Defense Spending Outlook under a Second Trump Administration

According to analysts at Citi, defense spending is expected to stay robust as the White House transitions to a second Trump administration.

In a client note, led by analyst Jason Gursky, they indicated that defense expenditures often align with the existing threats. This suggests that Trump is likely to focus more on China than on current Russian military activities in Europe.

With potential conflicts expected in the Indo-Pacific region, investment is anticipated to increase in assets that can fly and float rather than those limited to land operations.

Additionally, Trump's administration is expected to enhance its focus on the integration of artificial intelligence (AI) and machine learning in military applications. This includes using AI technologies to analyze vast geospatial data from aerial and space-based sources. Companies like HawkEye 360, Palantir Technologies, and Boeing may be significantly influenced by these policies.

Recently, Trump has begun to establish his defense and foreign policy team, proposing Fox News host Pete Hegseth as Secretary of Defense, Congressman Mike Waltz as National Security Adviser, and Arkansas Governor Mike Huckabee as ambassador to Israel.

Reports indicate that Trump's transition team has identified a list of military officials at the Pentagon for potential dismissal, which may include members of the Joint Chiefs of Staff. The ultimate decisions regarding these firings may vary as Trump's administration sets its agenda.

As Trump prepares for his second term, he is faced with numerous global issues, including tensions in the Middle East, the ongoing war in Ukraine, and rising hostilities between China and Taiwan.

Citi analysts emphasized that these developments urge US policymakers to prepare for conflicts on multiple fronts, contrasting with previous strategies that focused primarily on one region while managing minor issues elsewhere.

This strategic evolution has contributed to a consistent increase in US defense spending over the last three administrations, with both Congress and Trump showing a tendency to exceed previously established spending limits.