The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Gabriel Rubin

WASHINGTON, March 18 (Reuters Breakingviews) - Uncle Sam’s abiding ambivalence about having close ties with corporate America is getting some fresh, albeit unwelcome, clarity. Calling U.S. manufacturing capacity the “arsenal of democracy” in 1940, President Franklin Roosevelt underscored the value of long-term investment for geostrategic supremacy, while two decades later Dwight Eisenhower bid farewell to the White House by coining the phrase “military-industrial complex” to bemoan the risks of putting public trust in private hands. The supposedly business-friendly Donald Trump and his billionaire sidekick Elon Musk are taking a chainsaw to it all.

Of the $760 billion Washington spends on contractors each year, ones making missiles, helicopters and other military supplies account for 60% of the sum. The rest goes to companies large and small in agriculture, cybersecurity, nursing, vaccine development, catering and beyond, which depend heavily on selling products and services that the government can’t, or doesn't, provide itself. Many business models are suddenly at risk as the Trump administration rapidly reviews and slashes the country’s budget. Open questions about the huge amount of funding also threaten to undermine national strategic capabilities for decades to come.

The widespread departmental purges and waving of symbolic power tools belie that the federal bureaucracy has been roughly the same size for four decades. Direct federal employment ranges between 1.8 million and 2.2 million, while a broader measure that includes contractors, postal workers, grantees and military personnel spans about 8 million to 11 million in any given year, according to New York University professor Paul Light.

Although Trump, somewhat like Eisenhower, disparages the power of defense contractors, their employment increased by 20% during his first term, according to the Washington Post. Even so, his administration has spent the first two months canceling dozens of deals, possibly on shaky legal grounds, in a bid to slash overall government spending.

Companies and their employees have come to rely on the regularity and predictability of their Washington agreements, and also have longstanding relationships with the agencies they serve. In some cases, the stakes are existential. For example, federal contracts comprise 98% of the $11 billion in annual revenue generated by cybersecurity and defense consultant Booz Allen Hamilton BAH.N. Small wonder its stock price has tumbled nearly 40% since the presidential election in November.

Bloat and a lack of competition among incumbents are perennial problems, but the size and expertise of an aerospace or pharmaceutical goliath cannot be recreated overnight. In crisis situations, such as the Covid-19 pandemic, those affiliates were available to work with the U.S. government to rapidly develop and produce vaccines or to convert a production line from civilian to military use.

Moderna MRNA.O, which in part owes its existence to federally funded research conducted at the National Institutes of Health which led to mass production of mRNA immunizations, risks losing a $600 million influenza-jab contract as the Trump administration turns away from the proven and effective method of fighting infection and slashes spending on public health research.

Having a vaccine skeptic like Robert Kennedy Jr. at the helm of the U.S. Department of Health and Human Services also poses risks to Pfizer PFE.N, whose share of government revenue soared during the peak pandemic years. It secured $32 billion of federally obligated contracts in 2021 and 2022 alone for vaccines and therapeutics. Pfizer argues that the Trump administration’s money-saving ambitions should lead it to support inoculation programs “because that's a very cost-effective way of controlling healthcare costs,” CEO Albert Bourla told investors in February.

Defense companies find themselves making similar arguments: reducing spending on long-term contracts is penny-wise and pound-foolish. “You want production stability when you're in a production program: you start whipsawing production, it’s very difficult to ramp it back up,” Lockheed Martin LMT.N Chief Financial Officer Jay Malave said last week.

His employer is the single largest federal supplier, with more than $70 billion of agreements in 2023, but around 80,000 small businesses also represent 22% of outsider contracts. Local food vendors for U.S.-funded school lunch programs, for example, recently found out that $660 million allocated for the 2024-2025 school year will be canceled. Lockheed could weather that sort of hit, but many independently owned enterprises with far fewer workers and revenue cannot.

Not everything will make it through Trump’s shredder. The Supreme Court ruled recently that the administration could not freeze $2 billion for services already rendered by U.S. Agency for International Development vendors. But other contracts are being canceled, and more future ones are in doubt. It’s reasonable for even the largest and most powerful contractors to fear they won’t be paid, a sea change in the staid and predictable world of federal procurement.

One test case involves Verizon Communications VZ.N and its $2.4 billion deal to overhaul air-traffic control networks. Musk, the presidential adviser and SpaceX CEO, has castigated the telecommunications titan for its work, and Transportation Secretary Sean Duffy criticized it for moving too slowly. SpaceX, which operates the Starlink satellite service, has denied it wants to take over the contract in its entirety, but wrote on the Musk-owned X social network that it could help provide a “partial fix.” Musk, whose Department of Government Efficiency is leading the charge to cut government contracts, runs companies that have received $38 billion from U.S. taxpayers over the years.

Policymaking by personal whim is often doomed to failure. Trump’s decision during his first term to strip Amazon.com AMZN.O, whose founder Jeff Bezos owns the Washington Post newspaper, of a $10 billion cloud computing contract and award it to Microsoft MSFT.O instead had to be relitigated multiple times. The Biden administration eventually split it into multiple contracts. Similarly, a future president easily could do the same to any government deal struck with Musk or other Trump allies.

The openness and competition rules that have governed federal purchases for decades are at times sclerotic and tend to favor existing suppliers. They nevertheless are better than the alternatives on offer now, where businesses dependent on established arrangements are left unsure whether they can make payroll or keep a production line open. U.S. economic and geopolitical strength also depends on the uneasy balance of public and private investment. Upending the status quo without a clear plan puts many jobs and profit at risk. And by severing such ties haphazardly, it also jeopardizes the country’s preparedness and strategic objectives.

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(Editing by Jeffrey Goldfarb, Pranav Kiran and Maya Nandhini)

((For previous columns by the author, Reuters customers can click on RUBIN/gabriel.rubin@thomsonreuters.com))