‘Buy Canadian’ must be at the forefront of Canada’s rearmament

As our country wakes up to the need for renewed military strength, support for rearmament is growing.

The federal government has indicated that more money will be spent on defence going forward, though most projections still show Canada falling far short of what it would take to become a true military power befitting our economic and technological potential, not to mention the array of threats we face.

With this in mind, simply throwing more money at the military and calling it a day isn’t enough. Effective rearmament must accomplish two things at once: Provide Canada with immediate capabilities, and build a foundation for long-term domestically-sourced military equipment.

Another way to put it is that ‘Buy Canadian’ must be at the forefront of Canada’s rearmament. Here are four reasons why:

War-time resilience

If Canada were to find ourselves plunged into a war, being dependent on global supply chains would be an unacceptable vulnerability. Global shipping would be significantly constrained in a large-scale conflict, and many of our allies would be focused on producing what they could for their own armed forces. Purchasing foreign weapons and equipment would thus be much more costly in that scenario, and potentially impossible. By contrast, if we can produce as much domestically as possible – including ships, drones, armoured vehicles, air defence platforms, hypersonic missiles, small arms, 155mm ammunition, satellites (with launch capability), and more, we would be able to maintain and enhance our military strength even amid an ongoing conflict.

Putting procurement funds into Buying Canadian is thus essential, because it helps our domestic defence companies expand their factories, hire more workers, invest in more efficient production, and gain the experience necessary to level up our defence sector.

Supporting our allies

This may seem counterintuitive, given what I just wrote above, but a ‘Buy Canadian’ program that builds up the Canadian defence sector is good news for Canada’s allies. Right now, Canada lags behind nations like the UK, France, Italy, and Poland in terms of our domestic production capability. Given that all of those nations could be at physical risk in the event of a larger-scale conflict in Europe, Canada would have an important role to play as an Arsenal of Democracy. If Canadian ships can help secure the oceans to get supplies to allied nations, and if Canadian companies can mass produce drones, air defences, small arms, artillery shells, and more to help our allies, then our allies benefit.

Similarly, every new Canadian ship, armoured vehicle, tank, and air defence unit provides a capability that reduces the need for our allies to take care of Canada’s defence in addition to their own.

We should also recognize that ‘Buying Canadian’ can include partnerships with allied defence companies. We don’t need to reinvent the wheel in every instance. For weapons like fighter jets (GCAP for example) that take a long time to develop and build, partnerships that include some production in Canada would benefit our defence sector and our workers, even if the finished product is not fully Canadian in every instance.

Protecting key industries

It is generally unwise for governments to deliberately spend taxpayer funds to save or benefit specific industries. It is often an inefficient use of tax dollars and leads to economic distortions. However, pure efficiency is not always beneficial, as it can lead to dangerous gaps in times of crisis. Nearly every country on Earth subsidizes domestic food production. That may be economically inefficient, but it is well worth it given the need to be able to produce enough for your population in the event global trade flows collapse.

Similarly, protecting sectors like steel and aluminum may not be purely efficient, but without those sectors, large-scale military production becomes impossible.

Thus, many nations wisely use military production to benefit key domestic industries and preserve industrial capacity. The British, French, and US aviation industries benefit significantly from military contracts. The same goes for the domestic shipbuilding industry in those nations, and nations like South Korea and Japan. There are spin-off benefits to that military investment, which helps secure jobs and industrial capacity in the tech sector, steel and aluminum sector, and in some cases, the auto sector.

After all, if a country needs to spend on national defence (and all serious countries do), it makes sense to use that spending to protect industries key to national economic and military resilience. Seen through that lens, Canada’s lack of military spending has left many of our key industries without the kind of economic buffer their competitors have, putting them at a disadvantage. A ‘Buy Canadian’ – focused rearmament boom would help rectify that.

Turning investment into growth

Along similar lines, the economic benefit of Canadian rearmament depends in large part upon how much of that investment is domestically directed. If Canada spends big but exclusively purchases foreign equipment, the benefit will be muted. By contrast, if we spend big and build up our domestic capacity, including investing in military research and development, the benefit will be significant.

Here’s how CIBC Capital Markets explained the factors that will influence the economic multiplier of defence spending:

“The ultimate effect of that multiplier will depend on the economic environment in which the spending takes place.

Tighter monetary policy in response to an increase in defence spending will clearly limit any positive impact. The same applies to the way that spending is financed. Debt financing as opposed to higher taxes will lead to a much larger multiplier. Another important factor here is the share of imports in overall military spending. The higher the share, the smaller the multiplier.

Clearly, Canada’s limited domestic weapon producing capacity is a major factor impacting not only defence sovereignty, but also the size of the multiplier. The reality is that global military production is highly concentrated. The US and Russia account for no less than 55% of global arms exports, and 80% of total exports come from only seven countries combined. Needless to say, Canada is not among them.

But by far the most important channel in which defence spending contributes to long-term economic growth is in defence-related R&D. And here the evidence is very clear.

Numerous studies on the topic reveal pure crowding in rather than crowding out. The larger the share of R&D in overall defence spending, the larger the positive spinoffs. And in fact, direct military investment in R&D underestimates the actual impact. Some of the most important innovations in the field have come from the private sector that is benefitting from de facto market guarantees from the government, which work to reduce risk significantly. The semiconductor industry during the cold war, the microwave, the internet, and GPS are some examples of the interplay between military and civilian sectors.”

On the high end, CIBC notes that $31 billion in defence investment could generate $64 billion in economic growth.

The path forward is clear: The government will need to purchase equipment from allies at the start, simply to ensure that we enhance our capabilities asap. At the same time, that investment should be matched with a military ‘Buy Canadian’ program – investment in equipment and weapons that Canadian companies can produce now, alongside investment in building up Canadian drone manufacturers and military research at top universities. With such an approach, the government can start to build our domestic capacity and ensure a powerful multiplier from defence spending, while still ensuring our men and women in uniform have the best equipment possible.

Spencer Fernando