Donald Trump Threatens a New Cold War: Good News for Defense Contractors?
The American military industry must have gasped when Donald Trump won. Defense sector contractors like Lockheed Martin Corporation (NYSE:LMT) were probably betting on a Hillary Clinton win. After all, as Secretary of State, she had an awful relationship with Russian counterparts and President Vladimir Putin. As president, she would have fueled a new Cold War and another arms race.
Donald Trump, however, has been presented as favorable to Putin. Some of his appointees to cabinet have enjoyed friendship with Putin. Why, the American mainstream media is still banging on about Putin having allegedly infiltrated the presidential election itself.
Advertisement
Wars—or better, their potential—are good for the defense sector. They fuel the research, development, and manufacturing of items that need replacement when used. Investors in Lockheed Martin stock or Boeing Co (NYSE:BA) stock should have been pleased by Trump’s latest—noteworthy—tweet:
“The United States must greatly strengthen and expand its nuclear capability until such a time as the world comes to its senses regarding nukes.” (Source: “Twitter post,” @realDonaldTrump,
He urges the United States to “strengthen and expand” its own “nuclear capability,” perhaps in response to Putin, who called for an expansion of Russia’s nuclear arsenal. It has been a long time since a president—or president-elect—has spoken in such terms.
In the last 20 years, even if relations with Russia have worsened, Washington’s official policy has been gradual disarmament. But Donald Trump’s statement is vague. Nuclear weapons come in many different forms, each having specific strategic objectives.
The reason for the specific terminology is to avoid the risk of diplomatic incidents. International leaders weigh each statement to avoid a diplomatic crisis or misunderstandings. It’s unclear how, in view of a much more Russia-friendly administration on paper, Trump’s tweet could translate to official policy.
The head of the Kremlin wants to deploy, as he said in 2015, at least 40 new land-based intercontinental ballistic missiles (ICBM). Each of these is capable of carrying several nuclear warheads and hitting multiple targets together with the utmost precision. Putin said the new missiles will be invincible.
More than a threat, Trump and defense contractors can use this as an excuse to revamp the American arsenal. The Russians say that the new missiles will be able to avoid any current U.S. or NATO missile defense system.
As it happens, Boeing has already won contracts to maintain and modernize the nuclear missile infrastructure. So Trump may simply have reacted to Putin’s tweet, while in effect the Obama administration has already authorized a modernization of the arsenal.
Still, if Moscow and Washington do reestablish the kind of friendly relationship they had in the mid-1990s, defense contractors can still benefit from Donald Trump’s expected game of tension with Beijing.
