It is a decision to start producing regardless of how well-intentioned it is. You will be profiting off of people being maimed and killed. Various people thought they solved war through new weapons only to create more effective killing machines. That's what WW1 was.
Palmer does not have to work on weapons nor justify making them. Building tech that will be used to murder people (and yes, it will happen) is a decision. Not funding his other hobby when he's getting money off US military contracts is hardly breaking his bank. He wants to build weapons? I don't want to buy his products. Easy.
Building more efficient weapons does not make us safer. Every dollar saved through "strength" and better weapons matters little to the parents who lost their kid when the most precise weapon in the world kills a bunch of schoolchildren like it did at the start of the Iran war. If you can't gaurantee your weapons won't get used for that, why would you build them? You cannot.
I thought Tony Stark already made this point.