The Department of Defense is quietly assembling what would amount to one of the largest government interventions in the American economy in history. According to a recruiting document prepared by the executive search firm Heidrick & Struggles, the Pentagon’s Office of Strategic Capital and its newly conceived Economic Warfare Unit plan to deploy up to $200 billion over three years through equity stakes in companies deemed critical to national security.
If this effort proceeds as described, it would represent the largest accumulation of government equity positions in American history, dwarfing any prior intervention outside of a genuine national emergency.
The Department of Defense is quietly assembling what would amount to one of the largest government interventions in the American economy in history. According to a recruiting document prepared by the executive search firm Heidrick & Struggles, the Pentagon’s Office of Strategic Capital and its newly conceived Economic Warfare Unit plan to deploy up to $200 billion over three years through equity stakes in companies deemed critical to national security.
If this effort proceeds as described, it would represent the largest accumulation of government equity positions in American history, dwarfing any prior intervention outside of a genuine national emergency.
There are legitimate reasons to worry about the United States’ eroded industrial base. Chinese shipbuilding output now exceeds that of the United States by more than 230 times. The United States can no longer manufacture munitions or military aircraft at the pace a major conflict, or simultaneous conflicts in Ukraine and Iran, would demand. What’s more, the post-Cold War consensus that offshoring and financial globalization would make everyone richer has left the United States dependent on adversarial supply chains for the very inputs its military requires.
But the Trump administration’s apparent solution will create serious new national security concerns while still failing to effectively address the problem itself.
Start with the money. The Department of Defense requested approximately $1.2 billion for this new fund in its fiscal-year 2026 budget submission. Where will the rest come from? There is established legal precedent for the government to leverage such an appropriation into far larger lending capacity. Both the Export-Import Bank and Department of Energy’s Loan Programs Office work this way, borrowing through the Treasury Department’s Federal Financing Bank against a congressional credit subsidy. But that framework, established by the Federal Credit Reform Act of 1990, applies to loans and loan guarantees—not equity. For equity investments, every dollar deployed requires either a dollar appropriated by Congress or a dollar from an outside source.
The proposed $200 billion fund size is two orders of magnitude larger than the appropriation, and its capital structure has not been publicly explained. The recruiting pitch offers a clue: It promises candidates access to “global fundraising networks, including sovereign and royal-family connections.” It is difficult to read this as anything other than a reference to the Gulf sovereign wealth funds and royal families whose governments pledged some $2 trillion in U.S. investment during U.S. President Donald Trump’s May 2025 tour of Saudi Arabia, the United Arab Emirates, and Qatar.
The implications of foreign sovereign capital underwriting a fund that will take controlling equity positions in companies the United States deems critical to its national security are extraordinary. Who will control the investment decisions under such a structure, the U.S. government or a foreign one? Who captures the returns, American taxpayers or the Gulf limited partners who provided the capital? Will foreign governments have formal governance rights, or merely the informal leverage that comes with providing $200 billion?
The Committee on Foreign Investment in the United States exists precisely because leaders have long recognized that foreign capital in sensitive sectors can compromise national security. I reviewed hundreds of such transactions during my time at the White House and Treasury Department. The principle underlying that work was straightforward: When foreign money flows into strategically important American companies, the U.S. government must scrutinize the arrangement for national security risk. And the Pentagon’s own Defense Counterintelligence and Security Agency (DCSA) exists in part to prevent foreign ownership, control, or influence over sensitive elements of the defense industrial base. Yet what Trump and Defense Secretary Pete Hegseth appear to be contemplating would be a complete inversion of that principle, with the government itself serving as the vehicle through which foreign governments gain access to and potentially influence over the United States’ most sensitive industries.
The most immediate problem is operational. Foreign ownership, control, or influence could limit these companies’ ability to perform classified work for the U.S. government. Under existing DCSA regulations, companies subject to foreign ownership or control face restrictions on their facility security clearances, which are necessary to work on the most sensitive defense programs. The Pentagon would thus be undermining its own objective of rebuilding the defense industrial base to address the nation’s most pressing national security challenges.
The longer-term risk is even more consequential: sensitive technology transfer. Saudi Arabia and the UAE have both publicly expressed their desire to cooperate more closely with the United States on critical technologies, especially artificial intelligence, with the understanding that this will require them to distance themselves to some extent from China and Russia. But advanced technology sitting on a server in Riyadh or Abu Dhabi will be an attractive target for Chinese, Russian, and other adversaries whether through cyberattacks, human intelligence collection, or potentially even diversion of physical hardware. Such transfers need not be intentional. At the end of the day, it is very difficult to guarantee that technology developed for or licensed to the Gulf will stay there.
Then there is the question of internal structure. The recruiting document describes a 30-person investment team organized like a private equity fund, with managing directors, vice presidents, and associates drawn from Wall Street. Hiring former investors for a government investment fund is wise, as the government does not have this experience in-house. But the concentration of authority among officials with deep private equity ties, like Deputy Defense Secretary Stephen Feinberg and his senior advisor George Kollitides, who is poised to oversee the Economic Warfare Unit, raises obvious questions about whose interests will be served.
Compensation for these roles ranges from $250,000 to $300,000, competitive for Wall Street but higher than almost all government employees including members of Congress. Most troubling, the document notes that employees can double their pay to $500,000 to $600,000 if “employed through a government-aligned nonprofit.” The legal basis for this dual-track compensation arrangement is unclear, to put it charitably. Federal pay scales exist for a reason, and routing government employees through nonprofit intermediaries to circumvent those limits raises serious questions under ethics statutes and appropriations law. And if these salaries are all covered by a foreign government, there will also be serious doubts about whether these exceptionally well-paid bureaucrats are making decisions with solely the American taxpayers’ best interests in mind. This could easily lead to federal funding being diverted from programs and products with the highest national security priority to projects that offer a better return for investors.
The recruiting pitch also promises candidates something that should alarm anyone who cares about fair competition in government contracting: “unmatched access to top-level government officials and privileged information flow—whatever you need, you can get.” This is being offered not to career civil servants bound by decades of ethics rules, but to Wall Street professionals on two-year secondments who are explicitly told this experience will help them “launch a new fund with members of this team” after their government service. The revolving-door implications are staggering.
But the most consequential risk is not corruption, as serious as that concern is. It is the distortion of the very markets this effort purports to strengthen. Last November, I raised concerns about the market-distorting potential of the approximately $10 billion in government equity investments that had already been made. At $200 billion, those distortions become potentially irreversible. When the federal government takes equity positions in select companies across industries, especially those in which government contracts are an important revenue source, it is not simply investing. It is picking winners. And in doing so, it is necessarily creating losers: The companies that do not receive investment will see little hope in competing for contracts against government-backed rivals and will likely struggle to attract private capital once investors conclude that Washington’s chosen few have an insurmountable advantage.
This would ultimately directly undermine the Economic Warfare Unit’s goals by shrinking the defense industrial base to a handful of favored firms rather than expanding it. This reduced competition would raise costs and create a more brittle industrial base that is less capable of rapidly scaling to meet demand or overcoming unanticipated problems with major suppliers.
Proponents will argue that the slow deterioration of defense industrial base capacity is clear evidence that the status quo is not working and that rising global instability, including a new Middle East war, calls for radical new solutions. There is truth in this diagnosis. But the proposed cure appears worse than the disease. Private capital does not operate in a vacuum; it responds to signals. A $200 billion government fund deploying equity across six sectors is unlikely to spur the kind of additional private investment its architects anticipate. Instead, investors will follow the government’s lead, concentrating capital in the same firms Washington has selected and starving the broader ecosystem of the competition and innovation these industries desperately need. We will have replaced a market failure with a government failure, and this one will be far harder to unwind.
The United States has attempted large-scale government-directed industrial investment before, and the record is decidedly mixed. What distinguishes this proposal is its combination of unprecedented scale, opaque foreign connections, a capital structure that has not been publicly disclosed, minimal congressional oversight, a skeleton crew of personnel, and the explicit promise of personal financial rewards for those involved. Each of these features alone would warrant serious scrutiny. Together, they describe something that should concern policymakers across both parties, hawks and doves alike.
America’s national security industrial base indeed needs revitalization. But that effort requires transparent funding authorized by Congress, clear rules preventing foreign influence over sensitive investments, robust ethics safeguards, and a strategy designed to broaden competition rather than concentrate it. What the Department of Defense is preparing to pursue is none of those things. It is a private equity fund wearing a government uniform, and it risks doing lasting damage to the industries and the democratic accountability it claims to protect.
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