Trump has declared his intention to significantly raise the US defense budget for 2027 to $1.5 trillion, a surge of over 50% compared to this year's record $901 billion budget.
On January 7 local time, former US President Trump posted on his social platform "Truth Social" that, following negotiations with senators, representatives, secretaries, and other political delegates, he decided that "in the interest of the country," especially during this "volatile and perilous" period, the 2027 US military budget should not be $1 trillion but $1.5 trillion.
Trump stated that this would enable them to build a stronger military. He claimed that if not for the "massive revenue" generated by tariffs on other countries, he would have maintained the $1 trillion budget. However, due to the tariffs and the resulting income, they can now easily reach the $1.5 trillion budget.
This massive defense spending proposal comes as Trump, in a potential second term, is increasingly leveraging the military to achieve foreign policy objectives. The US military seized a Russian oil tanker suspected of violating sanctions in the Atlantic on Wednesday, just days after a military operation in Venezuela. The White House also escalated rhetoric on Tuesday about controlling Greenland, stating that "using the US military" was one of the options Trump was considering.
Can tariff revenue fill the spending gap? Trump asserted that the "massive revenue" from tariffs allows the US to "easily achieve" the $1.5 trillion target, adding that the proceeds from trade tariffs not only cover the increased military spending but also enable the US to reduce national debt and pay a "substantial dividend" to middle-income Americans.
However, there are clear gaps in this fiscal calculation. The Congressional Budget Office (CBO), the congressional fiscal watchdog, estimates that the US budget deficit this year will account for 5.5% of GDP. While lower than recent levels, many economists consider this level unsustainable.
The CBO predicted last November that although Trump's tariffs helped reduce the deficit in 2025, they would only generate $2.5 trillion in revenue over the next 11 years, averaging about $230 billion annually. This figure falls far short of the projected $500 billion annual increase in defense spending.
A 50% increase in defense expenditure could raise serious concerns about the government's fiscal sustainability.
Pressuring Defense Contractors On Wednesday, Trump also stated that he would "not allow" US defense companies to conduct stock buybacks or pay dividends until they respond to his demands for faster and more reliable production of military equipment.
He specifically called out contractor Raytheon, saying: "Either Raytheon steps up and starts making more upfront investments in factories and equipment, etc., or they will no longer do business with the Department of Defense."
These remarks immediately impacted defense stocks. Raytheon's stock price closed down 2.5% on Wednesday, Lockheed Martin fell 4.8%, Northrop Grumman dropped 5.5%, and General Dynamics declined 4.2%.