The new arrivals on Capitol Hill are set on reducing the governments ballooning budget and defense spending may be in their target scope while old liberals and libertarians want to reduce the U.S. presence abroad. The question now is whether aerospace exchange traded funds (ETFs) can dodge a bullet.

California Republican Howard “Buck” McKeon is actually calling for an increased defense budget and expansion in operations abroad, reports David Wood for Politics Daily. Adjusting for inflation, the Pentagon plans to spend $712 billion in 2011, the largest defense expenditure since World War II. The Pentagon also wants to update the military by replacing older models and expanding the fleet.

Rep. Barney Frank (D-Mass.) remarked, however, that “substantial cuts can be made without threatening our national security, without cutting essential funds for fighting terrorism, and without shirking our obligations as a nation to our brave troops.”

The current Republican stance is that the federal budget should be reduced, except for Medicare, Medicaid, Social Security and defense, which collectively account for two-thirds of the overall budget, according to The Economist. Still, a few Republicans are willing to reduce the 20% of the federal budget that goes to the Pentagon.

Given the fact that the companies that build planes and other equipment are well-diversified beyond defense and aren’t totally dependent on government expenditures, aerospace and defense ETFs should manage to hold up decently if any cuts aren’t too severe. [5 ETFs for a Republican House.]

For more information on the defense industry, visit our aerospace & defense category.

  • PowerShares Aerospace & Defense (NYSEArca: PPA)

  • iShares Dow Jones U.S. Aerospace & Defense (NYSEArca: ITA)

Aerospace ETFs

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.