Trump threatens defense contractors with restrictions while promising sharp increase in spending

By Haley Britzky, CNN

(CNN) — President Donald Trump issued a stark threat to defense contracting companies Wednesday, saying he would seek to limit stock buybacks and executive salaries unless they improve their delivery of weapons systems to the US military, hours before saying he’s decided to substantially increase the defense budget.

The pair of social media posts suggest that the Trump administration is aiming to squeeze the large defense contractors, or primes in industry parlance, while increasing defense spending to upwards of $1.5 trillion.

“While we make the best Military Equipment in the World (No other Country is even close!), Defense Contractors are currently issuing massive Dividends to their Shareholders and massive Stock Buybacks, at the expense and detriment of investing in Plants and Equipment,” Trump said in a post. “This situation will no longer be allowed or tolerated!”

Trump said no executive should “be allowed to make in excess of $5 Million Dollars.”

The news reverberated through Wall Street immediately as stock for the five major defense firms — Boeing, Raytheon, General Dynamics, Lockheed Martin, and Northrup Grumman — all began dropping.

But shortly before the markets closed, Trump followed the message about contractor restrictions with another saying that he has decided to increase the defense budget.

“I have determined that, for the Good of our Country, especially in these very troubled and dangerous times, our Military Budget for the year 2027 should not be $1 Trillion Dollars, but rather $1.5 Trillion Dollars,” he posted on social media.

Defense stocks, in turn, trended sharply upwards in after-hours trading, regaining much of their initial losses. It was not clear if a broader deal with Congress, which authorizes defense spending, has been reached. Trump attributed the ability to afford the increase to his tariff policies.

The White House and Pentagon did not immediately respond to requests for comments on more detail about the posts.

The issue of limiting stock buybacks, dividends and executive salaries has been in discussion in the White House for weeks, a source familiar with the matter told CNN, and had been expected to be announced via an executive order before Christmas. The plan was put on pause due to pushback by Treasury Secretary Scott Bessent and others about the impact to the stock market, the source said.

The major defense firms and some smaller companies were notified that an announcement was coming Tuesday evening in a call with Deputy Defense Secretary Steve Feinberg, the source familiar with the matter said, though what Feinberg relayed was far different from the president’s post on Wednesday. While Feinberg described the limits on stock buybacks and dividends as something that could be remediated and which would only occur if the companies did not deliver on their contracts, Trump’s post did not include those caveats.

It’s unclear how Trump intends to implement the restrictions on how defense contractors can spend their money. An executive order could still be imminent, though the source familiar with the matter thought the social media post could be an intimidation tactic to force the companies to the table for negotiations before finalizing anything.

If the restrictions were to be finalized and go forward, it would be an “extraordinary, unprecedented act of state capitalism” and an “intervention into the defense sector like nothing we’ve ever seen before,” Steven Grundman, former deputy under secretary of defense for industrial affairs and currently the founder and principal of Grundman Advisory, told CNN.

“It is right on the pathway towards nationalizing prime contracting,” Grundman said.

Trump has taken an interest in the issue due to the multi-million-dollar salaries of the chief executives of the top five firms, whose business makes up more than half of the Pentagon’s nearly $900 billion budget.

“The intent is right and justified, but it’s so much more nuanced than this,” the source familiar with the matter told CNN. “The president is taking decisive action against the large industrial primes … but as a result of that, he is destroying and disincentivizing the industrial base of the large primes. And you know what they’re going to do? They’re going to lay people off, trim investments, pull their contracts.”

There has long been frustration with the defense industrial base by lawmakers and Pentagon leaders from both parties around their delivery of key systems to the military. A large part of that frustration has resulted in conversations about longer-term contracts and other measures that might provide more stability to companies for their hiring and investments in the defense industrial base and cost certainty for the government.

And while some Trump administration officials believed issues with the defense industrial base needed to be addressed, the idea of limiting stock buyback options and executive salaries was largely driven by Defense Secretary Pete Hegseth and deputy secretary Feinberg, the source familiar with the discussions told CNN. That idea drew internal criticism from officials like Bessent and Navy Secretary John Phelan.

Hegseth alluded to the move in a speech Monday in Newport News, saying the US would give larger contracts to companies “that invest in more capability and more capacity, not companies that invest in stock buybacks or CEO salaries or more dividends.”

“For those who can’t adapt, who are too comfortable with the old slow ways of doing business, we wish them well in their future endeavors because we will find new partners who will adapt,” Hegseth said in his speech at the Newport News Shipyard.

Trump also alluded to his frustrations in an address before Christmas, during which he and Hegseth — along with Phelan — announced a new “Trump class” fleet of Navy battleships. Trump said he would be meeting with the defense prime contractors.

“They spent so much money on buybacks. They want to buy back their stock. I don’t want them to buy back their stock, I want them to put the money in plant and equipment so they can build these planes fast, rapidly,” Trump said about the defense primes. “Like, Immediately … So we don’t want to have executives making $50 million a year issuing big dividends to everybody and also doing buybacks.”

Ultimately the move reaches “all the way into the strategic choices of private companies,” Grundman said. It’s unclear how the White House would enforce such restrictions, though Grundman pointed to the potential of locking companies out of the marketplace for certain contracts or limiting government reimbursement of costs beyond the $5 million salary limit.

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