Carrots are bigger: Trump plans to increase military spending by 500 billion dollars. Why is he punching military giants in reverse?

The Zhitong Finance App noticed that on Wednesday, the US President posted a dazzling series of posts on social media calling for an increase of 500 billion US dollars in defense spending every year, but at the same time threatening to remove some of the companies most likely to profit from this growth.

This series of apparently contradictory statements caused major defense contractors' stock prices to plummet, and traders tried to decipher the White House's true intentions — and whether these steps would actually be implemented.

It all started with Trump's long-standing concern: major defense contractors working with the administration must stop share buybacks, stop paying dividends, and limit executive salaries to less than $5 million a year until they increase investment in factories and R&D to accelerate development.

Hours later, Trump signed an executive order institutionalizing the decision. In another post, he named and criticized RTX, which produces the popular Patriot missile system.

He said RTX's defense arm RTX.US (RTX.US) will “no longer do business with the Ministry of War” unless the company “steps up” upfront capital in plant and equipment. Shares of RTX and its rivals Lockheed Martin (LMT.US), Northrop Grumman (NOC.US), and General Dynamics (GD.US) have all declined.

An RTX spokesperson declined to comment during a phone interview. Northrop and Lockheed Martin spokespersons did not immediately respond to requests for comment.

It's unclear whether the president has the power to compel private companies to deploy their capital. However, while criticizing RTX, Trump also made a spending promise that would bring huge profits to the company and its peers: he once again asked Congress to drastically increase annual defense spending in 2027 by more than 50% to $1.5 trillion via social media.

“This will allow us to build the 'dream army' we have long been entitled to, and more importantly, it will keep us safe no matter who the enemy is,” Trump wrote on social media.

This series of actions is both surprising and in line with previous statements made by Trump and Secretary of Defense Pete Hagerseth. In a speech last November, Hegeses called on defense contractors to take responsibility and said that if they don't invest more to speed up weapons production, they will “gradually disappear.”

Meanwhile, as the current administration launches military operations in Iran, Syria, Somalia, Nigeria, and Venezuela within Trump's first year in office, the government's dependence on defense companies will only further deepen. According to statistics, the government has monitored at least 626 air strikes so far — and this was before the overthrow of Venezuelan President Nicolás Maduro.

The statements also highlight two of Trump's pressing and conflicting needs. On the one hand, he has repeatedly called for a stronger and more well-funded army. On the other hand, he is trying to solve the problems that have plagued successive presidents for decades — widespread cost overruns and delivery delays in major US weapons systems.

With the advent of new technology such as drones, this problem has become particularly serious. There is evidence that China and even Ukraine (the latter's defense budget is far lower than that of the US) has made progress in autonomous technology that the US cannot match.

Just a day ago, the Pentagon announced that Lockheed Martin has reached an agreement that could be worth several billion dollars to triple the production of the most advanced model “Patriot” missile launched by its RTX platform.

“This framework marks a fundamental shift in how we rapidly expand ammunition production,” the Pentagon's Deputy Secretary for Acquisitions and Maintenance Michael Duffy said in a statement.

Analysts are skeptical about the effectiveness of such tough measures.

“Why do you think this will solve production delays?” Defense analyst Byron Callan at Capital Alpha Partners LLC said. “Will this make the problem worse by causing good management talent to flee big defense contractors?”

While Trump is seeking solutions to these issues, Wednesday's action marks the latest case of his meddling in major US corporate affairs. Previously, the US government bought 10% of Intel's shares and allowed Nvidia to sell chips in China in exchange for paying surcharges.

In August of this year, Secretary of Commerce Howard Lutnick suggested that the US government might take shares in some defense contractors, which triggered a slight rebound in defense contractors' stock prices.

“Oh, there was an extremely heated discussion about defense,” Lutnick said in the media on Tuesday. He mentioned Lockheed Martin by name, saying that 97% of the company's revenue comes from federal contracts. “They're basically a branch of the US government,” he said.

Lutnick's statement wasn't entirely true — Lockheed said 73% of its 2024 net sales came from the US government — but the point was clear.

Trump's spending requirements will mark the largest increase in the US military's history, with authorized national security spending of $901 billion for the current fiscal year. Any such action must be approved by Congress, and Democrats are skeptical.

“He can make whatever suggestions he wants,” said Rosa DeLauro, a senior Democratic member of the House Appropriations Committee. “But this is where we deal with this.”

According to the Peter Peterson Foundation, America's defense spending already exceeds that of the nine countries that followed. The administration is also trying to support startups and other new entrants to the defense sector, such as Anduril Industries Inc.

Anduril founder Palmer Lackey said he has no objection to Trump's proposed regulations on defense companies, including restrictions on pay. In recent years, his company has been seeking to challenge traditional defense contractors to get funding for the Pentagon.

“I pay myself $100,000 a year,” Lackey said in an interview.

Laki added that if defense contractors fail to meet the goals of the contract with the US, the government should have the right to make claims. “I think when you live on government funding and actually run on public wallets, the public should be able to impose any restrictions they want on you.”

Defense giants such as Lockheed, RTX, Northrop, and General Dynamics invested nearly $50 billion in dividends and share buybacks in 2023 and 2024, Jefferies analysts said in a December research report. In comparison, they spent around $39 billion in R&D and capital expenditure over the same period.

Analysts immediately questioned how Trump would target defense companies and who the move would apply to.

“Will these be written into the contract? This appears once again to be an expansion of power,” Jefferies analyst Sheila Kayaolu wrote in a briefing to investors on Wednesday. “The contractor is likely to fight back and state that a balanced approach should be taken to reward all stakeholders, which may include investors and customers.”