No matter who wins, demands on Pentagon modernisation assures industry

3 November 2020 (Last Updated November 3rd, 2020 17:01)

US defense spending in 2021 is likely to remain at least flat, despite suggestions a Democratic win on Tuesday could result in cuts. An earnings call with Northrop Grumman as well an interview with the CEO of Leonardo DRS last week indicated their confidence in continued levels of US defense spending through 2021.

No matter who wins, demands on Pentagon modernisation assures industry

US defense spending in 2021 is likely to remain at least flat, despite suggestions a Democratic win on Tuesday could result in cuts. An earnings call with Northrop Grumman as well an interview with the CEO of Leonardo DRS last week indicated their confidence in continued levels of US defense spending through 2021. This echoes the sentiments of Boeing CEO Dave Calhoun early in the year. Industry officials believe the degree of threats affecting America as well as the economic fallout that would come from slashing defense spending would make such cuts politically untenable.

William Davies, Associate Aerospace and Defense analyst at GlobalData comments: “The Pentagon’s commitment to modernization has buoyed industry confidence at a time of uncertainty in the wider economy.” Increased peer-to-peer competition with China and the prospect of higher intensity conflict scenarios has driven advancements and budgets in recent years, and key technologies such as AI, Cybersecurity, Hypersonics, and Space-based capabilities have seen significant investment on this merit – all of which is unlikely to change.

Along with continued modernization, the economic impact of COVID-19 means that an incoming Biden administration is unlikely to cut defense spending because of fear of associated unemployment that would come from cutting programs. Whilst the progressive wing of the Democratic party may push for cuts, both Adam Smith (Head of the House Armed services Committee) and Biden are unlikely to agree.

If Trump is re-elected, there will still not be major growth in defense spending with the Administration’s own forecast showing little growth through 2025 with a flat budget for 2021. Trump’s commitment to modernizing all three elements of the US nuclear triad will increase spend on warhead production, but pressure from COVID-19 expenses will keep his budget relatively restrained. Equally, however, this policy has relatively broad bipartisan support.

Davies Continues: “Despite cuts being an unlikely outcome, at least in the short term, the Pentagon will still need to prioritise. They are committed to a multitude of projects as numerous weapon systems approach obsolescence, and even a flat budget would still force the Pentagon to critically assess their pipeline. Any funds freed up as a result of policy shift from the new Presidential incumbent, such as more rapid drawdown from Afghanistan or a lower priority given to upgrading the nuclear arsenal, are likely to be ploughed back into other modernisation initiatives.”