Decades of underinvestment in national defence have not only left Canada militarily vulnerable, but have also eroded an important buffer for key industries.
Canada’s long-standing failure to adequately invest in our military is often framed as a national defence issue, and rightfully so. The largest and most important consequence of military underinvestment is a more vulnerable nation dependent on the whims of others. This is not only a strategic failure by successive governments, but also an ethical failure, given that defending the security of your citizens is the first task of any federal government.
That said, there is also an economic cost. And I’m not talking about the cost of investing in the military, but the cost in the vulnerability of key Canadian sectors as a result of underinvesting in our national defence.
Consider the U.S. aerospace sector and a company like Boeing. Even when Boeing goes through times of difficulty (such as the series of crashes and ensuing reputational damage caused not long ago) there is only so far the company can fall. US government contracts account for roughly 1/3 of Boeing’s revenue, and most of those contracts are military-related. Thus, even if Boeing were to be shut out of most international markets (highly unlikely), it would still have a decent financial base.
Of course, there is no perfect parallel with Canada here. We don’t have the raw market size of the U.S., so it’s more challenging for Canadian companies to rely on domestic sales. However, that doesn’t change the fact that defence contracts can be a crucial buffer for key companies and industries.
And that brings us to the Canadian auto sector.
The Trump Administration is clearly targeting Canada’s auto sector and wants to move all North American auto production exclusively to the United States:
“U.S. Commerce Secretary Howard Lutnick is dismissing any prospect of a comprehensive auto deal with Canada, according to three sources in the room when he made the comments.
Lutnick made the comments during a discussion under Chatham House Rules at the Eurasia Group’s Canada-U.S. Summit in Toronto on Wednesday, one day after the second in-person meeting in Washington between U.S. President Donald Trump and Prime Minister Mark Carney.
According to the sources, Lutnick said the U.S. could continue buying parts from Canada, “but that’s about it.”
According to sources, Lutnick also said Canada should “come second” to the U.S. on autos.”
If the U.S. continues to impose tariffs on Canadian autos and takes further measures to push the sector out of Canada, we will see more jobs lost, more plants idled and ultimately shut, and more economic pain.
While the government cannot stop that from happening if the U.S. is hell-bent on it, the damage can be mitigated through something that is in Canada’s control: Military contracts.
Canada has a shortage of almost everything, as do many of our allies. Infantry fighting vehicles, transport vehicles, ground-based drones, tracked air defence platforms, wheeled air defence platforms, self-propelled artillery, and more could all be built here in Canada. Many workers in the auto sector could – with some supplemental training – work in retooled factories to build that equipment. Canadian companies and allies in Europe and Asia could be given contracts that boost domestic production and job creation, with stipulations that Canadian auto sector workers must be hired.
Preservation
This would not save all auto sector jobs, but it would save some, and it would help keep some factories running after a retooling process. The goal would be the preservation of skilled workers and productive facilities. This matters because, in the event of a large-scale conflict, Canada would need as much domestic production capacity as we could get, and because the future of the auto sector (perhaps a Canadian automaker) would depend upon the retention of the sector in some form.
Of course, this isn’t ideal. The ideal situation would be for the U.S. to continue honouring the Canada-US Auto Pact rather than trying to wreck the Canadian auto sector. But since we can’t control what the U.S. does, using defence contracts to protect a portion of the industry is the most ideal option we have direct control over.
Spencer Fernando
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