Putin of Russia, pushing for collaboration in reducing military budgets: “When we straighten it all out, then one of the first meetings I want to have is with President Xi of China and President Putin of Russia, and I want to say let’s cut our military budget in half. And we can do that, and I think we’ll be able to do that.”
The immediate market reaction to Trump’s comments was a notable downturn for defense contractors. Stocks like Lockheed Martin fell by 1.6%, Northrop Grumman experienced a drop of 3.4%, and General Dynamics declined by 2.1%. This sharp decline came after stocks had shown strength earlier in the trading day.
Throughout his 2024 campaign and early presidency, Trump’s stance on military spending has featured a mix of conflicting signals. He has sought to harness the expertise of figures like Elon Musk and leverage initiatives like the “Department of Government Efficiency” to identify areas for potential budget cuts across the federal landscape. Additionally, he has shown urgency in resolving the ongoing conflict in Ukraine, which has involved substantial expenditures on U.S.-manufactured weaponry.
Conversely, Trump has also articulated the need for a robust military presence, having signed an executive order that considers the development of a missile defense system dubbed the “Iron Dome of America.” He asserted on Thursday that the U.S. possesses the “greatest military equipment in the world.”
As the defense sector grapples with the implications of Trump’s statements, industry observers note the confusion stemming from his divergent priorities regarding military funding. TD Cowen policy analyst Roman Schweizer remarked on the current state of uncertainty, stating, “Right now, people are confused by a number of different crosscurrents” on defense spending.
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