Canada’s Anti-American Defense Industrial Strategy

By Jamie Tronnes & Daniel Dorman

Thursday, April 16, 2026

 

There is something unprincipled and backward about Canada’s new Defense Industrial Strategy (DIS). Namely, its protectionism and not-so-subtle anti-Americanism.

 

As highlighted in Prime Minister Mark Carney’s press release, a core tenet of the strategy is to “raise the share of defense acquisitions awarded to Canadian firms to 70%” or, as Carney said elsewhere, to significantly reduce “dependency” on the U.S.

 

This buy-Canadian defense industrial strategy fails in two distinct ways. First, it takes advantage of the U.S. at a time of already strained relations and a forthcoming review of the United States-Mexico-Canada Agreement. And second, as our colleague at the Macdonald-Laurier Institute Richard Shimooka explains, it is backward. Instead of starting by defining Canada’s defense needs (the actual requirements of Canada’s military and the capabilities needed to support our allies) and then building an industrial strategy to meet those needs, Canada started with an industrial strategy apparently designed to extract economic benefit from defense investment and which largely fails to consider the actual military needs of the Canadian Armed Forces.

 

In fairness, the DIS states, “Canada has a long history of working closely with the United States and looks forward to a continued strong Canada-U.S. defence relationship” but this strikes us as lip service — a half-hearted reassurance for American readers — against the broader messaging of “reducing reliance” on the U.S. that Carney highlighted as the strategy was released, and against the actual substance of the policy that Canada “will focus first on building in Canada.”

 

Citizens on both sides of the Canada-U.S. border may be surprised to learn that when the American Department of Defense (DOD) “buys American,” Canadian companies are allowed to compete on equal footing with American firms. The Canada-U.S. Defense Production Sharing Agreement (DPSA), in place since 1956, and supporting legislation allow Canadian firms to sell to the world’s largest military spender as if they were domestic American companies. This allows Canadian companies to export more than $2 billion a year directly to the DOD.

 

Additionally, under the Defense Production Act’s Title III, the DOD can invest and source rare earths and critical minerals, as well as other key inputs to defense, directly from Canadian companies, treating them as if they are American. This is a major positive for both countries and further demonstrates the preferential treatment Canada receives from the DOD in procurement and defense supply chains.

 

The DIS acknowledges the strength of Canada’s defense exports generally and to the United States specifically: “Not only is the Canadian defence sector a major supplier to the Canadian Armed Forces, it is also an export powerhouse. Virtually half (49 per cent) of the defence-related products and services produced by Canadian firms are sold abroad. Of these, the majority (69 per cent) go to the United States.” But the DIS fails to acknowledge that this strength in our exports is because of the DPSA and America’s preferential treatment of Canadian firms. Put differently, the DIS implicitly celebrates the result of America’s preferential treatment of Canadian industry while failing to extend the same treatment to U.S. firms. This is fundamentally unfair to the U.S. and, should Trump take notice, will presumably become a further trade irritant in the lead-up to USMCA renegotiations in June of this year.

 

There is no doubt that Trump’s protectionism, tariffs, and “51st State” rhetoric toward Canada have been unsettling, but Canada shouldn’t respond to American protectionism with protectionism of its own. Canada arguably benefits a great deal more from the DPSA than the U.S. The entirety of the DIS represents $6.6 billion in investment from the Canadian government into the defense industry, but it may threaten at least $2 billion of exports to the United States. A $6.6 billion investment strategy that risks $2 billion of business hardly seems a wise move for Canadian industry.

 

In his comments around the release of the DIS, Carney qualified the strategy, noting that: “Our first responsibility as government is to defend Canadians. . . . We will always be choosing the best supplier for those defense needs.” This is absolutely the right sentiment, but it is hard to square that circle with the buy Canadian provisions of the strategy. In some cases Canada may be able to build the best equipment for its military, but generally speaking, Canada should seek to work within areas of comparative advantage, and this means working with allies more, not less. The arbitrary increase to buying 70 percent Canadian-made equipment is simply not compatible with the urgent need to rearm Canada’s military effectively and for a feasible cost. Decades of cuts to Canadian defense spending has atrophied Canada’s domestic military production capabilities so much so that it’s virtually impossible for Canada to buy Canadian. While Canada is increasing its defense spending, it’s not nearly enough to stand up the multilaterally borne costs of developing significant war-fighting capabilities such as war-fighters, kinetic interceptors, or long-range missiles.

 

Canadian-made does not necessarily mean best fit for warfare. The highest procurement consideration should be to procure the best and most advanced technologies that can contribute to North American lethality and, thereby, the deterrence of conflict. A diversified and integrated supply chain, spread across geopolitically linked neighbors and allies, benefits both.

 

Canada is finally stepping back up to the plate on defense, rearming the military and aiming to meeting its NATO spending commitment. You don’t need to be a warmonger to see that, in an increasingly dangerous world, Canada keeping its commitments to allies and providing a level of deterrence for those who intend to harm the West is a good thing. But, the buy-Canadian DIS is not necessarily a step in the right direction.

 

Canada’s DIS is too protectionist, contains too much anti-American political rhetoric, and is not enough about actual defense.