June 13, 2025 | Canada Doubles Down on Defense

Guest Post – Canada has long been under pressure from its NATO allies to meet the alliance’s military spending benchmark of 2% of GDP. For decades, Ottawa has lagged behind, spending roughly 1.45% of GDP on defense. But in a surprising move, Prime Minister Mark Carney announced that Canada will reach the 2% target this year, accelerating its timeline by half a decade.

This shift comes at a critical moment in global geopolitics. NATO members are increasingly concerned about threats from Russia and China, and the alliance is now discussing raising the spending target to 5% of GDP. Canada’s decision to meet the current benchmark could strengthen its standing within NATO, but it also signals a shift in its defense strategy—one that reduces reliance on the United States.

Carney’s announcement includes a $9 billion boost to military spending this year. The plan prioritizes modernizing Canada’s aging military infrastructure, which has hindered preparedness. Currently, only one of four submarines is seaworthy, and less than half of Canada’s maritime fleet and land vehicles are operational.

Canada’s most modern submarine, the HMCS Corner Brook in 2021 – Source: Canada.ca

Beyond equipment upgrades, Carney aims to expand the Canadian Coast Guard’s role in national defense, integrating it into NATO’s security framework. While Coast Guard personnel won’t be armed, the move underscores Canada’s commitment to securing its sovereignty, particularly in the Arctic, where geopolitical tensions are rising.

For years, NATO allies—particularly the United States—have criticized Canada for failing to meet its commitments. This shift could strengthen Canada’s influence in alliance discussions and defense planning.

However, Carney’s emphasis on reducing reliance on U.S. defense procurement introduces a new dynamic. Canada has historically sourced much of its military equipment from American manufacturers, but Carney’s government is now exploring European alternatives. This could align Canada more closely with European allies, particularly as NATO considers increasing its spending threshold.

A French Air Force Rafale manufactured by Dassault which many critics of the Lockheed Martin F35 claim would be a better alternative for Canada– Source: Dassault Aviation

While the spending increase is significant, Carney has assured Canadians that taxes won’t be raised to fund the initiative. Instead, Ottawa will reallocate funds from other areas of the federal budget.

For investors, this policy shift could create opportunities in several sectors:

• Defense Contractors: Increased spending on submarines, drones, and armored vehicles may benefit Canadian and European defense firms.
• Manufacturing & Infrastructure: Carney’s plan emphasizes Canadian steel and aluminum, potentially boosting domestic production.
• Cybersecurity & AI: Expanded defense capabilities may drive investment in cybersecurity firms and AI-driven military technologies.

While Canada’s commitment strengthens its NATO standing, the broader implications—especially if NATO raises its spending target—could reshape global defense markets. Investors should watch for policy updates and procurement shifts that may influence long-term trends.

Fraser Betkowski

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson Wealth or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances.. Richardson Wealth is a member of Canadian Investor Protection Fund. Richardson Wealth is a trademark by its respective owners used under license by Richardson Wealth.

Hilliard MacBeth June 13th, 2025

Posted In: Hilliard's Weekend Notebook

Next: