How US Election Outcomes Could Influence Defense Spending

The outcome of the U.S. elections could significantly influence defense spending, particularly in the context of modernization initiatives. Analysts at BofA Securities highlight that the political party in control plays a crucial role in determining the scale of these expenditures.

Historically, shifts in defense funding have occurred based on which party operates the Executive branch, the Senate, and the House of Representatives. The analysts present a framework to analyze how future election results might shape defense budgets in the years ahead.

One optimistic scenario suggested by BofA indicates that if a Trump Administration were to occur, alongside a Republican majority in the Senate and a Democratic-controlled House, there could be a substantial increase in defense modernization budgets. Specifically, this alignment might yield an annual spending increase of up to 17% for the fiscal years 2025 through 2027, largely due to the Republicans’ historical support for defense spending, especially in areas such as research, development, and modernization programs.

Conversely, a more cautious scenario examines a Harris Administration coupled with a Democratic Senate majority and a Republican House. In this political climate, the defense modernization budget could see a mere 2% increase, potentially insufficient to keep pace with inflation, indicating a more restrained approach to defense expenditures.

The analysts stress that while historical trends show the Senate as a significant influence on defense budget outcomes, the President’s role may be more prominent in this election cycle. Kamala Harris’ Senate record demonstrates a more fiscally liberal stance compared to many Democrats, possibly leading to tighter defense spending if she were elected. In contrast, Donald Trump’s previous presidency was marked by increases in defense budgets, suggesting that a similar trend could emerge under his leadership again.

The framework developed by BofA analysts emphasizes that while Senate control typically exerts a strong influence on defense modernization budgets, the fiscal strategies of the President, particularly in this election cycle, could prove to be a decisive factor. They estimate that the President’s influence could account for a swing of up to 340 basis points in defense spending growth, compared to roughly 170 basis points attributed to the Senate.