To what extent does Canada’s defence spending, falling significantly short of NATO’s 2% GDP target, challenge the perception of Canada as a credible and reliable partner within the U.S.-Canada relationship, and how might this impact the overall strategic calculus of the two nations?
Canada is hardly the only country in that category. I think every president, going back at least to Eisenhower, has asked allies in NATO to spend more on defence. We’ve had the Vilnius meeting, which has suggested an even higher target, or at least using 2%, more as a baseline. In all of that time, Canada has made efforts, but it has rarely made an effort that was even close to what we were hoping for. I think that the defence component of our relationship—the security partnership—is one of the components of our relationship, but it’s not the most important.
For reliability, the U.S. is much more focused on Canada’s economic policies and some of its foreign policy—in terms of being supportive of other major commitments. We’ve built low expectations into the cake. We know Canada has not and is not likely to meet these targets. Canada, even when you don’t make the target, is about as reliable as we expect, but as a security partner, not very reliable at all. I think the worst aspect of Canada not spending money on defence, is that there’s a kind of U.S. indulgence of this. At the end of the day, what matters for us regarding Canada is that Canadian territory is not used to attack the United States.
Through the Ogdensburg Declaration, part of what Mackenzie King was trying to do was guarantee that Canada would not be used as a vector for attacking the U.S. Through NORAD and other agreements, we’ve more or less negotiated the ability to operate freely in Canadian airspace, in waters of the Arctic—wherever we need to be. I think what we have is a relationship in which we expect Canada to do very little, but with Canada’s consent, we don’t have to ask permission and we can defend ourselves over and around Canadian territory.
We need Canada, we need Canadians, but we don’t need the Canadian government. That’s practical. But unfortunately, it means that when it comes time to talk about anything to do with security, including the Arctic these days, the U.S is likely to say, “Call us when you have some money on the table because otherwise, we don’t want to hear what you think.” We really don’t, because you have an opinion, but no contribution to make, or not enough of one.
How does the strategic importance of the Arctic region, coupled with Canada’s reduced military capabilities, affect the perception of Canada’s ability to uphold regional security interests and contribute meaningfully to North American defence efforts?
The Arctic has gone through a very fundamental change following the invasion of Ukraine because that prompted NATO to expand, including Finland and Sweden. Norway, almost from the beginning of the Ukraine conflict, has highlighted the importance of developing a NATO strategy across the Arctic. They’ve been pushing very hard for this. But if you think about the Arctic’s geography—Alaska, Norway, and to a lesser extent Sweden and Finland, are well-secured. The U.S. is well positioned, and the allies are well positioned, but there are two parts of the Arctic on the NATO side that are difficult. One is Greenland, which Denmark does provide some security support for, but is largely secured by the U.S. presence, and then there’s the Canadian Arctic, which I think most in NATO recognize as the weakest link in our front. It is a very difficult territory to defend because it’s so big, and Canada’s domain awareness, let alone ability to respond if there were a threat is so low.
For a long time, during the Cold War, we felt that a combination of using nuclear submarines that had the ability to move stealthily below the ice and surface, NATO, and distant early warning, had given us the coverage that we needed for a threat that we thought was bombers at first, then maybe ICBMs and cruise missiles. We had created a kind of sustainable defence strategy for the Arctic. But now, we’re facing Russia, which is much better positioned across the Arctic in terms of equipment and capabilities, enhanced by China, which I think is maybe the most important new development in the Arctic.
China has both the money and the technology to be a bigger player, and because of its support for Russia and the Ukraine war, it can more or less dictate terms to the Russians. The Belt and Road Initiative—which to put a good face on it was China’s effort at creating infrastructure linked to markets in Europe and other parts of the world. They saw it as their version of a Marshall Plan that would open up some new possibilities and make new friends for them—hasn’t gone very well. It’s highly indebted. A lot of countries that they partnered with are resentful or don’t want to pay their share of some of the infrastructure costs. So, China has increasingly been looking at the North Sea route to substitute and the North Sea route has one big advantage—you only really have to deal with Russia, and Russia can’t say no right now. China is looking to be more present in the Arctic.
Combine that with Russia’s already significant presence and I think the Arctic has become a lot scarier than it was in the Cold War—a lot riskier. The U.S. and NATO allies are talking about what we can do to up our game. That’s the new reality for all of us now—where Canada fits in is an interesting question. For a long time, Canada would respond to the concerns about Canadian overall defence capabilities by saying, “Well, you know, we want to defend our homeland, we want to make sure that we’re strong in North America, we’ll have a limited expeditionary force for conflicts—that’s our strategy. We know we’re a partner and we’re going to try to pull up our socks and do our fair share.”
The dilemma for the rest of NATO and for other countries is that there could not be a part of Canada’s contribution to defence that’s more important than the Arctic right now. Canada is doing NORAD modernization—there are some elements there, but much more needs to be done. If Canada cannot undertake those costs, and take on those responsibilities for its own territory, I think the scenario you talked about—a diminishing sense of Canadian credibility—will become the narrative: Canada essentially putting itself in a position of being a protectorate of the United States, and the U.S having to take on more and more of that burden, probably relying on some of the other NATO allies to do the same. It would be a sad day for Canada and for the hopes that Canada could be capable of defending itself and contributing to allied defence.
How would you assess the health of Canada-U.S. relations at present?
I think we’re in a bit of a rut in the U.S-Canada relationship. That’s not to say good things aren’t happening. But I think Canada has become very good at playing defence in a very divided Washington—avoiding having Congress come at them full strength, avoiding having the administration come at them, navigating disputes with states like Michigan over line five, etc. But what that results in is Canada not being forced to do anything that it wasn’t ready to do.
Meanwhile, the United States is highly polarized, and very fragmented, with power centres everywhere and it’s very difficult for the U.S. to focus and be more than transactional with Canada. When we do, Canada is able to keep us from focusing on that issue very long by playing defence. The result is that Canada-U.S. relations are increasingly a 0-0 tie game. I think some people in Ottawa see that as a win. “Hey, we didn’t lose, we tied, that’s better than we expected.” On the other hand, the Americans think that’s boring. Let’s find somebody else like the Australians, AUKUS, the British—let’s find somebody who’s fun to play with, where we can actually get some things done.
I think that’s where both our strategies are weak. I’ll put most of the blame on the United States. We have gone from a point where it was our State Department or defence department dealing with Canada to a position where a lot of the relationship is in the hands of domestic policy departments and agencies of the federal government that no longer have people to explain, “Well, Canada has a parliamentary system, these things are provincial, and those things are federal, etc.” All that detail, which is important in any international relationship.
We need to figure out how to better train and better equip people dealing with Canada across the U.S. government with resources to create something a bit more coherent. At the same time, I think Canada would probably be best served if it would try to get a win, or, you know, at least try not to always respond to U.S. offers with a defensive crouch. Canada is a country that can play toe-to-toe with the Americans. I don’t think you’re going to win every time, especially if we’re deadly opposed, but I think on a lot of issues Canada can do better than the way it’s been doing.
We’re both in a rut. I think the U.S. is mostly responsible. But together, we’ve got to figure out a way to get out of the rut. President Biden and Prime Minister Trudeau created their roadmap to a renewed U.S.-Canada partnership and it is a good agenda. I think it’s terrific, but I think we need to go back to the garage and tune up our cars because it’s going to be a very long road. I don’t think either of our vehicles for policymaking are going to make the distance if we don’t make some tweaks.
How has the U.S.-Canada relationship evolved under President Biden’s administration compared to the dynamics during the previous administration, and what key policy shifts or continuity can be observed in areas such as trade, security, and environmental cooperation?
The Biden administration has not fundamentally altered the trajectory that Trump started. I think the packaging is different. A couple of elements stand out: both President Biden and President Trump have adopted a more traditional deterrence approach to defence. It’s a little more popular than the fighting small wars and trying to turn countries into democracies strategy, which led to a lot of dead Americans, and didn’t achieve its goals. Whereas the Cold War posture that we had—we will arm ourselves to the teeth so that no one will take a poke at us—that’s very popular. It does mean you spend a lot of money. But it also means that you’re really not fighting that much, and you’re not getting sucked into other regional conflicts.
I think both leaders have found that to be the sweet spot for them. Similarly, Donald Trump, I think, pulled the band-aid off, and showed that the trade consensus that had carried us from say Bretton Woods all the way through the end of the Cold War had really frayed. That consensus opened our market as a way for developing countries to give up import substitution industrialization, for them to achieve scale economies, and grow closer to the West. At the same time, that competition from lower-wage countries and lower-tech economies led the U.S. to seek to open foreign markets so that we could extend supply chains to places where we get cheap parts. There was no place better for that than China in the last 20 years.
It was necessary, because without those low-cost inputs, and given that we had relatively high-cost labour we would not have survived, let alone been as competitive as we were if we hadn’t opened up. The problem with that is that although goods became cheaper, the purchasing power of ordinary Americans went up, and overall people’s sense of their future, their livelihood, where they saw the economy going, had eroded. So, there was a backlash against trade. It was not particularly a backlash against Canadian trade. Canadians pay their workers roughly comparably—you’re not seen as a cheat; you’re not stealing intellectual property. It’s true that sometimes the Canadian government plays fast and loose to create a little bit of an advantage in competition with the U.S., so sometimes we have an argument over that. But by and large, I think Canada is seen as a fair-trading partner that will weather all of this kind of trade turbulence.
The problem is really everyone else. The Biden administration gave up an opportunity it had in the first six months of their term to rejoin what’s now the CPTPP, and then lost trade negotiating authority. The Biden administration has no ability to negotiate new trade agreements without going back to Congress. Although the U.S. is talking about the Indo-Pacific economic framework now as a kind of SPP-lite—that’s long on rhetoric, short on details. Canada and Mexico, having been beaten to a pulp by Donald Trump back in the day, at least now have the lucky position of being in the last trade agreement for a while with the United States.
That has secured some trade access, which heading into 2026 will be fascinating. I don’t see a re-elected Biden administration, or frankly, a Trump administration, really doing much to make that agreement more robust. My secret fear is that Donald Trump will suddenly decide that it’s the worst agreement ever again, and we’ll go through this whole nightmare again. Generally, though, Canada is in a pretty lucky position and is benefiting a little bit from our attempt to rejig supply chains.
As the U.S.-China trade relationship evolves and China’s share of U.S. imports declines, how might this shifting dynamic impact Canada’s own trade relationships with these two global economic powerhouses?
I think there’s a huge opportunity for Canada, but the biggest problems in Canada-U.S. relations come from two reflexes that we have—Canada’s desire to obtain room for manoeuvre to negotiate to pay as little as possible for as much as possible, and the American side, our tendency to take Canada for granted and to think, “Canada’s there, what are they going to do? Who else are they going to go to?” We don’t make the effort necessary to win Canada over, and it creates this dynamic in which we’re both disappointed in each other.
The Biden administration, with the support of Congress, has created a historically large amount of money that is pumping into the economy in an attempt to get the economy to move towards climate action, new defence capabilities, and other things ahead of where the market would normally have gotten to those things. The government is in a hurry, it sees the hurry coming from external risks, and so puts money on the table. Unlike industrial policy of the past, say in the 1970s, and 1980s, it isn’t picking winners in the economy and saying, “We’re going to create a national champion.” It’s all incentives, which you can come and claim if you meet the criteria, and then have at it—see what you can do with the money.
Not only is it not picking winners, but it’s also not necessarily focused solely on the United States. We’ve seen Canadian companies that have applied to have some of the subsidies for developing projects, including things like critical minerals, advanced battery technologies, and so on. And yes, the U.S. does like the jobs associated with that to come to the United States, we’ve seen some of that as well. But the response that the U.S has to Canada saying, “Hey, you’re putting all this money in, what about us? What about us?” is, your companies can participate, and if you want this activity on your side of the border, open your wallet, spend some money on your own, we can work on this together.
I think Canadian leadership has sometimes waited for the gift—when will America just open his wallet for us? What the United States is trying to do is move in a hurry and we just want Canada to step up, and assume that whether Canada does or doesn’t, we’re going to be fine, because we take Canada for granted. That’s kind of the jam that we’re in with regard to China. The U.S. is determined to decouple from China, and it’s determined to fight China’s attempts to create leading industries in several areas of technology. It is one of the ways in which we’re playing hardball in terms of global economics. We haven’t seen this against a major power really, even in the cold war, because during the Cold War, the Soviet Union wasn’t a major trading partner—we had very few economic relations.
Moving away from China is a huge opportunity for Canada to be a partner of choice. But it’s going to have to step it up and not wait for the handout, but instead say, “How can we be strategically valuable?” When the U.S. indicated that it needed alternative supplies of critical minerals, Canada responded with a critical mineral strategy, which I think is very smart. Canada’s critical mineral strategy identifies that Canada does have some critical minerals, mainly in the south, it has critical minerals in the north as well, but the extraction cost, by some estimates, is two and a half times what it would be in the south. That’s if you build the infrastructure to connect to it, which is also super expensive.
I think Canada’s reluctantly realized that it has those things, but it’s not going to be able to bring them to the market anytime soon. Canada’s critical mineral strategy involves developing what you have in the south and focusing on processing. That’s what China’s advantage really is. They do buy the minerals globally, but then they process them. It’s that processing ability that we need. Most Critical minerals involve concentrations that are quite toxic and dangerous. It’s in our interest as open Western democracies, that the processing occurs in a place that has high standards and good regulation because otherwise, the potential damage to people and to the environment is serious.
Canada has taken this position that it is a safe market in which to invest, it provides the right regulatory framework, and it should be where mineral critical minerals are processed for all of the West. This is an interesting response to countries like Chile and Argentina which have a lot of lithium and cobalt. Canada says, “Sure, great—mine it, make some money, but sell it to us. We’ll be a little higher on the value chain, and we’ll supply the North American market and the European market.” For Canada to pull that off, it’s going to take a little bit more than just pointing out that you have an advantage, it’s going to take some salesmanship. I haven’t seen that yet from the government. I think there’s a little bit of expectation that the U.S. is going to come in and bless the strategy so that they don’t have to persuade anybody because the U.S. said it was okay.
I think Canada is probably going to have to make that work on its own because the U.S. isn’t going to rely solely on Canada. It’s going to develop other places where it can do the processing, so it’s not held hostage to any one market. But that doesn’t mean Canada doesn’t have a shot, it just has to be able to really rally. We haven’t seen that yet, but we could certainly see it. I think there are enough people in the Canadian government and in Canada, generally, who have got the vision to maybe get you there.