The Future of ITAR: US Foreign Defense Sales under Trump

On 5 June 2025, TRENDS US held its second Strategy Session, entitled The Future of ITAR: US Foreign Defense Sales under Trump. The session analyzed US foreign defense trade and the Trump administration’s new approach to this complex issue, which has resisted serious and comprehensive reform for decades.

Guest speakers Natasha Ahmed, tech investor and Senior Advisor with TRENDS US, and Jamie Morgan, Founder and Principal with Gray Book Consulting and Non-Resident Fellow with Carnegie Mellon Institute for Strategy and Technology, led the discussion. Moderator Bilal Y. Saab, Senior Managing Director of TRENDS US, divided it into three main parts:

• An explanation of the Trump administration’s defense acquisition and trade reform proposals.
• The possible gaps in those proposals.
• Suggested solutions to those gaps.

Held under the Chatham House rule, this exclusive event brought together subject matter experts on defense trade and strategy, senior representatives of defense primes and smaller defense companies, and tech leaders, investors, and entrepreneurs.

Key Insights and Recommendations 

First Part

• The April 9 Executive Order (EO) on Foreign Military Sales (FMS) reform emphasizes streamlining process, enhancing speed, and prioritizing allies and partners.
• The Modernizing Defense Acquisitions EO encourages domestic production, reducing reliance on Chinese inputs, and accelerating Department of Defense (DoD) innovation uptake.
• These EOs are part of the Trump administration’s wider strategy to revitalize the US Defense Industrial Base (including the June 20th EO on America First Trade Policy), and government-backed tech acceleration.
• Industrial-base and cost-share language baked into FMS policies should, in theory, promote faster sales and revitalize US manufacturing capacity. Calling for “burden-sharing” with foreign buyers is welcome.
• Hard performance metrics and public score-cards are necessary, but the US defense industry still needs to come up with its own measurement tools and assess whether those will be used to determine ongoing funding status.
• The directive to expand trusted-partner license exemptions beyond AUKUS – the trilateral security partnership between Australia, the United Kingdom, and the United States – calls on the State Department to recommend additional allies and program types for the 126.7 fast lane in the ITAR Regulations. The question becomes how the United States can involve treaty allies like Japan and South Korea who are key for any United States Indo-Pacific Command (INDOPACOM) logistics challenges.

Second Part

• There are questions about how meaningfully the EOs will be implemented with current (and possibly ongoing) National Security Council personnel turnover. But the reforms themselves have a strong process behind them.
• ITAR and export controls remain untouched. There’s no mention of updating the United States Munitions List (USML) to reflect emerging technologies or streamlining the commodity jurisdiction process. For example, China has cultivated its dominance in key defense exports – such as drone technology – by incentivizing production and facilitating defense exports.
• The EOs also leave out other key aspects of the Direct Commercial Sales (DCS) process—which is faster and more common for startups—that would benefit from reform. There’s still no clear pathway for early-stage dual-use companies to navigate the complex export control regime. Risk-averse compliance culture continues to be a barrier without Congressional action or outside pressure calling for additional Executive Branch reform.
• Within the Administration’s FMS reform process, insufficient attention is being given to cultural and structure reforms that would support what DoD likes to call “innovative technologies,’ or non-programs of record in moving through the security cooperation process.
• Congress has explored ITAR reform in the past – through the AUKUS export control exemption and the Export Control Reform Act of 2018 – but fallen short in full reform.
• The ally trust model hasn’t kept pace with geopolitics. §126.7 fast lanes exist for AU/UK, but other key Indo-Pacific partners including Japan and South Korea still wait under Cold-War era presumptions.
• The shift from a munitions-era export code to a software-era capability code is necessary—graduated risk bands, shared data pipes, and compliance infrastructure that a twenty-person start-up can actually afford.
• The coordination gap is bigger than any single EO. This is always going to be an interagency coordination issue that companies are stuck inside, and smaller entrants don’t know how to navigate.
• This is a lengthy process. No appropriations or hiring authorities are given—even though the Directorate of Defense Trade Controls (DDTC) processing times are staff-limited.

Third Part

• There is a strong need to include the Department of Commerce at the table for any fast-track applications.
• The fast-track model must be utilized to better prepare INDOPACOM logistics and critical tech. For that, action items must include the following:

• • Extend the §126.7 trusted-partner exemption model.
  • Pilot “AUKUS-plus” fast-track for projects where a US defense prime mentors a USML-accredited start-up and an Australian or UK end-user.
  • Use objective cyber-security and end-use metrics to add more allies.

• Offsets are opportunities for business development for defense primes and start-ups. Therefore, the following action item should be considered:

• • Stand-up a digital, tradable “offset-credit marketplace. The Defense Security Cooperation Agency (DSCA) hosts a registry where small businesses bank offset value (e.g., local co-production, R&D spend). Primes (or foreign buyers) buy those credits to satisfy national offset mandates.