Al Root

President Donald Trump wants a strong, modern military. That's one aspect of his defense policy that's a positive for the industry. A potential negative aspect, however, is that it is more about America first than upholding alliances.

Wednesday, the Defense Department said it was reviewing the AUKUS pact. AUKUS is short for Australia, U.K., and U.S., and it is a 2021 agreement designed to "strengthen the ability of each government to support security and defense interest...promote deeper information sharing and technology sharing; and foster deeper integration of security and defense-related science, technology, industrial bases, and supply chains."

Part of accomplishing that was to upgrade Australia's submarine capabilities, partly to enhance the West's ability to monitor China. Eventually, Australia would build and purchase U.K. attack submarines, as well as acquire some U.S.-made Virginia-class submarines.

The direct impact of fewer international sales could hit Huntington Ingalls Industries, which builds the boats. Shares were down 0.6% in early trading Thursday, while the S&P 500 and Dow Jones Industrial Average were off 0.2% and 0.4%, respectively. Coming into Thursday trading, Huntington's stock was essentially unchanged over the past few days.

The short-term impact on Huntington, as the market reaction appears to show, is small. Those get built at rates of one or two a year. The U.S. might prefer to buy the subs for the U.S. Navy.

The longer-term impact is on foreign sales for the American defense industry. International sales account for roughly one-quarter of major defense contractor revenue.

The review "doesn't make the U.S. look good for potential importers," says Vertical Research Partners analyst Rob Stallard. The U.S. has been "sniffing around Japan on selling F-47, but this won't help."

The F-47 is the sixth-generation manned fighter jet recently awarded to Boeing.

Boeing, Lockheed Martin, RTX, L3Harris Technologies, Northrop Grumman, and General Dynamics were mixed in early trading. Boeing and RTX shares were down, and the rest were up. Boeing shares, however, were impacted by the tragic crash of a 787 operated by Air India.

Coming into Thursday trading, shares of Lockheed, Northrop, L3Harris, Huntington, and General Dynamics were down about 3% on average since the Nov. 5 election, trailing the S&P 500 by almost seven percentage points. Huntington was the only stock up over that span.

Policy uncertainty has weighed on investor sentiment. They aren't sure how to pick defense winners and losers in the second Trump administration.

Write to Al Root at allen.root@dowjones.com

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June 12, 2025 11:34 ET (15:34 GMT)

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