In March 2026, the federal government announced that Canada hit the NATO target of spending 2% of GDP on defence, spending over $63 billion for the 2025–26 fiscal year.

However, much of the jump is due to a broader definition of what Canada counts as defence spending, while still being in accordance with NATO guidelines.

Looking forward, by 2035, NATO members say they are committing to spend 5% of their GDP on defence, with 3.5% devoted to core capabilities and 1.5% spent on defence-related infrastructure and other investments.

To put the magnitude of these costs into perspective, to reach 5% of GDP, annual federal defence spending will need to approach $150 billion by 2034/2035—roughly triple the current levels. At $150 billion, defence spending would rival the largest areas of federal spending, including Old Age Security and health and social transfers to the provinces. The Parliamentary Budget Office (PBO) has also highlighted that despite claims in Budget 2025 that accelerating investments will put Canada on the path to hitting the 5% target, the government hasn’t published supporting projection details.

State of the Canadian defence industry

As of May 2026, Canadian defence services real GDP stood at $17.2 billion, which encompasses the direct operational administration of the Canadian Armed Forces.

According to a recently released ISED State of Canada’s Defence Industry Report, the defence industry directly employs 37,700 people, with an additional 24,400 jobs generated by suppliers to the defence industry. Among the direct jobs, the largest concentrations are in Ontario (35%) and Quebec (26%), followed by Western Canada and the North (21%) and Atlantic Canada (18%).

Canada’s defence industrial base is specialized across regional hubs: Western and Northern Canada lead in heavy aircraft maintenance, repair, and overhaul (MRO); Ontario powers combat vehicle manufacturing and advanced aircraft mission and simulation systems; Quebec anchors production in munitions and aerospace MRO; and Atlantic Canada serves as a maritime centre specializing in naval shipbuilding and vessel integration.

Concentration risk?

Prime Minister Mark Carney recently noted that 70 cents of every dollar spent on Canadian military capital acquisitions flowed straight to the United States. Given the state of global affairs, this level of concentration poses a risk. A military shift is an assertion of economic sovereignty in the face of ongoing U.S. trade friction and tariffs.

On a more granular level, Canada is in the midst of a massive aerospace modernization cycle—buying American F-35s (which have a price tag of ~US$82.5-109 million per jet), P-8A Poseidons, and MQ-9B drones—and that has led to substantial capital outlays that have been highly concentrated in Washington.

Alberta’s role

Alberta is home to critical defence assets:

• 4 Wing Cold Lake: Canada’s largest and busiest fighter pilot training base for the Royal Canadian Air Force and the frontline for defending Western and Arctic airspace.
• CFB Edmonton: The headquarters for the 3rd Canadian Division, acting as a major operational and administrative hub. 
• CFB Suffield & DRDC: Located near Medicine Hat, this is one of the largest live-fire training areas in the world. Crucially, it houses Defence Research and Development Canada (DRDC). The restricted airspace and unique testing environments have made southeastern Alberta the epicentre for Canada’s booming Unmanned Aerial Vehicle (UAV) and drone manufacturing sector. 
• CFB Wainwright: Serves as a major Canadian Army training base in Alberta used for large-scale military field exercises. Acting as the primary hub for preparing soldiers and units for domestic and international deployments. 

Some recent defence headlines pertaining to Alberta include:

• The Quantum Leap at UCalgary: In August 2026, the federal government announced a $20.3 million investment to launch the nation’s first Quantum Defence Innovation Secure Hub (DISH) at the University of Calgary. 
• Telesat: A $2.3 billion contract was awarded to Telesat to provide high-speed satellite communications to the Canadian Armed Forces in the Arctic.

Landing Zones Canada Inc.: Alberta company Landing Zones partners with Airbus to expand their aerospace facilities in Medicine Hat.

Diversification efforts

To hedge against U.S. supply chain dominance, Canada is looking overseas:

• The TKMS Submarine Deal: Canada recently selected Germany's Thyssenkrupp Marine Systems (TKMS) as its preferred partner for a ~$100 billion submarine procurement program.
• The SAFE Agreement: Canada now has a backdoor into Europe's own rearmament boom. The country is the first non-European country to be granted access to the EU's €150 billion Security Action for Europe (SAFE) initiative, allowing up to 80% Canadian content on European contracts. 

The economic implications of increased defence spending

A recent OECD  study emphasizes that defence spending can provide enduring economic gains  if it expands a nation's productive capacity through spillover innovation into non-defence sectors. This is exactly why a "dual-use" tech strategy—where military investments seed civilian commercial markets—is essential. Otherwise, there is a risk that defence spending could crowd out private spending in other areas.  

The global rearmament trend is in full swing and Canada is not an outlier. As Canada moves closer to the 2035 NATO target, Canadian and Albertan industries will see a lift and will hopefully spill over into broader civilian usages and innovations, if done properly.

Answer to the previous trivia question: Newfoundland and Labrador had the highest unemployment rate in 2025, averaging around 10.2%.

Today’s trivia question: Which three NATO countries are the biggest spenders on defence as a percent of GDP?