There may be a misconception in the public that the transition from President Donald Trump to President Joe Biden would be a net negative for those with business in the defense sector. However, from President Biden's past statements and recent actions, that’s not necessarily the case, and it's more the progressives in the Democratic Party who dominate much of the conversation about Defense budget cuts.
In the sixth episode of Insider Insights: 100 Days of Biden, Jayson Wolfgang, litigation shareholder and head of the firm's Harrisburg, PA office, is joined by Jim Wiltraut, a senior principal in the firm's government relations practice in D.C.
In this episode, Jayson and Jim cover:
- The White House's likely approach to Defense spending and where there may be cuts to the budget.
- The biggest differences in approach to Defense between President Biden and former President Trump.
- How micro aggressions from Russia, China, North Korea change the landscape of defense and where money gets spent.
- How the steel industry specifically may be impacted by the new administration and its approach to Defense.
- COVID-19 relief bills and whether they did enough to protect and help those with contracts in the Defense industry.
Jayson Wolfgang: Welcome to Insider Insights: 100 Days of Biden, a podcast from Buchanan Ingersoll and Rooney. I'm your host today, Jayson Wolfgang, Litigation shareholder and managing shareholder of the firm's Harrisburg, PA office.
On past episodes of this podcast, we've talked about how President Biden's policies and approaches may impact businesses in the Life Sciences, Energy, Healthcare and Transportation industries. Plus, we've discussed labor and employment and what the jobs outlook may look like in the U.S. over the next few months. On today's episode, we're welcoming back Jim Wiltraut, a senior principal in Buchanan's Government Relations practice in D.C. He previously shared some of his expertise on the transportation industry, and today we're going to pick his brain on what the outlook may be for those with a stake in the U.S. Defense industry. Jim, thanks for being on the podcast again.
Jim Wiltraut: Jayson, thank you for having me.
Jayson Wolfgang: So, Jim, there may be a misconception that the transition from President Trump to President Biden would be a bad thing for those in the defense sector. But as we've talked about offline, that's not necessarily the case, and there's quite a bit of nuance to the way the current administration may approach defense spending. We know the progressive wing of the Democratic Party has been pushing for cuts to the defense budget to pay for other programs. But it's not really something President Biden has gotten on board with so far. How does the White House approach this? Does the administration agree that there is a need for cuts to defense spending?
Jim Wiltraut: Think about this. President Biden was in the Senate for 36 years, and he served as vice president for eight. Nobody survives an elected office for nearly 45 years by being full-out reckless. Will the President make cuts to defense spending? Probably.
Congress, in a very short time, has enacted six COVID-19 relief bills costing about $5.3 trillion. We know that money wasn't just lying around somewhere and sooner or later – probably sooner – taxpayers are going to be asked to pay the piper. That means raising taxes and cutting spending.
Just this week, groups like the National Taxpayers Union and the Council for a Livable World urged Congress and the administration to cut $80 billion worth of weapons and other programs from the defense budget. They're talking about the F-35 fighter jet program. They're talking about canceling the B-1 bomber, something near and dear not only to my own heart, but to that of many of our clients. They're talking about getting rid of the Gerald R. Ford-class aircraft carrier program and deferring the B-21 bomber. Oh, and by the way, they also want to eliminate the Space Force.
There's a lot there, and yet at the same time, there's talk about building an Aegis Ashore missile defense system on Guam as part of the Pentagon's effort to beef up defenses in the Indo-Pacific Theater, something that the Indo-Pacific commander, Admiral Davidson, has called his No. 1 priority. They're talking about this Pacific Deterrence Initiative, which is going to cost somewhere in the neighborhood of $27 billion. That's a good chunk of what those groups are asking the President to cut out of the system.
For example, you talk about the Gerald R. Ford-class aircraft carrier. We're not just talking about one aircraft carrier. You're talking about the Ford. You’re talking about the Enterprise. You're talking about the USS John F. Kennedy, and you're talking about the USS Doris Miller. That's one aircraft carrier. The Ford is already out in the fleet and serving, but those other three are yet to be built.
Would it represent a large cut? You bet. But how would it influence our fighting again in the Indo-Pacific region? When you're talking about a confrontation, any kind of confrontation with China, you're talking Navel. We’re talking Maritime. You're talking ships. You're talking about deployed Marines. And you can't just put Aegis on Guam and then hope for the best. You have to have the carriers. You have to have the Marines. You have to have platforms that get those Marines to where they need to be.
And so, will President Biden cut Defense budgets? Sure. It'll probably, I hope, be more strategic than what some of these groups are calling for. A little bit here, a little bit there. But $80 billion is a lot of money, and the weapons systems that they're targeting have a strategic implication in our relationship with and our deterrence of China.
Jayson Wolfgang: So, Jim, you've covered the ways that President Biden and President Trump approach things both similarly and differently. I guess focusing on the differences because that might be what's of greatest interest right now to our clients. How will those differences impact those who work in, or companies that have contracts in, the defense space?
Jim Wiltraut: It's a mixed bag, really. Some of our clients work on the Navy shipbuilding program. Those are long-lead items. The aircraft carriers that some folks are talking about cutting, well, the parts for those aircraft carriers have already been ordered. When you talk about submarines, the ship shafts have already been ordered for many of the DDG’s, the destroyers for the aircraft carriers. For the first-lead submarines like the Columbia, most pieces have already been ordered. Where it could impact companies are in those items that are not really considered long-lead.
If you produce the things that are our troops handle on the field, that might be impacted. If you manufacture helmets or you manufacture other things that the Department of Defense doesn't order five years, ten years out. Those systems can get cut. They can get trimmed. If you're talking about an aircraft system, that could have a hefty impact because you're cutting the entire system. If you're trimming a plane off here, or ship off there, again, it's a lot easier for any company to absorb. It's those big cuts. It's when you cut with an axe instead of a scalpel that caused the real big ripple effect, not only for the prime contractors, but for the subcontractors. The folks who make the widget that goes on the ship, and so forth.
Jayson Wolfgang: Let's shift gears to the War on Terror, which you know certainly isn't over. I mean Iran isn't going anywhere anytime soon. But at the same time, it's kind of taken a backseat recently to aggressions coming from Asia, especially in the form of Russia, North Korea, and to an extent China. Are we really in the midst of another full-fledged Cold War? And how does that impact the way the US operates?
Jim Wiltraut: If by Cold War you're talking about a conflict on political, economic and propaganda fronts, then you are part-way there. Yeah, we’re fighting a Cold-War-like-war on several fronts. You named them. It is China. We will probably never go to blows with China directly. But we can't ignore the fact that we're already in conflict with Russia. Iran, frankly, there’s more direct conflict then with China or Russia. North Korea I would describe as a nuisance, but when you have an unpredictable nuisance like that, it draws your attention real quickly. Kim Jong-Un just last week, conducted missile tests. He fired off two short-range missiles. He didn't do it at the tail-end of the Trump administration, he did it at the front-end of the Biden administration.
With Afghanistan, the Trump administration negotiated directly with the Taliban. If the Taliban agreed to reduce the violence, we agreed to get our troops out by the 1st of May. That deadline is going to come and go. Violence has escalated. The Taliban is back to their old tricks. I mean, they're targeting journalists. They're targeting women. It's a mess over there, and if you speak to folks like President Ghani and others, they would tell the U.S. to please stay. Even within NATO, individual countries have had a hard time going back to their people and saying, “We need to stay in Afghanistan.” Still, many of them are thinking they need to stay in Afghanistan until the violence is gone and the Taliban is more predictable.
So again, you have China, Russia, Iran, North Korea, Afghanistan. And then all of those popups that could come up at any time. It's important to keep in mind that at the beginning of an administration, Presidents get tested by our adversaries. It's often done early, and it's sometimes done often. And it's our enemies view of our leaders that dictates what happens, when it happens, and if it's sustained. If they collectively or individually see President Biden as being soft footed in the defense of our country, you could see those tests again and again. And not only on the ground. We’re talking cyber. That's happening all the time. There are relatively new allegations that the Russians have been firing on our satellites in space. And yet again, you go back to what we talked about at the beginning, there are folks that want to get rid of the Space Force. Russia sees space as, no pun intended, as the new frontier and new place to fight. They can fire on our satellites. They can follow our satellites. They can tamper with our satellites and do so either undetected or without any clear response on our part.
Jayson Wolfgang: Jim, you know our firm has deep roots in Pennsylvania and its foundation is in Pittsburgh, so we at Buchanan know how important steel is to the defense industry. Now that we may be looking at a maritime war of sorts with China, will the steel industry see a bump under President Biden? Or will the push for cuts from progressives curtail some of that spending on steel? What are your thoughts on that?
Jim Wiltraut: I will tell you that when you're talking about China, you're talking maritime. You're also talking other places, cyberspace and outer space, but you are most directly talking about maritime in the Indo-Pacific region. We have several programs that are underway right now. For example, the brand-new line of submarines, the Columbia class submarine, many of the components that go into that submarine are made in Pennsylvania. Everything from the shafts to the nuclear reactor components and many of the armor plates that go into the making of the submarine are made literally right in Pennsylvania. It represents, easily, 1,000 jobs. And if President Biden were to curtail or stall the very ambitious Trump administration plan for 355-plus ships, that would have a devastating ripple effect across the Commonwealth, especially in the steel industry.
Jayson Wolfgang: Lastly, Jim, the latest COVID-19 relief bill, focused mostly on smaller businesses. And while some defense contractors on the smaller side made out OK, some of the larger defense companies may have actually felt left out. Especially when many of these businesses were in a full-steam-ahead mentality during the past year or years, how much of an impact has or will COVID-19 have on the defense industry moving forward?
Jim Wiltraut: Just like any industry, COVID-19 has influenced every part of our lives. But in the defense industry, think back to this time last year. The pandemic was declared in the middle of March, and within days, Ellen Lord, who was the Under Secretary for acquisition at the Pentagon, issued a letter that went out to every defense contractor. It said essentially, “We as the Defense Department are open for business, and we expect you as the suppliers of the Defense Department to stay open for business.”
And that meant regardless of who you were, what type of business you're in, that meant dipping into your own pocket, to make the workplace safe, distribute personal protective equipment. And you had to turn it around right away. Because again, the Department of Defense was expecting their widgets. They were expecting their ships to be delivered. They were expecting all the weapons systems that were on the production line to be finished and delivered, and again that came with a cost.
Some of the early COVID-19 relief bills did have money for defense contractors specifically for the defense industrial base, but that got distributed very quickly. This last bill, the $1.9 trillion bill, did not have defense industrial-based money in it. I think that might have been a mistake. It might have been something that Congress said, let the dust settle. Let's spend the money we put in the other bills. Let's look and see where that money went and then where are the holes. Where do we still need to provide aid to those defense contractors? And I hope that's the approach.
Jayson Wolfgang: Jim, I want to thank you for sharing just a glimpse of your insight into the Defense industry and how the next few months and beyond may shake out under President Biden. Thanks also to our listeners for tuning into Insider Insights: 100 Days of Biden. To hear past and future episodes of the podcast, please subscribe on Apple Podcasts, Spotify, Google Podcasts, or wherever you listen in. Over the next few weeks, Buchanan Ingersoll and Rooney attorneys and government relations pros will continue to cover a range of topics and share what they know about what's going on and what's coming.
For Insider Insights: 100 Days of Biden, I'm Jayson Wolfgang with my colleague Jim Wiltraut of Buchanan Ingersoll and Rooney. Thanks for listening.