Host: >> Canada is about to spend big on defence and I mean big. According to the parliamentary budget officer, hitting NATO's 5% target will call for $159 billion in defence spending by 2035, and Prime Minister Mark Carney has made it clear that's his goal. But how do we get there and where should all that money go? We know the government wants to buy fighter jets, although it hasn't decided yet whether buying American is still the right move. But the future of our armed forces and those billions of dollars will go beyond military equipment. We break down what Canada's defence spending and priorities could look like, and whether the country's manufacturers are ready to ramp up to meet the need. This is The Rundown. We know this new plan for our military is going to come with a hefty price tag. So let's talk about what smart spending would look like here and whether the government can afford a growing deficit. Ann Fitz-Gerald is the director of the Balsillie School of International Affairs and professor of political science at Wilfrid Laurier University, and Philippe Lagasse is associate professor and Barton Chair at Carleton University's Norman Paterson School of International Affairs. And I want to start with you. Last March, Prime Minister Mark Carney ordered a review of Canada's purchase of some F-35 aircrafts from the US. At the moment, we are buying just 16 for now. Help us understand we are about to near the one year mark of this. What is the why is the decision taking so long?

Ann Fitz-Gerald: >> Well, I think many things are affecting the decision. It's an important decision. It's a decision that's going to last for for decades into the future. It's important capability, not just for the Canadian Armed Forces, but for our critical infrastructure needs. More broadly, the issue speaks to a number of strategic concerns, expanding our the choices and our procurement options moving forward and not being so reliant on certain national suppliers. The issue concerns interoperability with other allies, our NATO allies, our allies in the US and of course, cost and platform sophistication and the needs that we have that complement other defence and security investments here in Canada. What will best help those needs, complement those needs in a way that works for the broader defence mission, more details of which we are going to hear more of as the Defence Industrial Strategy becomes released.

Philippe Lagasse: >> Philippe, I'll get your take on that as well. There's a number of different factors, not the least of which is operating a mixed fleet of F-35s and other fighter would be very difficult for the Canadian Air Force at this moment. Already we're struggling with pilots and technicians and the infrastructure costs of setting up the F-35, where you'd add another fleet that would be quite significant as well. Interoperability with NORAD isn't simply alongside the United States, which is a bi national command for the defence of North America isn't simply a question of working with. When people hear interoperability, they just assume that it must be, you know, just kind of communicating like over a radio. It's much more comprehensive than that. And contemporary warfare, the F-35 integrates into a wider system of systems. And the American ambassador has told us in no uncertain terms that if we acquire a European fighter, some of that integration may be called into question. But frankly, I think we're dealing with two things here. Either the government is hoping to put pressure on Lockheed Martin for more economic benefits, and potentially on the white House leading up to Canada's renegotiation of free trade. Or the government is seriously contemplating trying to get economic benefits and stand up a Canadian defence industrial base by building a fighter here in Canada. But the reason it's taking so long is the cost is extremely high to do that.

Host: >> All right. Before we talk a little bit more about money, Philippe, I want to stick with you in a paper you described Canada as having an unstrategic defence policy. What do you mean by that?

Philippe Lagasse: >> We don't really do strategy in Canada, or we haven't done it in a very long time. We are followers. So our strategy when it comes to international peace and security has largely been to follow what our largest ally has, has done. Similarly, the NATO alliance provides us some guidance in terms of fundamentals, but really we don't do strategy. We we we try and make sure that our flag is in the right place. When you look at maps of operations and over the past 40 years, I would argue that certainly on a military level, what are we tried to do? We've tried to plug and play into the American armed forces. And why? Because it's really cheap to do that as opposed to trying to forge your own path.

Host: >> And what would you say are some of the biggest problems with Canada's defence procurement system as it stands right now?

Ann Fitz-Gerald: >> Well, I think Philippe raised the most important one for me, and that is that we don't do strategy. So policy there's a difference between policy and strategy. Policy is a declaration of intent. Strategy speaks to the execution imperatives, the sequencing, the timelines, the resources that would be used on a month to month, year to year basis to execute. And we have not been good at that. We've seen a couple of policies published since the early 2000, and neither of them have come with an execution strategy that has been made public, and that has been clear on these details. So some of the challenges here are concern the government working as a smart customer with Canadian businesses and foreign businesses to get this capability up and running. You know, we're even seeing foreign embassies of our allies being structured differently these days with capability in the embassies and capability at home to speed the delivery of procurement to to bring in capability that is knowledgeable about procurement of the new general purpose infrastructure that we're working with. That's affecting every sector of society at the moment, even the most traditional sectors of society. So data, AI, cybersecurity, intellectual property and this all points to kind of a new definition of what constitutes a Canadian company as well.

Host: >> Philippe, as as we noted, we are spending a lot, a lot of money here, and I want to get a better understanding of how much of Canada's defence spending is just for show, whether it's, you know, to the US president or to its NATO allies, rather than how effective it is here or abroad.

Philippe Lagasse: >> Well, largely the defence spending has been skeletal, really, when you look at the level of ambition that we've tried to do over the past 40 years. So going back to to this idea of plugging and playing with larger Allied forces, we've tried to spend about 1.5% of our GDP having just enough, as many commentators note, to be able to make important contributions, but not much more than that. The domestic impacts have largely been on foreign subsidiaries and offsets that we get from some of our big purchases, but we've never really invested heavily in kind of a Canadian defence industrial base. And this is what we're talking about now. And why the the figures that are being floated seem so astronomical, because you're trying to undertake something so much bigger. But I will say, you know, talk of reaching 5% of GDP, for instance, right now, we don't know if that's just for show. We don't know if that was meant to appease the US president, who really wanted to, to show that he was putting pressure on the allies. You will note that that 5% figure is pretty far out. So a lot can change.

Host: >> And I want to get your take. Spending is clearly just perhaps spending is not strategy and we need more details there. But I just want to get your take on that. Is this for show or is this rather than how effective it is here abroad?

Ann Fitz-Gerald: >> Well, I think it was an example of a middle power verbally committing to stumping up and meeting its its defence commitments, especially when we have such a large shared border with the master of that narrative who asked NATO allies to stump up. And it it's incumbent on the country to at least meet the the minimum NATO GDP percentage spend that it should have been committed to over the previous decade. But now we're looking, of course, at a a target of 5%. But I mean, the good news here is, is that defence can be treated as a low hanging fruit, a broader mission to help modernise, but also help boost our industrial strategy through offsets, to help invest in that critical general purpose infrastructure that all sectors are going to work off of. And we've got a little bit of leeway for that with the 1.5% that can be used for defence and security related expenditure. So we do have the opportunity to really turn this into something that can scale our economy, and that's what's going to save us from tapping into other Social Security budgets in the future to finance defence, to grow the pie on the revenue side of our GDP balance sheet, instead of using the same pie and cutting it up into different pieces.

Host: >> All right. It looks like the the wait might be over. The defence Canada's defence industrial policy is expected to be released this week. Philippe, what do you want to see in that document on defence as defence spending ramps up?

Philippe Lagasse: >> Fundamentally you need a buyer. If you want Canadian industry to invest, somebody has to buy what they're going to make. And that's been traditionally lacking in Canada when it comes to the relationship between the Canadian government and Canadian industry. So for all the talk of catalysing or anything else, you can't just deal with the investment side. Somebody actually has to buy what these companies are going to make. So we need a clear demand signals, as they say, from the government of Canada, a clear commitment that they're going to be buying from Canadian industry. In the absence of that, I suspect industry is going to hesitate. So what that demand signal is going to look like is going to be a key one. I would also note that if you really want to have a vibrant defence industrial base, you have to be ready to export a lot of your equipment. If you look at countries that have maintained a very strong defence industrial base, middle powers in particular, they sell elsewhere simply because your domestic market isn't big enough. So think of Sweden or France in particular. So what's the export strategy? So those are the two big things a buyer and buyers elsewhere.

Ann Fitz-Gerald: >> And I'm going to look for the concept of value add. We cannot grow our small to medium size enterprises in Canada unless we help them provide value add for our domestic economy, but also in terms of producing the material that the rest of the world needs. So what are going to be the incentives behind that? How is procurement and decision making going to be streamlined to make the government a very agile and effective customer? And what are those strategic domains in which value add is going to be supported? Because that's how you grow an economy to add value to your raw materials and basic refined processes, to become more sophisticated, to offer a pro-competition environment, and to make things that other markets will buy. And this will tap into the diversification strategy of our markets as well. At the moment, you can't diversify markets unless you diversify products.

Host: >> All right. I want to pull up a chart from a recent report by the Parliamentary Budget Officer about Canada's 5% spending commitment to NATO. The office estimates that the impact on the budgetary deficit will increase to 63,000,000,000 in 2035, 2036 from 3,000,000,000 in 2026 2027. Philippe, this is a lot of money here. How how does Canada pay for billions in defence spending?

Philippe Lagasse: >> Well, you only really have three ways to do it. You can run more deficits as this chart shows. And therefore that means more debt and more interest over time. And a compounding problem. You can raise taxes, which not a lot of people would be keen on. But imagine, for instance, a government saying that that GST cut way back when has to be reversed, has to go back up to 7% in order to afford some of this, or you make the most difficult decision of all, which would be to cut social spending and other areas. So cuts presumably to the provinces or other programs. Already the federal government is slashing jobs here in Ottawa, but that's not going to be anywhere near that $63 billion. Similarly, you can cut foreign aid and other things like that, but that spend is just so massive that we shouldn't fool ourselves about the level of sacrifice required.

Ann Fitz-Gerald: >> And I'll get your take on that. How will Canada pay for billions? And do you share that same concern that Philippe shares here? I do share that same concern as Philippe. I would go back to the point that I made about having this defence focus be part of a larger national strategy mission. And back to the point I made about growing the pie. Instead of cutting the same pie up into different pieces. How do we do that quickly? Well, we try to make sure that our defence collaboration with others around the world focuses on boosting Canadian industry. But as we've already seen with the discussions on the purchase of submarines either from South Korea partners or from Germany, it's predicated on a strong CUSMA agreement and stability with our US neighbours so that there is access for these partners into the US market as well as the Canadian market. But, you know, getting behind the production of other sophisticated manufactured products that are underpinned by sophisticated design, like clean tech, which at the moment doesn't seem like it's going to be competing too much with our southern neighbours and really incentivising Canadian companies that own their IP that operate off a Canadian sovereign cloud, that that have their whole tech stack as sovereign, which is important in crises, times and for defence and national security purposes.

Host: >> All right. In the last few minutes, I have one more question for both of you, Philippe. Since Canada has pledged to spend billions of dollars to meet NATO commitments, you know, the question should be asked how unified is NATO currently and what is its future? What do you see?

Philippe Lagasse: >> Well, the NATO alliance is both cohesive and somewhat fractured at the moment. Within Europe itself, it's stronger than it's been in some time simply because there's an awareness, acute awareness of the threat posed by Russia and the need to safeguard and encourage a Ukrainian victory in that ongoing conflict. So there is a unity of purpose and a clear mindedness in NATO Europe that we haven't seen in a long time, probably since the Cold War. Not all countries, obviously, Spain is a bit of an outlier, but just the fact that Finland and Sweden joined is is pretty good indication where it gets Dicier, as your listeners probably know, is the transatlantic part of of that North Atlantic. The United States has been highly critical of NATO allies, has put quite a bit of pressure on Denmark when it came to Greenland, almost threatening invasion. And that has led a number of people to say that this alliance is is really on its last legs. I wouldn't go that far. I think it's going to survive in some way, shape or form, but it's more a question of how committed the US is to NATO and European security going forward. And that leaves US Canada in a tough spot because we're not in Europe. We're next to the United States. And our fundamental concern has to be that North American relationship rather than that European one.

Ann Fitz-Gerald: >> And yeah, I think the strength of NATO is based on its ability to deter against the threats that we are all commonly facing, some of which North America's is more exposed than our European partners. And when there is instability in terms of relationships in alliance and possibly trust deficits in some areas, nations start hedging and the strength of that predictable trust and coalition unity gets fractured somewhat in places. So, you know, it's really important that we use the strength that that that Europe is bringing to the alliance at the moment, coming together to rearm, coming together to deter Russian aggression. The strength around the unity of towards Greenland's sovereignty that we we keep that momentum building and that dialogue underpins everything that the Alliance does, because that strength is really important now that the Arctic region has become such a geostrategic pathway, that the polar ice melt in the region makes that those swaths of territory much more accessible, much more habitable and much more navigable. So, yeah, I think we're not going to see NATO crumble. It's going through a bit of an awkward moment and some difficult challenges that it has not faced in its history before, but the strength of unity we saw around the issue of Greenland, around the issue of not using tariffs for matters of sovereignty and coercive use of tariffs, was, was, was a show of strength and something that hopefully our US partners are going to see as important to the rest of the Alliance in the future.

Host: >> And we are going to leave it there. And Philippe, thank you so much for your insights. Really appreciate it. I know this is something that we will continue to follow here on The Rundown, so thank you very much.

Philippe Lagasse: >> Thank you.

Ann Fitz-Gerald: >> Thanks very much.

Host: >> The government says that massively increased defence spending won't just make the country safer, it'll also drive economic growth. But are Canada's manufacturers ready to meet the demand and. Brendan Sweeney is the managing director of the Trillium Network for Advanced Manufacturing. How are you doing, Brendan?

Brendan Sweeney: >> I'm doing great. All right, so give us the lay of the land here. How many companies across Canada are already involved in the defence manufacturing sector? And how many could transition if the call is made out. Based on a directory, a capability directory that we're building. We have right now more than 1200 manufacturers across Canada, and I think about 640 of them are located in Ontario. And I mean, it's a really exciting when we put this all together and we can just kind of map it out provincially, map it out nationally. There's a lot of great insights that we're gleaning around who these companies are, what they do and what they could do. Once we learn a bit more about the defence industrial strategy and what's going to be asked of. Them when we talk about the Ontario, I think a lot of people were here in Toronto Midtown, but we're just like York Region just north of us has a pretty good concentration of a lot of these companies as well. Correct? Yeah. We found in York Region alone more than 80 companies that that kind of validated defence sector suppliers, plus another 55 or 60 that we kind of ranked as a high potential to pivot or transition. There's also York Region, absolutely shout out York region. But in the city of Toronto proper, in Peel Region, in London, in Waterloo and especially in Ottawa, there are substantial concentrations of defence sector suppliers.

Host: >> Give us a sense here. What defence products or parts here in Ontario? Of course we like our parts. What are we. What's already being made here in Canada.

Brendan Sweeney: >> So the largest and probably most substantial component or segment is aerospace. And in many cases it is third or fourth tier aerospace suppliers. And we have some particular strengths in landing gear and landing gear components. In in southern Ontario, if you go closer to the London area, you have land systems and you have a network of suppliers to General Dynamics Land Systems Canada. And then in Ottawa, in Waterloo and in parts of York Region, you have some really, really interesting capabilities related to defence sector electronics and satellites. And then of course Brampton, Ontario, MDA, which is manufacturing satellites and robotics for space applications, both defence and civilian or civilian and defence, however you want to look at it.

Host: >> All right. So when we look at that landscape, it doesn't seem like a shortage when we look at companies. But when we talk about defence, one of the things that we've had conversations about is in the gap in skilled trades. So I want to have an understanding if more Canadian companies do transition to making more defence products, are there enough skilled or highly educated technical workers to fill those roles?

Brendan Sweeney: >> There might be. We certainly have the capability to train those people. There are probably two places where we'd really want to think long and hard about investing in. If we want to expand our defence capabilities, a lot of these companies that are involved in the defence sector in Ontario make things out of metal, right? That means a lot of machining and welding. Those are two very important skilled trades. And so that means we're probably going to need to develop more machinists and more welders. And we know for with some certainty that General Dynamics and companies that are making land systems, vehicles, they're going to need welders. Okay. At the same time, we probably need to train more electrical engineers if we want to support an electronic products manufacturing industry. We used to have a much larger electronics industry in Ontario. And you think Nortel, you think BlackBerry. And we still have some, but it's very specialised niche capabilities, many of which are related to defence.

Host: >> Let's talk auto plants. I'm going to do a little bit of a history lesson here. I know this is your background here as well. They used to play a key role in defence production because you could retool say to build tanks. For example, if you go back to a World War II, is it still true today? Can we do that? Can we pivot as quickly to, you know, move over from auto manufacturing to something like a tank?

Brendan Sweeney: >> Maybe. Probably not. This is probably a longer process of transition, and it might not even need to be transition. It might be two things happening at once. We're going to support the automotive industry, and we're going to sustain and grow the automotive industry. And then we're going to support incumbent defence sector manufacturers, and we're going to grow that to. There is some relationship between the automotive industry and the defence sector, but it tends to be at lower tiers in the supply chain. So it's not necessarily the Magnas of the world or the Multimatic of the world that are really clamouring to get into the defence sector. It is third and fourth tier suppliers who for the most part are not recognisable as automotive parts suppliers, but they supply the automotive industry, they supply the defence sector, they might even supply aerospace where there's some very, very strong linkages between defence and manufacturing is in the aerospace sector. Virtually every aerospace manufacturer in Ontario is doing, has done or is capable of doing defence sector work. They're making a landing gear strut and one day it could go to Bombardier or to Havilland, the next day it could go to Lockheed.

Host: >> Okay, as of the taping of this show right now, Canadian manufacturers are still waiting for the release of a fairly important document to kind of give them. You talk about long term. We're talking about a plan. We need a bit of a strategy. So we're waiting for the federal defence industrial policy. Why is that important strategy document for companies who are already involved in the sector, but those who might be looking for an opportunity here?

Brendan Sweeney: >> I think the at the foundation of it, it's going to signal where we're going to be directing resources, I.e. which segments. You know, we've identified six core segments of defence: land, aircraft, marine, space, C4, ISR, and ordnance. And so we're going to say, oh, is this a real aerospace play, a marine play. Is it going to be regionalised. So getting some sense of where the resources are going to be directed and what the timeline is? Okay, I don't think this is a 1 to 2 year project. So the nice thing is it should give some companies, especially at lower tiers, time to tool up, time to time to figure out their their scaling or their growth plan or time to transition.

Host: >> I was going to say the a lot of the manufacturers have been waiting. I know the federal government had promised around December of last year that they would get this policy, but they're still waiting. You've had consultations with the Department of National Defence about Canada's defence manufacturing base. Help us understand what questions does the government have about the sector's capabilities and potential?

Brendan Sweeney: >> I think exactly the work that we're doing, they want to understand at a really, really minute level of detail exactly what we can do. And again, we're doing this with public information. We're bootstrapping it at this point in time. And it's we're at a point now where we can run some analysis on this and really dig deep and learn about who these companies are. A lot of them, this is really interesting. A lot of them, compared to other industries, are Canadian owned, small and medium sized enterprises. So it really does align nicely with a lot of economic development and investment and, you know, nation building priorities because we can engage Canadian companies in this process. It's useful to have input from companies from Japan and Germany and Sweden, you know, who with which we trade. But it's really important to grow smaller Canadian companies who many of whom have found really, really interesting niches.

Host: >> Speaking of useful, this was very useful. Brendan, thank you very much. Really appreciate your time on the program.

Brendan Sweeney: >> Thank you.

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