OpinionWhat’s in store for Israeli DefenseTech in the U.S. under the Trump administration
Opinion
What’s in store for Israeli DefenseTech in the U.S. under the Trump administration
"For obvious reasons, the U.S. defense industry is highly regulated and Israeli DefenseTech companies would be well advised to familiarize themselves with the robust U.S. regulatory framework," writes Meital Stavinsky, a Partner and Co-Chair of the Israel Practice of Holland & Knight.
Since shortly after election, President-Elect Trump has been busy selecting nominees for his Cabinet, a group of close advisers and the heads of federal agencies. Some members of the Cabinet, such as the National Security Advisor and White House Chief of Staff, do not require Senate confirmation, however most do. While it remains to be seen what may transpire during the confirmation process, it is nevertheless very rare for a president-elect's nominee to lead an executive department to be rejected. The last time that happened was 1989, when George H.W. Bush's nominated for Defense Secretary, John G. Tower, a former senator from Texas, to be his Secretary of Defense.
Given the breadth of the U.S. market and the close ties between Israel and its greatest ally, many Israeli tech companies devise their U.S. business strategy as soon as they establish their venture. On the minds of many in Israel these days is the question of what impact the Trump Administration will have on their respective industries and prospects of growth in the coming four years. A clue may be found in reviewing the policies of President-Elect Trump during his first term, his recent campaign, and the profile of his next Cabinet nominees.
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Meital Stavinsky, a Partner and Co-Chair of the Israel Practice of Holland & Knight
(Photo: Holland & Knight.)
Cybersecurity and DefenseTech are top leading industries in Israel with significant application in the U.S. The revenue of the Cybersecurity market in Israel in 2024 is estimated at $960MM and projected to increase to $1.4BB by 2028. Israel’s defense sales topped $13BB in 2023. Leading U.S. private investment groups have been driving investment in DefenseTech startups. The DoD’s Defense Innovation Unit, NATO Innovation Fund and others, have also demonstrated interest in funding defense technology.
Most U.S. aid, not less than $3.3 a year subject to congressional appropriation, is provided as grants under the Foreign Military Financing (FMF) program and must be used to purchase U.S. military equipment and services. Additionally, $500MM a year is slated for Israeli and joint U.S.-Israeli missile defense programs. Since October 7, 2023, the United States has enacted legislation providing at least $12.5BB in direct military aid to Israel.
Pete Hegseth, a Fox News Channel host and an Army National Guard veteran who served in Iraq, Afghanistan and Guantanamo Bay, is the Defense Secretary nominee. Also, while not yet confirmed at the time of writing this op-ed, for the role of Deputy Secretary of Defense, President-Elect Trump is said to be considering two financiers: Trae Stephens, co-founder of defense company Anduril and a partner at Peter Thiel’s Founders Fund venture-capital firm, and Stephen Feinberg, co-chief executive of investment firm Cerberus Capital Management, who led the Intelligence Advisory Board during the first Trump administration. The two reportedly being considered deliver a welcomed sentiment for the DefenseTech startups sector.
While it’s too early to forecast with confidence, the return of a Trump presidency will likely lead to a larger defense budget. Trump oversaw a massive hike in defense spending during his first term — some $225BB higher than projected from the Obama years. Defense hawks in Congress are counting on a repeat of that trend, and will have more power to force it, though there may be some pushback by House Freedom Caucus members who want to rein in spending altogether, and the America First wing of the Republican Party who want to limit foreign spending.
President-Elect Trump is expected to modernize the military by investing in advanced technologies, particularly an Iron Dome-style missile defense shield for the United States. Trump has also pledged to increase troop pay and aims to revive the industrial base to ensure job creation and defense production, with a focus on domestically manufactured goods. Besides the use of tariffs, he has not yet specified plans to boost defense production. However, in his first term, he did leverage the Defense Production Act to spur domestic production expansion at the onset of the Covid-19 pandemic. President-Elect Trump has also prioritized the protection of critical infrastructure from cyber threats by raising security standards and enhancing defenses.
In a recent interview, Hegseth noted the need to expedite DoD procurement processes. U.S. Congress is also keen to reform the DoD’s procurement and acquisition processes to make them more nimble and able to get the newest technologies into the hands of fighters. Hegseth is anticipated to advocate for domestic manufacturing of military hardware and technology. He is also expected to advocate for a further expansion of programs designed to fast-track procurement of innovative solutions such as AI under the Open DAGIR initiative, and drones under the Replicator and Blue UAS programs. Hegseth also expected to further robust efforts to elevate the Defense Innovation Unit and programs such as the DEFENSEWERX network of innovation hubs across the United States.
In addition to the programs designed to help small businesses directly sell to the DoD, there are also more traditional paths via DoD Prime Contractors and Subcontractors. Exploring opportunities with DoD contractors who support a wide range of military operations could serve as a great avenue for Israeli DefenseTech to pursue opportunities in the U.S.
For obvious reasons, the U.S. defense industry is highly regulated and Israeli DefenseTech companies would be well advised to familiarize themselves with the robust U.S. regulatory framework, including the recently enacted Cybersecurity Maturity Model Certification (CMMC). They should also keep track of possible future regulatory developments, such as a proposed rule that would effectively require DoD contractors to disclose whether they have permitted or agreed to permit a foreign government or person to review software code for certain categories of products and services.
Israeli DefenseTech companies should also ensure that they have the required corporate structure in place to pursue procurement opportunities as, often times, foreign companies will need to meet additional layers of national security compliance. As well U.S. manufacturing capabilities when required. There are clearly great opportunities ahead and Israeli DefesnTech companies ought to make sure they consult with professional advisors in the U.S. to find ways to enter the U.S. market.
Meital Stavinsky is a Partner and Co-Chair of the Israel Practice of Holland & Knight, a leading U.S. based law firm.
