By Jonathan Berkshire Miller and Balkan Devlen, March 17, 2026
The recently announced Defence Industrial Strategy (DIS) – in the absence of a Defence Strategy and the rumoured soon-to-be-coming National Security Strategy – is the clearest clue one can have about how Prime Minister Mark Carney’s government thinks about defence and security.
Historically, Canada’s defence posture had existed within a framework of continental integration. This allowed the country to be a part of a highly efficient North American defence system through its participation in North American Aerospace Defense Command (NORAD) and deeply embedded cross-border supply chains through the Defence Production Sharing Agreement (DPSA). As such, Canadian companies became a critical component of the North American defence supply chain. They interoperated closely with the United States, kept costs generally low, and accepted limited sovereign control over production decisions.
However, the goal of Canada’s new defence industrial strategy is to rebalance this relationship by increasing domestic capacity, improving supply chain resilience, and enhancing export performance.
At least that is the stated ambition of the DIS. This is no mean task, to say the least.
The first challenge is structural in nature. Canada’s defence industrial base is relatively small in scale and geographically concentrated compared to other countries. While there are some excellent niche players in aerospace, shipbuilding, and advanced technologies, Canada does not have the same number of large-scale prime contractors as do other defence economies. Therefore, scaling up production to meet new sourcing requirements will put additional pressure on a labour market that is already experiencing shortages of skilled tradespeople and engineers. Additional barriers include certification timelines, regulatory reviews, and export controls that limit the ability of Canadian defence companies to expand their production capabilities and workforce.
Reforming the procurement process used by the Department of National Defence is essential to restore credibility and encourage investments in the Canadian defence industry. However, creating industrial capacity through centralized acquisition processes is not sufficient to ensure that companies invest in new facilities and workforce expansion. Companies will only invest in these areas if they believe that they will receive sustained and predictable demand over a period of years.
Therefore, the second challenge facing Canada is related to the financial sustainability of the new strategy. The strategy assumes stable, multi-year capital commitments by Ottawa at a time when both the federal and provincial governments face competing demands for funds in healthcare, housing, and climate change policies. Historically, Canada’s defence spending has fluctuated based on political cycles and expectations of alliance members under NATO. Providing the necessary capital for a large-scale industrial build-out will require a level of political stability and consistency that has not always been evident in previous periods.
There is reason to be skeptical. The much-vaunted new NATO target of spending 5 per cent of GDP (3.5 per cent on hard defence spending and 1.5 per cent on adjacent spending) is no guarantee that Canada will fulfil its obligations, considering that Ottawa is expecting to reach the previous target of 2 per cent only by the end of this fiscal year (March 2026). Canada agreed to that target in 2014. It’s also important to note that the NATO commitment contains an escape clause: the target will be reviewed in 2029 – conveniently the year Trump would leave the presidency.
The third challenge facing Canada is related to exporting defence products. Increasing defence exports appears to be a logical extension of expanding industrial capacity. However, defence markets are not free-flowing, frictionless markets. They are characterized by trust, regulatory alignment, and long-term political relationships. Canada does not possess the deep-rooted global export networks of the United States, France, or South Korea. Therefore, breaking into new markets will require co-operation agreements, interoperability guarantees, and diplomatic efforts in addition to competitive pricing.
A fourth aspect of the challenge is related to reputation. To be seen as a reliable defence supplier, Canada must be able to demonstrate that it can deliver on time and continue to sustain production levels. Irregular delivery schedules and/or changing political priorities may damage the confidence of potential partners. Thus, the implementation of the industrial strategy can be viewed as a test of Canada’s ability to follow through on its commitments.
Finally, while the strategy has referenced a broader global perspective, the underlying economics of the plan remain largely rooted in North America and Europe. There is nothing inherently wrong with this since it reflects commercial realities. However, this suggests that the strategy is incremental rather than transformational. Canada is gradually building upon its existing industrial foundations rather than fundamentally reconfiguring its economic geography.
What does all this mean for Canadians? First, defence industrial policy is no longer a specialized area of interest. Rather, it intersects with economic development, advanced manufacturing, workforce development, and technology innovation. The success or failure of this strategy will impact regional economies and high-skill employment opportunities.
Second, sovereignty is not absolute. It does not, and in fact, cannot mean autarky. Canada cannot realistically expect to develop a defence industrial base comparable to those of larger defence-producing nations. The true test is to determine whether Canada can expand its domestic capacity without compromising the efficiencies and interoperability that exist in continental arrangements with the US.
Third, credibility matters. Sustained funding, disciplined procurement practices, and consistent politics will be needed to support the ambitions outlined in the industrial strategy. Announcing a strategy is one thing; executing the strategy over a decade of varying economic conditions is quite another.
Ultimately, Canada’s defence industrial strategy represents a wager that Canada can enhance its security architecture through increased domestic capacity without diminishing its connection to its closest allies. If successful, this would reinforce both Canada’s economy and its strategic influence. If it fails, it may become yet another well-intentioned reform that succumbs to fiscal and structural limitations. As our British cousins would say, the proof of the pudding is in the eating.
Jonathan Berkshire Miller is a senior fellow at the Macdonald-Laurier Institute and co-founder of Pendulum Geopolitical Advisory.
Balkan Devlen is a senior fellow at the Macdonald-Laurier Institute and co-founder of Pendulum Geopolitical Advisory.
