By Kevin Lynch and Paul Deegan

February 18, 2026

How well does the government’s new Defence Industrial Strategy (DIS) meet its high expectations?

Does it provide the impetus to create new defence manufacturing capacity in Canada and possibly replace some of the auto manufacturing we are losing to Trump’s tariffs? Will it create opportunities for new defence production-sharing partnerships with European and Asian allies?

Is it designed to build a cost-effective and technologically advanced defence industrial sector with a focus on dual-use technologies and export potential to create scale and reduce costs? Does it avoid high-cost, one-off defence purchases by shifting to long-term procurement partnerships with clear milestones for success?

The DIS is ambitious — promising 125,000 new jobs, a doubling of defence exports and 70% of future military procurement going to Canadian firms over the next decade.

These objectives are anchored in a new ‘Build-Partner-Buy’ Canadian procurement model and the massive funding provided within the Budget 2025 defence spending envelope. A revamp of the key Industrial and Technological Benefits Policy is coming, but not yet ready. We will also have to wait to learn more about the promised DARPA-like Agency, BOREALIS, designed to spur Canadian military-use R&D.

Ten ‘sovereign capabilities’ are identified to protect our defence supply chains, but next steps are unclear. Defence production relationships with like-minded allies are mentioned but without specifics. It talks of longer-term strategic partnerships with select Canadian companies rather than one-off procurements – building nascent Canadian defence champions. We await the timeline that will take us from the aspirational and directional to operational.

To be successful, Canada’s defence pivot will require more than lots of money – it needs sustained public support, a realpolitik security strategy, and a well-designed and superbly executed defence industrial strategy. Our security and sovereignty depend on getting it right in a very troubled new world order.

And, to get it right, we need to understand the context in which these choices are being made and executed.

Prime Minister Carney’s decision in June 2025 to reverse course on the Trudeau decade of woefully failing to meet our NATO spending commitment was inescapable given geopolitical events and Donald Trump.

Yet, just as Canada was finally meeting the target, NATO moved the goalposts in response to three converging forces: Trump threatening to exit NATO, Putin suggesting his territorial ambitions extended beyond his invasion of Ukraine, and the massive military buildup and global ambitions of China.

Besides the new NATO target of 3.5% of GDP for core defence spending by 2035, there was the realization the rules-based international order is on life support and the American security umbrella was no more.

So, what are the implications for Canada of the new defence spending target and the just-released DIS in this new world of disorder?

Echoing this, the Report for the 2026 Munich Security Conference was particularly scathing: “The world has entered a period of wrecking-ball politics,” read the report, published annually ahead of the MSC. “Sweeping destruction – rather than careful reforms and policy corrections – is the order of the day. The most prominent of those who promise to free their country from the existing order’s constraints … is the current US administration. As a result … the US-led post-1945 international order is now under destruction.”

So, what are the implications for Canada of the new defence spending target and the just-released DIS in this new world of disorder?

First, with respect to the fiscal numbers, the Parliamentary Budget Officer projects that defence spending will have to rise from just over $60 billion this fiscal year (2% of GDP) to $160 billion by 2035 (3.5% of GDP), with spending higher by an average of $33.5 billion per year over the next 10 years.

This means that spending cuts or tax increases or both are in our future to stabilize the debt-to-GDP track and rein in the structural deficit. And, it points to the challenging politics of higher defence spending: so far, it has come with few costs for Canadians other than issuing more debt, but soon, it will demand tough fiscal trade-offs.

Second, making it happen will require both a modern National Security Strategy (NSS), which sets out clearly our security priorities in the emerging world order, and a first-class procurement system to obtain the kit our military needs to safeguard our sovereignty. At present, we have neither.

Without clarity on Canada’s security priorities, how do we determine our equipment and force needs? How much does Arctic security shape our future defence planning? What are the new technologies reshaping warfare and how should they affect our planning? Who are our strategic allies? How do we fix our broken procurement system? These are questions that need answers.

Answering those questions will shape the evolution of Canada’s DIS. They will also have to take into account the U.S. National Security Strategy, published in December. This not only represented an alarming swerve away from eight decades of postwar American foreign policy, it put Canada in the crosshairs of a brazen embrace of hemispheric dominance including military procurement.

Third, today’s procurement system is a mess, putting the reinvestment in security and sovereignty at risk. To fix it, the government has to slash red tape and overlapping jurisdictions, control contract revisions, and introduce accountability.

The government’s answer is a new agency – the Defence Investment Agency – but the question remains: how will it fundamentally reform a complex system with multiple departments, myriad Treasury Board rules, and thousands of officials. In procurement, the devil is the details.

Finally, the DIS is perhaps best viewed as a ‘security connector’ – between our defence needs and our defence production capacity, between defence spending and economic growth, between a dwindling auto manufacturing capacity and a revitalized defence manufacturing capacity, and between research capacity and needed, dual use advanced technologies.

As is the case with any industrial strategy, getting its structure and incentives right is key to maximizing the economic, security and geopolitical benefits of increased Canadian defence spending.

Fundamentally, the DIS, combined with our emerging rethink of what it means to protect our security and sovereignty, is a key element of the strategic pivot that Prime Minister Carney signalled was necessary in his Davos speech. Now, strategy and execution need to go hand-in-hand.

Kevin Lynch was Clerk of the Privy Council and vice chair of BMO Financial Group

Paul Deegan, CEO of Deegan Public Strategies, was an Honorary Captain in the Royal Canadian Navy