This article appeared in our Defence Forecast 2025 guide, which highlights the hot topics impacting Canada's aerospace and defence industries. Read the Forecast here.
Arbitration and commercial litigation partner, Thomas Yates, interviews Dr. David Perry, President of the Canadian Global Affairs Institute regarding future defence policy.
This interview took place on February 6, 2025, and has been edited for length and clarity.
TY:There has been a change of Prime Minister this year and potentially a change of government. Do you see this as having any meaningful impact in terms of defence strategy or spending?
DP: On spending, I think all the gyrations politically and Canada domestically mean that even the existing spending plans for national defence have an extra layer of uncertainty. Existing plans are that national defence is supposed to have a roughly 33 per cent increase in spending for the next fiscal year beginning April 1, 2025. But some of the mechanics to enable that spending are potentially going to get caught up in prorogation and a change in government at least once, if not twice.
We're potentially in a scenario where it is not until after Labour Day before you really get the next government up and running and briefed on major files. Even then, they're going to be inheriting a very complex geopolitical bilateral political dynamic with the United States. That will consume huge amounts of political bandwidth, which means that what is in motion right now and what has been planned for next fiscal year has a much higher level of risk and uncertainty around it.
In terms of strategy, I think there's probably less that would change in terms of the Canadian geopolitical defence and national security strategy, because in my view the two main political parties are far more in alignment on most of the substance than is generally recognised. However, in a scenario where the government changes and there is a new Prime Minister from a different political party that wasn't involved in the roughly $250 billion spending commitment, I think it is reasonable to expect a degree of caution, an extra period of time, of wanting to fully understand the issues and get briefed on them before a government rushes to commit and contract such deals, even if they largely agree on the strategy.
I think that means that 2025 may not produce a lot in the short term just because of the mechanics of the transition in government.
TY: What effect do you think the threat of tariffs might have on defence procurement?
DP: I think it could have implications in several different ways. For one, I had not actually seen any evidence that there was going to be, as an example, a carve out for the defence and aerospace sectors as part the U.S. imposed tariff schedule. So that would have implications for Canadian firms that are involved in the U.S. market.
As an example, since there are a number of Canadian suppliers involved in the manufacture of the F-35, if those components have their costs increased by a quarter, I think it's reasonable to expect that the unit cost of the F-35 could increase by some amount going forward, which might impact some of our costing and our forecasting about what the expenses would be.
There are a number of other projects where there is Canadian supplied material going into U.S. final assembly weapon systems. If there isn't an exemption for Canadian products then that's potentially a problem from a cost standpoint alone. Canada is a significant producer of aluminium, titanium and other critical minerals that feed into American defence suppliers. If there aren't tariff exemptions from those inputs into the American system, even if we're just concentrating on a dynamic of buying from the United States, potentially that has price impacts in terms of some of those American pieces of equipment.
There is reflection happening in some places; recognising our dependence on the American supply chain. We had a bit of that during the first Trump administration, but they seem to have forgotten it. We had another reminder that supply chains were a thing that we should be attentive to during the pandemic, but we seemed to move on. But I think that there should be, and I think there has been, initial reflection on the fact that we might want to have some strategic resiliency in terms of some of our sourcing. This should be coupled with the existing initiative in national defence to develop a defence industrial strategy, a significant component of which is revolving around the concept of creating a sovereign defence capability.
I think that the dynamics of the start of the second Trump administration should really put some energy and some serious thought into Canada thinking more realistically about what types of sovereign capability, of various kinds—not just in defence but in other parts of the economy, that we might want in order to have a greater independent ability to build our own capacity and leverage that instead of being as reliant as we have been on American supply chains.
TY: Will Canada ever reach NATO's defence spending targets and what do you think the international implications might be if it doesn't, especially with the new administration in the U.S.?
DP: I think we're already seeing in part some of the implications of Canada having not just failed to meet those targets, but also not actually come forward with any clear indication that it would meet them until a political commitment by the Prime Minister last July at the NATO summit that we would meet our two per cent spending threshold by 2032. However, this is a political commitment, and as yet is unsupported by any national defence plan that's been approved to get there, or by the funding required to reach that threshold.
Part of the dynamic we've seen with the current Trump administration is that the metric is a clear and measurable indicator of relative Canadian burden sharing that does not exist in a number of other sort of wider sets of issues related to national security efforts, intelligence gathering, international affairs, where there's also some frustration about the Canadian level of effort, but which lack a clear metric like the NATO investment pledge target.
You now have only 10 of 30 NATO members that are currently short of the two per cent spending target—although most of them are a lot closer than Canada and almost all of them have plans to get there. There are still countries falling short, but there's a lot fewer of them, and I think that makes Canada's failure to live up to our own commitments stand out even more.
In terms of whether we're going to get there, I hope that we do because I think that we are starting to already see that there are real implications of us not doing that, especially considering the new three per cent spending commitment suggested by the NATO secretary general.
As of today, my expectation is that Canada will not get to the two per cent mark unless there is a significant change in both the funding allocations to national defence as well as a significant change in how the federal government collectively operates. We would have to significantly change how much attention and focus the Government collectively puts on national defence to enable that level of spending.
Even at two per cent, it would see a reallocation of how much of the direct spending on programmes the federal government devotes to national defence, at least doubling from it being something in the order of 20 per cent to probably over 40 per cent of federal expenditures on direct programmes shifting to national defence. This would require a significant change in behaviour by the Government to enable that level of spending. There hasn't been much shift in that direction, including on things like the procurement review, which really at this point hasn't yet produced much of substance.
TY: Assuming there is an increase in defence spending, in which areas do you see the increased spending?
DP: There's a whole bunch. The Department of National Defence has talked a lot in their last policy about fixing some of their foundations. For decades, if not generations, in a resource scarce environment, they have under invested in their built infrastructure. Their real estate portfolio, building works, airstrips, air facilities, ports, jetties and training facilities haven't been invested in properly. Consequently, there's a huge infrastructure deficit that could be made-up for in terms of just physical infrastructure.
The forces are also trying to undergo digital transformation which requires a huge investment to digitise the operations of national defence connected to modern computing technology. Significant investment is also required to increase personnel. There is currently no funding to increase beyond the 71,500 troop strength that was authorised in the 2017 defence policy. This hasn't been revised upwards to account for about a $200 billion worth of additional capability commitments made as part of NORAD modernization and Our North, Strong and Free defence review.
Beyond that, there's a significant requirement to put more money into some of the key enablers of military readiness. There are chronic maintenance backlogs that have built up in some of our fleets. We haven't been buying enough spare parts and haven't been putting enough funding into maintaining our equipment assets to keep them serviceable. There is a big backlog of under investment in maintenance and in service support that needs rectifying, even without looking at new investments such which have been identified as part of the last defence policy but haven't yet been funded. These include new submarine capability, modernization of the core vehicle fleets of light armoured vehicles for the army as well as its armoured units, integrated air missile defence capability.
Finally, I think we're in a situation where clearly our army is far too small. Regardless of how it gets specifically equipped, it's insufficiently large to do all the things that it is being tasked to do. We should be carving out some dedicated resources if we are going to continue to call upon the armed forces to assist with domestic environmental disasters and other consequence management scenarios in Canada for floods, forest fires, etc. If we're not going to look at creating something like FEMA (the U.S. Federal Emergency Management Agency) and we're going to call on the Canadian military to perform that role, then we should formally recognise and resource them to be able to do that.
TY: In a time of a cost of living crisis and pressures on public services, how would you justify any proposed increase in defence spending?
DP: In a couple of different ways. I think bluntly it's necessary. I also think that you've seen a fairly significant shift in Canadian public attitudes towards this that has been a positive indicator. I would observe this is essentially happening in largely a leadership vacuum on this issue on the part of political leadership in this country.
I would argue that in respect of defence and security, over the last decade, there has been the lowest ratio of senior political communication time to dollars allocated on any potential policy file. They've committed a huge amount of money, but they've committed far less time, certainly that of the prime minister, to explain it, outline the need for it, let alone move it forward.
But even with that, in the last couple of years, we've seen a significant change in public support for increased defence expenditure, notwithstanding the fact that the government has both committed a lot of extra money but also not spent much time trying to convince people of the need to do so. I think that there's huge amount of untilled ground for politicians to lead on that issue in Canada.
TY: If you could make one change to the defence procurement process, what would it be?
DP: Make it a top five priority of the Prime Minister.
TY: What prediction for global affairs in the next year would you make that might surprise some people?
DP: That not much is likely to change in Canada substantively in 2025 because of the transition in government, which is going to interrupt even the plans that are underway. I also don't think people fully realise the time lag involved on even executing on commitments already made. Nor do people really realise that most of the investments that we are starting to make in a meaningful way now date back to commitments made in 2017, not the ones made last year, or the ones made in 2022. We're now delivering on Strong, Secure, Engaged—the 2017 defence policy.
I think it's safe to assume about a minimum five-year time lag between policy announcement and actual meaningful investment, which means we shouldn't really expect to see much movement on the NORAD modernization announcements from 2022 until about 2027. Similarly, for the announcements made about Our North, Strong and Free defence review or anything that might come out of the political commitment to two per cent defence spending, realistically, we shouldn't expect much movement on those until about 2030 absent a really consequential change in mindset, attitude, behaviour and wholesale orientation of the Government of Canada, which isn't yet happening.
Dr. David Perry is the President of the Canadian Global Affairs Institute, host of the institute's Defence Deconstructed Podcast and a co-director of the Triple Helix MINDs Collaborate Network.
The Canadian Global Affairs Institute is Canada's credible source of expertise on global affairs. The work of its researchers, fellows and advisors sparks impassioned nation-wide discussions and debates that are designed to help Canadians better understand their role on the world stage. It is a registered charity, which comments repeatedly in the media and publishes extensively on defence, diplomacy, trade, resources, and development. Further information and ways to support its work can be found at https://www.cgai.ca/
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