Why Trump’s order targeting share buybacks deserves attention

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Why Trump’s order targeting share buybacks deserves attention

Published: 21 Jan. 2026, 00:04

Audio report: written by reporters, read by AI

Shin Jang-sup

The author is an economics professor at Singapore National University.

U.S. President Donald Trump is swinging what many see as the world’s strongest fist with little restraint. He has openly discussed actions ranging from the forcible transfer of Venezuela’s president using special forces to claims over Greenland and the possibility of renewed airstrikes on Iran. It can feel as though the clock has been turned back to an era of imperial competition. The global economy is gripped by an unusual degree of uncertainty, driven by a leader who often appears unbound by clear principles and treats nearly every issue as a transaction.

U.S. President Donald Trump gestures as he addresses House Republicans at their annual issues conference retreat at the Kennedy Center, renamed the Trump-Kennedy Center by the Trump-appointed board of directors, in Washington, D.C. on Jan. 6. [REUTERS/YONHAP]

Yet Trump seems keenly aware of where power ultimately comes from and how it is sustained. While pledging to raise U.S. defense spending by 50 percent and rearm the military with cutting-edge equipment, he also issued an executive order that effectively bans share buybacks by major defense contractors.

The order argues that defense firms prioritized buybacks and dividends over production capacity, innovation and timely delivery, contributing to shortages of military supplies. When he signed the order on Jan. 7, Trump wrote on Truth Social that billions of dollars had been wasted on “financial gimmicks” and accused defense companies of feeding Wall Street while starving their own factories.

Korea’s policy direction today is moving sharply in the opposite direction. The government has been urging companies to treat shareholder returns as their top priority, pushing production capacity, innovation and reliable supply further down the list. It is even preparing legislation that would force companies to retire treasury shares they hold. This push, however, rests on neither a public-interest-based economic rationale nor solid empirical evidence drawn from developments in the global or Korean economy.

Advocates of buybacks and mandatory share retirement focus narrowly on stock prices, largely ignoring broader economic effects. Even then, their attention is fixed on short-term price movements rather than long-term value. Over the medium to long term, stock prices rise when firms mobilize capital to expand production capacity and invest in innovation. There is no inherent reason for corporate value to increase simply because a company uses its cash to buy back and cancel its own shares. Buybacks may boost prices temporarily by increasing market demand and drawing in momentum-driven investors, but the effect is fleeting.

The market reaction to Trump’s executive order illustrates this basic principle in reverse. Shares of major U.S. defense contractors fell sharply, in some cases by more than 10 percent, immediately after the order. Investors who believe in financial engineering assumed that without buybacks, prices would drop and rushed to sell. Yet those stocks soon recovered and climbed above their preorder levels. With government defense spending set to rise sharply, stronger demand naturally supports higher valuations over time.

For Korea, which depends heavily on the U.S. security umbrella, national strength lies less in raw military power than in the production and innovation capabilities of its companies. The rise in Korean stock prices last year and this year should be understood in that context. The strong performance of Samsung Electronics and SK hynix reflects decades of sustained investment in innovation and manufacturing capacity since achieving global leadership in memory semiconductors in 1993, a foundation that aligned with the recent boom in AI investment.

On Jan. 19, as the Kospi broke above the 4,900 mark for the first time in intraday trading, a screen at the dealing room of Hana Bank’s headquarters in Jung District, central Seoul, displays closing market figures. [NEWS1]

The recent surge in the share price of Hyundai Motor Group offers another example. Hyundai’s early acquisition of Boston Dynamics and its efforts to integrate advanced robotics with manufacturing capabilities laid the groundwork. That strategy paid off when Hyundai succeeded in forming what has been described as a “physical AI” alliance by combining its manufacturing base with the cognitive technologies of Google DeepMind. This outcome would have been impossible had Hyundai abandoned Boston Dynamics as a “cash drain” and instead devoted its reserves to aggressive shareholder payouts.

Proponents of mandatory share retirement often go further, distorting basic facts. They claim that global standards require companies to cancel repurchased shares or that Korea is the only country where treasury shares are treated as corporate assets. In reality, Delaware, where more than half of U.S.-listed companies are incorporated, recognizes treasury shares as assets and imposes no obligation to retire them. The system closely resembles Korea’s. In Europe, it is difficult to find countries that mandate share cancellation. Japan revised its system in the early 2000s, adopting a Delaware-style approach as part of its efforts to revive the economy.

With President Lee Jae Myung’s campaign pledge of a “Kospi 5000” nearing realization, the government should reconsider whom mandatory share retirement would actually serve. Policies lacking sound logic and empirical grounding often conceal narrow private interests. Korea must distinguish clearly between measures that strengthen the country’s real economic capabilities and those that amount to little more than financial engineering for the benefit of a few.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.