At the ongoing World Economic Forum meetings, both U.S. foreign and domestic policies have taken center stage. This includes issues ranging from housing affordability to reshaping how the U.S. defense contractors run their businesses. In a recent Executive Order, the President, who is obviously not happy with the performance of America’s defense industrial base, forbid them to “pay dividends or buy back stock, until such time as they are able to produce a superior product, on time and on budget.”Secretary Scott Bessent has since doubled down on these restrictions by stating that “These defense contractors have let down the American people.” These restrictions are raising alarm bells, not only for the companies that are directly targeted, but also for other parts of the economy that may be impacted, directly or indirectly, by this order.
It is no secret that the President would like to build a state-of-the-art industrial defense base, to keep the country safe against any existing or emerging threats. The U.S. is already a global leader when it comes to defense companies: In 2025, 6 out of top 10 global defense companies were U.S. headquartered. Out of the top 100, 48 of them are from the United States. Given increased global competition, especially against the rising power of Chinese state-owned enterprises, it is not unfair to say that U.S. private firms are doing well, functioning under free market rules: making investment, producing output and making decisions on how to handle cash with the ultimate goal of maximizing the value for their shareholders. The president wants to change that goal by injecting prioritizing the “Nation’s warfighters” into the equation.
This is reminiscent of another discussion we have had over the past decade: how to inject Environmental, Social and Governance (ESG) goals into the decision-making process of public as well as private companies. Ultimately, the second Trump Administration stood firm against ESG, highlighting the importance of acting in the financial interest of investors in another executive order targeting “politically motivated” decision making. Ultimately, many big investment firms refocused “to protect and enhance long-term shareholder value on behalf of clients.” With the new executive order, the worry is that the U.S. investment and business community is facing another “ESG” in the form of “prioritizing nation’s warfighters” and a command-and-control approach to firms’ decision making.
Another unintended problem with the executive order is that it potentially decreases the pool of companies willing to engage with the U.S. government if they are required to give up control over how they manage their business decisions. The private sector was awfully quiet when the Trump Administration took 10 percent of the ownership of Intel. Now the executive order is targeting defense firms. This will be interesting to watch, as the U.S. government is courting the big oil companies to do business in Venezuela. Past experience and uncertainty regarding the future of Venezuela is already making companies nervous. This new executive order might add another item to their list of worries, when it comes to doing business with the government.
There is also the impact on current and future retirees amongst all this. Stock buybacks generally happen when companies have significant amounts of cash in their balance sheets and lack potential investment opportunities that could increase the value of the firm over the long term. Buybacks, like paying dividends, are an important way for corporations to return value to their shareholders. A lot of retirees own these shares inside and outside of their retirement accounts. It appears that the Administration lines up with some Democrats in the senate when it comes to their views on stock buybacks and dividends.
Internal Revenue Service data show that almost 33 million tax filers received ordinary dividends and 31 million tax filers received qualified dividends (subject to lower taxation) in 2022. In both cases, almost half of these filers had adjusted gross incomes less than $100,000. The importance of dividends as a safe stream of income for retirees is widely known. Holding a part of your retirement savings in dividend-paying stocks not only allows you to increase your savings, but also protects against inflation, which is becoming a bigger threat.
Signaling that the current Administration frowns upon distribution of dividends might lead other firms to reexamine their decision to pay dividends. For example, if the Administration shifts its attention to utilities, with the pressure of increasing electricity prices, they could become a quick target of the Administration due to their high dividend payments, ultimately hurting small savers and retirees who depend on this income.
U.S. firms have been delivering significant value, not only in terms of productive capacity for the U.S., but also for small and big financial investors alike. As a leader of free markets over the years, the U.S. government fostered an economic environment that led the firms to make the right financial decisions with healthy competition, ultimately leading subpar companies to disappear. We are at a crossroads, and it is important to decide whether this new way of American capitalism is the right road to follow.
Dr. Pinar Çebi Wilber is Chief Economist and Executive Vice President of the American Council for Capital Formation.
