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Trilateral Nuke Talks Shouldn't Derail Northrop Grumman ICBM Payday

By Lou Whiteman - May 21, 2020 at 5:06PM

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Arms control is baked into the Pentagon's massive nuclear modernization plan.

American arms control negotiators plan to meet with Russian counterparts soon to discuss a proposal to limit U.S., Russian, and Chinese nuclear arsenals, according to a Wall Street Journal report.

The talks would be the initial effort to replace the Russia/United States New START arms control treaty, which is expected to expire next February. The U.S. is eager to bring China to the table despite the country's for now smallish nuclear arsenal because of its long-term expansion plans.

Three rockets launching

Image source: Getty Images.

The U.S. is coming to the table on arms control even as it moves forward in its $8 billion effort to replace its aging Minuteman Ground Based Strategic Deterrent (GBSD) with a new intercontinental ballistic missile to be developed by Northrop Grumman (NOC 1.97%).

It is important to note that the goal of talks is arms control, and not arms elimination. The Pentagon's long-term planning assumes an arms control regime is in place, and Northrop's GBSD business should proceed as planned despite the talks.

There's a case to be made that defense contractors would benefit from talks collapsing, creating a world with uncapped nuclear arsenals. In such a scenario the U.S. might feel compelled to build out its arsenal to match Russian and Chinese plans, potentially creating new work for not just Northrop but Boeing, Lockheed Martin, and Raytheon Technologies among others as well. However, given the realities of the U.S. budget, and the added pressure the Pentagon could come under to cut costs as the government pays for its massive COVID-19 response, it is unlikely the U.S. will commit to adding to its estimated $500 billion spending commitment to update its nuclear triad.

Lou Whiteman owns shares of Lockheed Martin. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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