Trump’s defense play: Stability for investors, questions for capitalism

When Howard Lutnick, head of Cantor Fitzgerald, said that Lockheed is actually an arm of the American government, it broke a nerve. His remark reopened an old debate about how closely Washington and Wall Street are connected.

America likes to call itself the land of free markets, where companies themselves succeed or fail. But when it comes to defense companies, that story has always been more complicated.

Under President Donald Trump, the role of the government became even clearer. Subsidies, tax benefits and even talking about taking equity -stakes showed how closely the state worked with major defense companies. The boundary between public policy and private companies is more difficult to see than ever.

That is not necessarily bad news for investors. “It shows that the government is pro-business and wants American companies to succeed,” Josh Koren InvestingStreeg told Et now. “But of course nobody wants the state to get too far in the boardrooms.”

The US have seen this before. Washington took direct control over industries during the Second World War. The Cold War kept the defense high for decades. What feels different now, is koren on it, is that America is not at war – but the government involvement is still growing.

Yet he claims that this is not on-American. “The goal is simple: hold the US first in any future conflict – whether there are new fighter jets or artificial jets. Staying behind is not an option.” In practice, support from subsidies, loans or direct interests, the result is the same: billions of dollars flows to companies such as Lockheed Martin, Raytheon and Northrop Grumman. For investors that means stability. The red flags increases for critics. They are worried that too much government money makes the market less competitive and less honest as a measure of business success. This points to a larger question: how “free” is the free market? The American defense sector is always closely linked to Washington, but Trump’s policy pushes the relationship even further. Koren sees it differently. “Whether it concerns subsidies or direct capital, the money is spent on technology that keeps the US in the door. Based on that opinion, it is a good thing.”

But not everyone agrees. If the government guarantees profit for Defense giants, some fear that it could make them less efficient and discourage new players from entering the industry. At what time does private company start to look more like a low in the government?

For investors, however, the image is simple: defense shares look safer than ever. With the support of Washington, income is predictable and the risks are lower. From pension funds to small investors, many see these companies as solid bets in an uncertain world.

But for believers in free market capitalism, the image is more disturbing. If Lockheed Martin is now seen as part of the government, this suggests that the US economy itself is changing. And not only in Defense – this could be the start of a new playbook where the government and the business community are tighter than before.

((Indemnification: Recommendations, suggestions, views and opinions of the experts are their own. These do not represent the views of economic times)