Big Defense Spending: Trump’s First Budget Plan

Proposed budget

President Trump’s first budget calls for a massive increase in the country’s military spending. The budget proposes a 10% or $54 billion increase in the budget. The hike would take the military budget for 2018 to $603 billion.

This increase would be the largest increase since President Ronald Reagan and would reverse Obama’s eight-year cuts in the defense budget. The budget increase would be almost as big as Russia’s entire defense budget ($65 billion) and over three times that of Canada ($15 billion).

Big Defense Spending: Trump’s First Budget Plan

Discretionary and non-discretionary

The current budget proposal of 1.15 trillion addresses only discretionary budget spending and represents one-quarter of the total US federal budget. The budget doesn’t address taxes, Medicaid, or Social Security. It also avoids an outlook on fiscal deficits and the economy.

The details of such non-discretionary expenditures will be available in mid-May, and strategists believe that the forthcoming plan will entail big budget deficits, as Trump has promised not to cut Medicaid or Social Security and is also against raising taxes.

However, Trump’s latest budget is only a proposal, and even White House budget director Mick Mulvaney agrees that getting it through Congress will be a nearly impossible task. Democrats aside, many Republicans are also unhappy with the current proposal.

Series overview

In this series, we’ll take a look at which sectors could lose out on the proposed increase in defense spending, how the White House plans to use the higher defense budget, and if Boeing (BA) stands to benefit.

Boeing is the largest commercial jet manufacturer in the US and the second-largest manufacturer in the world, behind Airbus. It’s also the second-largest defense contractor in the US, behind Lockheed Martin (LMT), and is followed by Raytheon (RTN), General Dynamics (GD), and Northrop Grumman (NOC). Notably, Boeing makes up ~5.9% of the Dow Jones Industrial Average ETF’s (DIA) portfolio.