Canada Strong? Analyzing Canada’s Defence Surge
In June 2025, under the new government of Prime Minister Mark Carney, Canada fast-tracked an increase in defence spending to match NATO’s 2 percent of GDP target. Mere days after this announcement — and likely to the consternation of Canadian officials who had just reached the prior benchmark — NATO countries agreed to increase annual defence expenditures for each member to an eye-watering 5 percent of GDP.
On November 4, the federal government published Canada’s 2025 federal budget, Canada Strong. The budget provides some details of this surge in defence spending, including roughly $81.8 billion to be spent on rearming the Canadian Armed Forces (CAF) over the next five years.
The context for this budget is an unparalleled fracture in relations between the United States and Canada, which is leading Canada to pursue defence-related spending that promotes both industrial autonomy and a diversification of suppliers. But while increases in military expenditures may currently be popular with Canada’s allies and the Canadian public, some new policy prescriptions outlined in Canada Strong, as well as the professed benefits of those policies, should be approached with caution.
Guns and butter?
Along with many other major projects, Canada Strong marks the launch of the Defence Industrial Strategy, a $6.6 billion cash injection into Canada’s military industry. So far, only the outlines of this strategy are available as part of the recent budget.
A major element of Canada Strong is the revamping and expansion of the CAF; the Defence Industrial Strategy is premised on the idea that a larger military will require an expanded industrial base that will need subsidies from the federal government. As well, Canada Strong links investments in Canada’s defence production to job creation, noting that the “defence sector in Canada accounts for over 81,200 direct and indirect jobs” and that “[further] investment in defence…will create good, high-paying careers for Canadians.”
However, the extent of the impact of military spending and defence production on job growth remains contested.
Canada and the United States share a deeply integrated North American defence industrial base, with most Canadian-made weapons exported to its southern neighbour, and many of Canada’s military imports coming from American manufacturers. On its face, a wholesale move away from U.S.-made military systems does not appear to be realistic.
Military production has been shown to be an inefficient driver of job creation because it is so capital, rather than labour, intensive. For example, a 2009 study found that for each US$1 billion spent on defence, 8,555 jobs were directly created. When the same amount is spent on more labour-intensive industries, the results go much farther: home weatherization and infrastructure (12,804 jobs), health care (12,883 jobs), education (17,687 jobs), and public transit (19,795) all produce many more jobs per public dollar spent.
The economics of arms manufacturing is also inherently precarious. Because the arms trade is highly specialized, and almost all major potential customers are national governments, defence production is vulnerable to boom-and-bust cycles. These cycles result in short-term surges in local workforces that quickly dissipate once major orders are filled and military needs change for some customers.
The reality is that Canadian defence firms (with six of the top ten American-owned) require outsized support from the federal government to weather the down periods. For example, in 2019, the federal government made an advance $3 billion purchase of 360 light armoured vehicles (LAVs) from General Dynamics Land Systems-Canada (GDLS-C). Experts pointed to this deal as a means to sustain the company during financing interruptions following a diplomatic spat with Saudi Arabia, which was under a contract to procure LAVs valued at more than $14 billion.
While major contracts awarded to Canadian arms manufacturers will almost certainly produce some localized short-term job growth, the long-term economic prosperity promised from armament production in Canada Strong remains far from certain.
The export reliance trap
Over five years, Canada Strong is designed to provide $17.9 billion to expand Canada’s military capabilities, with expenditures earmarked for, amongst other things, light utility and armoured vehicles, long-range precision strike capabilities, and domestic ammunition production. And while procurement by the CAF is seen as central to increased defence spending, as noted, domestic orders rarely provide long-term, stable demand.
This naturally leads domestic firms to seek foreign clients, many of which have mixed or poor human-rights records. Project Ploughshares has previously noted this tendency towards export reliance, particularly regarding large contracts with Saudi Arabia for GDLS-C LAVs, with the Saudi Kingdom now typically being the second-largest annual importer of Canadian weapons systems, behind only the United States.
GDLS-C originally secured its first (and at that time, largest) contract for LAVs with Saudi Arabia in 1993 to fill a gap in orders following the culmination of contracts with both the CAF and the U.S. Department of Defense. This relationship has now persisted for more than three decades, with GDLS-C exporting thousands of individual LAVs to different branches of the Saudi military since the early 1990s. Saudi Arabia, a state with one of the world’s worst human-rights records, both deployed and diverted Canadian-made LAVs to the war in Yemen, a conflict that resulted in the deaths of nearly 400,000 people.
The forthcoming financial surge into Canada’s defence industrial base may later translate into increases in Canadian arms exports, also considering that the value of international arms transfers continues to soar, global conflicts are on the rise, and the global arms trade has become increasingly transnational.
Diversifying export partners
Canada Strong also aims to diversify Canada’s trade partners. Export Development Canada (EDC), a Crown corporation that provides export financing to Canadian suppliers, is being allocated $5 billion under the Trade Impact Program, an initiative originally announced in March 2025.
The two-year Trade Impact Program aims to increase total business facilitated by EDC by $25 billion over five years. And, according to the new budget, this program explicitly includes exports related to defence.
This marks a departure for EDC, which, according to its 2023 Human Rights Report, prohibited business relationships involving the transfer of fully assembled weapons systems to any country or end-user, due to the human-rights risks involved. Such a strong and principled position has not been shared by other Canadian crown corporations. But the current federal government has now pushed EDC to again finance arms production and export.
Before 2023, EDC provided significant support to Canadian-owned arms manufacturers seeking to expand abroad. Between 2003 and 2015, for instance, EDC loans to the Streit Group helped facilitate the export of armoured combat vehicles to multiple destinations, including the UAE. Since then, the company has shifted much of its production to the UAE, from where it has supplied armed groups with armoured vehicles in the ongoing humanitarian catastrophe in Sudan. The EDC’s return to supporting arms producers could similarly expose Canadian public financing to future cases where weapons exports raise serious human-rights concerns.
Reducing dependence on American arms producers
In a time in which many allies are experiencing strained relations with the United States, numerous NATO members are seeking to reduce dependence on American military suppliers by building a more independent defence industry. For example, the EU’s Readiness 2030 initiative includes a major €800 billion investment to expand Europe’s capacity to produce armaments; Canada has pledged to join as the only non-European partner.
Yet, despite huge public funds being funneled towards national arms production across NATO states, the feasibility of reducing reliance on American-made weapons remains uncertain. The United States is, by far, the world’s largest arms exporter; between 2020 and 2024, it supplied 53 percent of Europe’s arms imports (up from 41 percent between 2015 and 2019). And in July, even after the announcement of Readiness 2030, US President Trump stated that a deal between the United States and the European Union would have Europe procuring “hundreds of billions of dollars worth” of American military equipment, although details were not provided.
Even with significant government support for Canadian military suppliers, Canada faces a more complex challenge to achieve any degree of autonomy. Canada and the United States share a deeply integrated North American defence industrial base, with most Canadian-made weapons exported to its southern neighbour, and many of Canada’s military imports coming from American manufacturers. On its face, a wholesale move away from U.S.-made military systems does not appear to be realistic. U.S. suppliers will almost certainly continue to win bids for major procurement, even as domestic arms manufacturers benefit from seldom-seen levels of federal investment. European manufacturers may add some diversity to the pool, but they’re unlikely to replace the United States as a main source of Canadian weaponry.
Caution needed
Canada Strong includes some welcome provisions related to defence acquisition and the CAF more broadly — for example, an overhaul of Canada’s inefficient and costly approach toward procurement and improved salaries and living conditions for CAF members. But while the budget’s approach toward bolstering Canada’s defence industrial base may bring short-term gains, its long-term impact is far from guaranteed.
Photo: Members of the Canadian Special Operations Regiment during a freefall jump in Hurlburt Field, Florida, in 2013. Public Domain Photo
Published in The Ploughshares Monitor Winter 2025
