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Buckle up: defense industry predictions for ’17

Here are the top few predictions for the coming year. 

Let’s start with the big one: How big will the defense budget grow? Despite all the incumbent’s promises to strengthen the military, the general consensus in D.C. is that Mick Mulvaney (new director of the White House Management and Budget Office) is such a deficit hawk, he will push to reduce bloated programs. The F-35 looks like a prime target. 

Nevertheless, overall the new administration is already making plans for expansion, so you can expect the defense budget to grow, according to AvWeek, between 3 and 5 percent.

As Trump’s knowledge of actual programs increases, however, the predictions are also that he may keep most in place, including the F-35, to have a show of force (technical excellence) with which to taunt China and Iran. Notice I did not say Russia or North Korea, both of which Trump seems to give a pass to.

The Obama Administration was clear that big defense companies must stop trying to merge or acquire each other.  Fewer companies to bid for new contracts would cause a reduction in competition. The new administration, however, has already buddied up to the large defense industries and told them there would be no guidance there. In other words, we may end up with one or two defense contractors, period. This may happen quickly. Wall Street is thrilled. The taxpayer benefit? Less rosy.

An all-GOP Congress is in no mood for any major defense cost reduction. Base closings? To be stopped quickly.  Defense industry increased spending? The media spin will be all about “higher paying jobs instead of menial work.”

Trump knows that the Iran deal made by Obama’s Administration is not GOP-favorable (to say the least). He’ll use that leverage to make Congress back him in other areas. Expect to see increased flyovers of Iran by spy planes, and we can all await a Gary Powers moment.

Of course, Trump referring to China’s “One China” policy in a derogatory way may mean he’ll probe and annoy them as much as possible to provoke them into action — action to which the USA can justify response to show U.S. muscle to all global leaders.

“Shovel-ready” is a term you’ll hear quickly and often from the new administration. And nothing is more “shovel-ready” than defense department projects. Oh, they’ll restrict these to infrastructure and fiscal-stimulus promises. But when you read  “fiscal-stimulus” programs allocate funds to new runways or military housing or repairing warship docks, that previously allocated Defense spending can be shifted into, say, new nuclear missile development or extra cruise missiles. Or $2,000 hammers.

A downside for defense contractors is that the strengthening U.S. dollar makes their sales of weapons to other world countries more (too?) expensive. How do you fix that? Bring back inflation, weaken the dollar to make our sales abroad more affordable and help Wall Street. Signs to watch? A Fed interest rate hike of 2–5 percent within a year or two.

And last, but certainly not least, the Defense Business Board has said (October 2016) that the new administration will likely face a geopolitical crisis in the first 270 days of taking office. As AvWeek says, the relative inexperience of Trump’s National Security Council, and his habit of tweeting, increase the likelihood of crisis. It is worth remembering that the last time there were declared defense plans, in 2001 by Bush/Cheney, a single event upended everything. And not in a good, planned way.

Peter Riva, a former resident of Amenia Union, now lives in New Mexico.