President Donald Trump wants to kick defense spending up a notch. Actually, by quite a few notches -- he wants to increase military spending by $54 billion.
Now, if you're invested in defense stocks, that probably sounds like good news to you. More money for F-35 fighter jets, more money spent building aircraft carriers to carry them, and more money spent buying missiles to shoot from them -- this is all great news for Lockheed Martin (NYSE:LMT), Huntington Ingalls (NYSE:HII), and Raytheon (NYSE:RTN), respectively. Yet if you look beyond all the military hardware changing hands, there are also more than a few line items in President Trump's proposed fiscal 2018 budget that investors in aerospace and defense might not like.
Things like ...
Zero dollars for ARPA-E
The Advanced Research Projects Agency- Energy (ARPA-E) -- is the U.S. Department of Energy analog to the Pentagon's DARPA. President Trump apparently isn't enthused with ARPA-E's focus on fostering green-energy initiatives, but ARPA-E is about a whole lot more than just windmills and shiny mirrors. It's one of the prime movers behind America's effort to develop better batteries for electric cars, for example.
With an annual budget of only $350 million, ARPA-E helps provide seed capital to incubate "transformational energy projects that can be meaningfully advanced with a small investment over a defined period of time." In addition to batteries, ARPA-E is helping develop better electric transmission technologies to improve the nation's power grid and eliminate blackouts. Why, it's even working on the holy grail of energy -- development of a cold-fusion reactor to create an endless supply of free energy for the nation, a technology Lockheed Martin has also shown interest in. If ARPA-E succeeds in making cold fusion a reality, America could free itself from dependence on OPEC oil, and from the need to spend so much ensuring steady access to that oil.
Free of Middle Eastern entanglements, the U.S. would finally be able to spend less on defense, which makes ARPA seem like something worth a few hundred million dollars' investment. And private industry agrees -- over the past eight years, companies have invested more than $1.8 billion of their own in ARPA-E-sponsored projects.
Putting the space tow truck fleet in "park"
Every year, America spends billions of dollars building huge, highly advanced satellites, and then paying Lockheed and Boeing to launch them into orbit. These satellites' missions cover everything from exploring the reaches of outer space to facilitating communication (and GPS) among U.S. troops, to keeping an eye out for nuclear weapons testing in North Korea. One huge drawback to this satellite fleet, however, is that it requires fuel to run on, and that fuel eventually runs out.
NASA has proposed a solution -- developing a Robotic Refueling Mission to pave the way for building a fleet of spaceships that could refuel satellites when they run out of gas, conduct repairs when they get glitchy, and even tow satellites into correct orbits when they wander astray. Just one such space tow truck could salvage literally billions of dollars' worth of space infrastructure investment. Yet President Trump's budget proposes to kill the Robotic Refueling Mission to save a measly $88 million.
I see nothing. I hear nothing. I want to know -- nothing!
Perhaps the greatest flub of the 2018 budget proposal, though, is the Donald's desire to cut $250 million from such climate change-oriented programs as NOAA's "Sea Grant" research, education, and training programs, zero out funding for "climate change research and partnership programs" as well, and ax various NASA missions also studying climate.
President Trump's antipathy for climate-change research is well known, and cutting funding for programs that keep an eye on rising sea levels is certainly one way to ensure the global-warming phenomenon gets less press. Yet the Defense Department itself calls climate change an "urgent and growing threat to our national security."
"Global climate change," wrote the Pentagon in a 2015 report, "degrades living conditions, human security, and the ability of governments to meet the basic needs of their populations." By inciting global turmoil, it poses a "security risk" to the United States. So in the opinion of the president's own generals, the government needs to keep aware of "the effects of climate change -- such as sea-level rise, shifting climate zones, and more frequent and intense severe-weather events -- and how these effects could impact national security."
Put aside questions of whether global warming is caused by burning dinosaur bones or not. Whatever your opinion on the cause of climate change, it's still essential to know the facts about whether global warming is happening -- and if so, how fast, and with what consequences. That has serious national security implications for everything from the navigability of littoral zones to estimates of how soon China's super-expensive "fake islands" will be put right back underwater again by rising sea levels.
And the story is similar with the cuts in funding to ARPA-E, and to satellite refueling. Funding a $54 billion defense spending increase, by cutting a few hundred million in funds from projects that could make much of this spending unnecessary, seems incredibly short-sighted. This budget might be good news for defense contractors in the short term -- but it could cost taxpayers much, much more in the long run.