By: Carter Copeland
Historical data on partisan control is not conclusive for the direction of defense spending. Figure 1 inside shows that growing budgets and shrinking budgets are largely unrelated to the political party that holds the Presidency. Large military engagements (e.g. wars) and strategic shifts (e.g. Cold War) tend to drive the biggest directional changes in budgets. If an administration makes ending wars a central campaign/policy promise, like we saw with Obama entering the first term, this can lead to a more significant reshuffling of relative spending priorities. If they don’t, budget momentum can carry on for several years. Based on commentary from the Biden camp so far, the strategic long-term threat posed by China is one that a Biden/Harris ticket takes extremely seriously. As such, we think there’s more risk within budgetary line items (shifting funds between programs/services) than at the overall top-line. This doesn’t mean that top-line risk is zero, but instead that for most contractors, the risk of replacing some of today’s biggest money-making contracts with lower-margin, more competitive development work could be more impactful than modest budget cuts.