Key Takeaways
- Mark Carney confronted a uniquely challenging security and trade environment upon becoming prime minister in 2025, marked by deteriorating U.S.-Canada relations and rising defence pressures.
- He pledged to raise defence spending from historically low levels to 2 % of GDP by the end of FY 2025‑26, with a longer‑term goal of 3.5 % and total defence‑related outlays reaching 5 % of GDP.
- The first‑year budget allocated roughly $63 billion, primarily addressing legacy gaps such as pay raises, infrastructure repairs, and Coast Guard integration rather than new major platforms.
- Carney pursued strategic diversification, deepening defence ties with the EU, Indo‑Pacific partners (Japan, Indonesia) and Qatar, while maintaining core NORAD and Five‑Eyes commitments.
- Institutional reforms—the Defence Investment Agency (DIA) and Defence Industrial Strategy (DIS)—aim to fix procurement delays, boost domestic industry, and deliver hard capabilities like F‑35s and new submarines, but their success hinges on sustained political will and public support.
Historical Context and Immediate Pressures
When Mark Carney assumed office in June 2025, he inherited a set of challenges unseen by any Canadian prime minister since World War II. A shifting global defence landscape, an escalating tariff dispute that functioned as a coercive pressure campaign, and a visibly fraying Canada‑United States relationship created a perfect storm. Former President Donald Trump’s renewed rhetoric accused Canada of “freeloading” on American security guarantees, echoing his longstanding critique of NATO burden‑sharing and intensifying pressure on Ottawa to increase its defence contribution.
Carney’s Diplomatic Stance and Early Signals
Carney’s initial response combined firm verbal boundaries with concrete policy moves. He insisted that Trump cease sovereignty‑undermining remarks—such as the “51st state” taunts and “governor” jabs—before any broader talks could resume. At the World Economic Forum in Davos, Carney declared that the era of a U.S.-led international order was effectively over, signalling a willingness to recalibrate Canada’s global role. These statements set the tone for a defence‑centric agenda that would dominate his first year.
Defence Spending Commitment and Allocation
Within three months of taking office, Carney pledged to raise defence spending to 2 % of GDP by fiscal year‑end, with a trajectory toward 3.5 % over the next decade. When combined with ancillary security commitments, the plan targets total defence‑related outlays of 5 % of GDP—a level not seen in Canada for a generation. The FY 2025‑26 budget earmarked roughly $63 billion for defence, a sum largely directed toward remedying long‑standing deficiencies: salary increases for Canadian Armed Forces (CAF) members, repairs to deteriorating bases, and the formal integration of the Coast Guard into the Department of National Defence. While essential, these expenditures primarily address past neglect rather than fielding new combat systems.
Strategic Diversification Beyond the United States
Recognising the risks of over‑reliance on Washington, Carney deliberately broadened Canada’s security partnerships. He formalised deeper defence cooperation with the European Union through the Security and Defence Partnership (SDP) and became the first non‑EU member of the Security Action for Europe (SAFE) initiative, opening European defence markets to Canadian firms. In the Indo‑Pacific, Carney signed security and defence agreements with Indonesia and Japan— the latter covering trade, critical minerals, energy, advanced technology, and supply‑chain resilience. Additional overtures included a new partnership with Qatar and defence‑focused visits to South Korea, India, and Australia. Though many of these pacts remain framework arrangements, collectively they signal a pivot toward a more autonomous, globally engaged defence posture.
Institutional Reforms: Defence Investment Agency and Defence Industrial Strategy
To tackle chronic procurement inefficiencies, Carney established the Defence Investment Agency (DIA), tasked with overcoming delays, cost overruns, and bureaucratic paralysis that have plagued Canadian defence acquisition. Complementing the DIA, the Defence Industrial Strategy (DIS) lays out an ambitious roadmap: creating 125,000 jobs, boosting defence exports by 50 %, directing 70 % of defence spending to Canadian firms, and allocating $180 billion for procurement over the next ten years. While the DIS provides a clear vision, it remains a strategic document; its real‑world impact will depend on effective implementation, sustained funding, and the ability to translate policy into tangible industrial growth.
Challenges in Realising Hard Capabilities
A central test of Carney’s defence agenda lies in delivering major platforms long identified as capability gaps. The government intends to procure up to 88 F‑35 fighter jets to replace the ageing CF‑18 fleet and to acquire as many as 12 new patrol submarines, with the down‑select between Germany/Finland’s TKMS and South Korea’s Hanwha serving as a litmus test for partnership diversification. Uncertainty surrounding the fighter‑jet program has already strained relations with Washington, underscoring the delicate balance Carney must strike between asserting independence and maintaining alliance credibility. Success will be measured by whether these acquisitions proceed on schedule, on budget, and with sufficient industrial spill‑over to Canadian firms.
Sustaining the U.S. Relationship While Hedging Bets
Managing the security relationship with the United States remains a top priority for Carney’s second year. Critical files include intelligence sharing within the Five Eyes alliance, the future of NATO, and continental defence under NORAD. Carney must demonstrate continued commitment to the U.S.—through contributions to NORAD modernization, joint exercises, and information sharing—while simultaneously advancing the diversification agenda outlined earlier. This dual‑track approach requires discreet diplomatic signalling: reassuring Washington of Canada’s reliability as an ally, yet making clear that Ottawa will not be beholden to any single partner.
Northern and Arctic Investment as a Cornerstone of Sovereignty
A concrete manifestation of Carney’s balancing act is the $35 billion earmarked for defending, building, and transforming Canada’s Northern and Arctic Region, building on the prior Trudeau administration’s NORAD modernization pledge. The centrepiece of this package is a $6.5 billion over‑the‑horizon radar network designed to restore early‑warning and detection coverage across the Arctic—a capability vital for NORAD operations and for asserting Canadian sovereignty in the North. This investment addresses both strategic defence needs and domestic expectations for visible, region‑specific returns on defence spending.
Assessing the First Year and Outlook Ahead
Carney’s inaugural year earned credit for making generational defence investments that previous governments had hesitated to undertake. The real test, however, lies ahead: delivering on those commitments, justifying sustained spending amid competing domestic priorities, and maintaining public support as billions flow annually into defence. If external conditions shift—whether through a thaw in U.S. relations, a change in global threat perceptions, or fiscal pressures—the government’s ability to adapt will determine whether Carney’s ambitious defence vision becomes a lasting legacy or a well‑intentioned but unrealised plan. The coming years will reveal whether Canada can transform heightened spending into durable capabilities, a resilient industrial base, and a security posture that is both independent and alliance‑solid.