Two Percent Priorities

Canada arrives at the NATO Summit serious about defense spending - the US response will matter

Photo credit: NATO

This week Canadian Prime Minister Mark Carney will travel to the NATO Summit in the Hague, Netherlands June 24-26. He will benefit from having pledged on June 9 that Canada will spend two percent of its Gross Domestic Product (GDP) in this fiscal year. If he follows through, he will be the first Canadian prime minister to make good on Canada’s commitment to NATO allies made by Stephen Harper in 2014, and by Justin Trudeau in Vilnius in 2023 and in Washington in 2024.

Carney will not have much time to enjoy being in full compliance with Canada’s NATO obligations. At the Hague Summit NATO will adopt a new 5 percent of GDP target, with 3.5 percent toward traditional defense equipment and munitions alongside a new 1.5 percent for defense infrastructure that will include border security and even cyber security. Spain, another long-time laggard in defense spending, was able to negotiate an opt-out from the new formula.

While the United States should graciously praise Canada for meeting its obligations, it matters how Canada invests its defense dollars. Having neglected the Canadian Forces for so long, there are important remedial expenditures to bring the Canadian military up to full operational condition. Yet there are numerous options for building Canadian capabilities and this will challenge Ottawa to set and stick to priorities for new platforms.

As NATO shifts toward the 5 percent goal, this challenge will make a coherent and sustained Canadian defense investment strategy essential. So essential that the United States should engage directly with Canada in this effort. US officials can privately signal priorities for meeting current threats and filling gaps in continental and allied defenses and publicly show appreciation for and confidence in Canada’s defense plans. Years of falling short and some expensive mistakes have eroded the confidence of many Canadians in their government’s judgment on military matters and the judicious application of public-facing US support will help Canada stay the course when it has chosen one.

With this in mind, the following items would be on my list of priorities. They do not reflect any insider knowledge or privileged information – but echo some of the conversations with national security experts I have had. They are offered in the interest of improving US-Canadian relations and reaping the benefit of this breakthrough on a longstanding irritant.

Priority 1: Follow-through on existing commitments.

Start with past pledges. Canada should reinvest in basics from troops to training to base maintenance. The Canadian Forces have been underfunded for decades, but many Canadians were shocked in April 2024 to hear then-Minister of National Defence Bill Blair describe the Canadian military as being in a “death Spiral”. Carleton University’s Philippe Lagassé and Justin Massie at the Université du Québec à Montréal provided harrowing details in a 2024 analysis published by War on the Rocks.

Another past commitment is to NORAD modernization. In 2022 Canada announced that it would invest a total of $38.7 billion Canadian dollars in upgrading surveillance, communications, and air defense systems, as well as investing in military bases and infrastructure across Canada (including in the Canadian Arctic), and investing in science and technology research. Unfortunately, this commitment was for spending over a twenty year period, with just $4.9 billion CDN to be spent in the first six years (through 2028). The timeline should be accelerated now, not least because advances in technology are occurring rapidly and a twenty year plan is guaranteed to be obsolete when it is complete.

Related to NORAD is Canada’s on-again, off-again purchase of 88 F-35 fighter jets. Political indecision over this procurement as undermined Canada’s ability to be a full partner in NORAD and leaves the United States Air Force to take on additional responsibility for continental defense.

Canada has planned to acquire fifteen River Class destroyers for the Royal Canadian Navy to replace an aging fleet of surface combatant ships by 2050 and has contracted for three ships to be operational by the 2030s. Accelerating the delivery timetable for these ships will permit Canada to take on missions in the Indo-Pacific in support of the US Navy’s freedom of navigation missions in the South China Sea, among other locations, at a time when the US Navy fleet is itself looking to acquire more ships to catch up to China’s shipbuilding push.

Lack of follow-through in each of these areas has fueled a recruitment crisis for the Canadian Forces. The Canadian Department of National Defence is funded to recruit and sustain 71,500 regular military positions at full strength, but as Andrew Lathan observed in December 2024, the Canadian Forces are roughly 12,000 short of full strength. Inadequate kit and poor facilities are bad for the morale of current Canadian Forces members, but also discourage recruitment for an all-volunteer military.

Priority 2: New Investments

To reach the two percent threshold, investment in new capabilities is required. NATO defense ministers on June 5 agreed to set a new target for members military spending of five percent of GDP with a target of 3.5 percent for core defense and another 1.5 percent on defense-related expenditures. This new formula will be approved at the next NATO Summit. Under related expenses, spending on infrastructure including for border security and cybersecurity will count toward the total which will give Canada credit for its significant and ongoing investments in these areas.

In 2024, Canada updated its 2017 defense policy, Strong Secure Engaged, with an Artic focused plan, Our North, Strong and Free The plan calls for four new northern operational support hubs consisting of airstrips, logistics facilities and equipment and stockpiles of spare parts. These hubs will enable a greater year-round military presence across the Arctic, and they will be expensive to build and to maintain. Many of us in Washington see the Arctic as the gauge of Canada’s seriousness on defense. New spending would be domestic spending with collateral benefits for northern communities. The high cost of operating in the north will make it easier for Canada to reach NATO commitments – a dubious benefit but clarifying.

Canada could contribute to its Arctic security effort through dual-use investments and new initiatives for existing but underutilized infrastructure. Ports on Hudson Bay and the Arctic islands offer access to the north and world markets. Churchill, Manitoba hosts a deepwater port, an airport, and a rail line to the south and all need new investment. It would be A new port close to Ontario’s critical-mineral rich Ring of Fire region could be a more practical route for bringing minerals to world markets than road or rail.

Two Royal Canadian Air Force bases, CFB Cold Lake in Alberta and CFB Goose Bay in Labrador could benefit from new Canadian government investments that would enhance US national security interests and open up new mission potential. CFB Cold Lake could host pilot training for allied air forces looking to train on the F-35 far from China or Russia and with very little civilian air traffic to work around. CFB Goose Bay hosted pilot training during the Cold War and could do so again, but could also support NORAD flights over Greenland now that the United States has reclassified Greenland as within the Area of Responsibility (AOR) of US Northern Command (US NORTHCOM) whose commander is also the commander of NORAD.

One aspect of the Carney government’s defense investments that could be significant for the United States is an additional $100 million CDN for the Canadian Coast Guard, which is being given an expanded intelligence gathering and security role under Section 5 of what is now Bill C-2, addressing border – including maritime border – security and Canadian Coast Guard vessels will accordingly be more heavily armed. This includes new ice breakers that will patrol Arctic waters and protect critical infrastructure such as the Far North Fiber project’s planned broadband cables from sabotage.

President Trump has proposed building a “Golden Dome” missile defense system based loosely on Israel’s Iron Dome concept, modified to work on a continental scale. The project is ambitious, and involves a leap forward from current technology capabilities not unlike President Ronald Reagan’s Strategic Defense Initiative (SDI) and has been taken seriously by US military experts. The Trump administration has invited Canada to participate in the project at a cost of $71 billion USD according to one report. As the University of Ottawa’s Peter Jones wrote in a recent issue of Policy, participation in the warning and threat assessment elements of the project is likely necessary to the continuation of NORAD, a joint-command that recognizes Canadian sovereignty.

The RCAF has taken an important step toward defense of Canadian and allied assets in near earth orbit with the creation of 3 Canadian Space Division. Canada was the third nation in space (after the Soviet Union and the United States) and could make important contributions to the defense of communications satellites and other missions since today Russia and China are expanding their offensive capabilities in orbit.

In all of these new investment areas Washington should urge Canada toward operational excellence and sustainable performance in every new investment it makes. Taking on new missions “on the cheap” can create capability gaps that the United States and other Canadian allies will be forced to confront. A military with fifty defense mission priorities has, in effect, none. More importantly, when Ottawa announces that it will do something, Canadians deserve to know how well their tax dollars are being invested. US political and military leaders should praise Canada when it merits praise but also speak out publicly when Canada is failing to live up to its obligations or to perform them well. This is, in part, the lesson of the NATO Wales Commitment for members to spend two percent of GDP. Yes, it is just a number that says nothing about effectiveness, but it was helpful in communicating to voters across the alliance and gradually convinced a majority of Canadians that increasing defense spending was important.

Priority 3: Housekeeping and Policy Support for the Defense Sector

In 1956, the United States and Canada signed the US-Canada Defense Production Sharing Agreement (DPSA) which designated products made in Canada as “domestic” for US defense procurement purposes. This enables US firms with industrial capacity in Canada to utilize it to meet military orders – think military vehicles or components made by an automotive plant.

In 2024, the Biden administration published a new National Defense Industrial Strategy (NDIS) in response to a congressional mandate to address the defense industrial base capacity to meet new security threats. The new NDIS included the capacity of US allies for the first time, and US officials began exploring agreements like the US-Canada DPSA with Japan, Australia, and Korea. As the US extends these agreements, two elements should be added. First, they should address the complicated thicket of International Traffic in Arms Regulations that can hamper technology sharing with key allies and find ways to enable firms in friendly countries to collaborate securely with US defense manufacturers. Second, we should upgrade the DPSA to align it with any new features, rules, or standards in new agreements. This will reassure Canada that it has not been left behind, but more importantly will create consistent rules that make compliance easier for manufacturers.

US officials should also press Canada to reinvest in the 1963 US-Canada Defense Development Agreement, a pool of funding and procedures for collaboration in defense innovation research and development in both countries. In the early 1990s, Canada stopped contributing to this fund as a cost-cutting measure until 2021when funding was restored. Now, with additional Canadian funding for defense, additional investment in this mechanism would fund Canadian engineers and scientists to work on national security related research. As evidenced by Ukraine’s advances in drone technology, innovation is not always a multibillion-dollar endeavor.

Canada should also be encouraged to think about defense commitments in the upcoming review of the United States Mexico Canada Agreement (USMCA). From border security to inspection, new mutual commitments might be included in the USMCA. For example, shipping container inspection commitments, technology and infrastructure investments to monitor border crossing activity between ports of entry, and efforts to develop technology and inspection protocols to detect and interdict fentanyl and other drugs in small packages. Trade policy experts may balk at the inclusion of security in a trade agreement, but they raised similar objections to including environment and labor in trade agreements. If economic integration makes us more vulnerable to threats from close partners, agreements fostering integration should include mutual commitments for inspection and action to mitigate these risks.

At the NATO summit this week, the alliance will adopt a new target for member states to spend five percent of GDP on defense. The accounting formula will count defense equipment and munitions toward a “core defense” target of 3.5 percent, with a 1.5 percent target for infrastructure and “defense support” expenses. Canada will benefit from this shift since it spends more on border security than many countries in Europe and the United States and Canada share the longest land border in the world at 5,525 miles. Ottawa can reinforce its new commitment to national defense by expanding its border security technology investments and reinforcing the pledge by including it in the USMCA.

In addition, recent investments in Canadian cybersecurity capacity will count as defense support. The report on June 21 from the Canadian Centre on Cyber Security and the FBI that a number of Canadian systems were compromised by malicious hacks by Salt Typhoon, a China-linked group, makes investment in cybersecurity more urgent than ever.

NATO spending targets are rising, and a dangerous world reinforces the need to reach them. The Carney government has signaled its seriousness by accelerating the pledge to meet the 2 percent floor for alliance defense spending, and it deserves to get credit for that from the United States and other allies at the Hague Summit.

It is even more important that Washington recognize that in overcoming decades of excuses and self-justifications and rationalizations for avoiding its defense obligations, under Carney Canada is finally acknowledging US concerns about security. Having watched this relationship for years and agreeing wholeheartedly with the late US Ambassador to Canada Paul Cellucci that for the United States, “security trumps trade”, I have seen the damage done to the wider bilateral relationship by Canadian disrespect for US security concerns and US disparagement for Canada’s inadequate defense efforts. I hope this vicious cycle ends here.