Overview

According to Innovation, Science, and Economic Development (ISED) 2024 report, the Canadian defense industry generated over US$10.4 billion of economic activity annually and supported 81,200 jobs across Canada’s economy in 2022. Of the economic contribution reported, US$5.26 billion is directly attributed to the defense industry and value chain. In general, the total economic contribution by the sector to Canada’s economy between 2018 and 2020, increased by close to US$1.7 billion in GDP, and 13,900 jobs. The Canadian government is the industry’s single largest customer of defense products and services, accounting for 72% of the industry’s domestic revenues. The United States is Canada’s top defense export market, representing about 49.1% of exports, particularly within the Five Eyes partnership context. Canada has an estimated 94,500 military personnel, including 70,000 active personnel, 19,000 reserve personnel, and 5,500 paramilitary personnel. Canada is home to 585 defense-related firms with U.S. subsidiaries, accounting for 40% of the market (by total annual sales). 

Defense Priorities

Key Canadian defense priorities include: 

• Canada’s NORAD modernization program offers multiple opportunities for U.S. exporters.  A joint U.S. and Canadian statement in August 2021 committed both countries to modernize NORAD. In June 2022, Canada committed to investing US$29 billion over a twenty-year period with a focus on modernization of surveillance, command and control, air weapons systems, as well as facilities and support capabilities, including in the Arctic. The timeline for many capabilities extends through to the 2030s, with key projects reaching initial operational capability between 2025 and 2036.
   
• Canada has committed to reaching NATO’s required defense spending target of 2% of GDP by this year, a significant acceleration from earlier plans to meet the target by 2030. In June 2025, Prime Minister Mark Carney announced an increase in planned defense expenditures to CAD 62.7 billion (approximately US$47 billion), which brings Canada’s defense spending up to the 2% NATO threshold for the first time since the pledge was made in 2014. Maintaining this level of spending in future years will require sustained investment, estimated at around $47 billion over the next five years. Achieving the 2% target opens numerous opportunities for U.S exporters as Canada expands its military capabilities, modernizes equipment, and enhances infrastructure, reinforcing its commitments within NATO and to continental defense, with the aim of attaining NATO’s new 5% commitment by 2035.
   
• The National Shipbuilding Strategy: a long-term project to renew Canada’s combat and non-combat vessels, including replacing the entire fleet of the Royal Canadian Navy and the Canadian Coast Guard with modern combat surface combatants, icebreakers, coast guard vessels, supply and research vessels. 
   
• Canada is currently advancing a significant submarine procurement initiative, the Canadian Patrol Submarine Project (CPSP), to replace its aging fleet of Victoria-class submarines. The initiative envisions the purchase of up to twelve new submarines, representing one of the largest defense acquisitions in Canada’s recent history, with an estimated cost of US$44–72 billion.

Canada’s Defense Budget

The Department of National Defence’s (DND) main budget estimate for 2023-24 was US$19.5 billion. This is expected to increase to approximately US$35.5 billion this year to align with Canada’s accelerated plan to meet NATO’s 2% spending commitment. Of particular interest to U.S. exporters are the budget allocations under forces readiness, procurement capabilities, and infrastructure (including for infrastructure bases and IT systems).  

Table 1: Defense Expenditures

The Canadian Defense sector has three main domains: marine, land & other, and air & space systems. Of Canada’s four geographic clusters, Ontario focuses on the manufacturing of combat vehicles, aircraft and aircraft parts, airborne sensors, fire-control and countermeasures; Quebec develops aircraft & aircraft parts, and aircraft maintenance, repair, and overhaul (MRO); Western and Northern regions of Canada focus on Naval Shipbuilding and Design, Aircraft MRO, and Naval Vessel MRO; Atlantic Canada focuses on Naval Shipbuilding and Design, and Aircraft MRO activities.

Table 2: Defense Revenues by Domain (2022)

Source: State of Canada’s Defence Industry Report 2024, Innovation, Science, and Economic (ISED)
 

Selling to the Government of Canada

The Government of Canada regularly seeks suppliers for a wide range of defense products and services, including equipment, technology, and support services. Tenders, opportunities, and announcements can be found at canadabuys.canada.ca.

Planned Defense Acquisitions

DND’s procurements are highlighted under its Our North, Strong and Free” (ONSAF), which replaced the previous “Strong, Secure, Engaged” (SSE) policy in 2024. Under ONSAF, the government plans to invest US$6 billion over five years and US$53 billion over twenty years to modernize and expand Canada’s defense capabilities. The policy highlights priority investments in maritime sensors for ocean surveillance, modern tactical helicopter capabilities, Northern Operational Support Hubs, airborne early warning aircraft, satellite communications infrastructure, and enhanced cyber and intelligence operations. It also advances NORAD modernization with new focus on hypersonic and cruise missile threats and aerospace warning capacity.

Canada’s Industrial and Technological Benefits Program

Three agencies are involved in Canada’s defense procurement: Department of National Defence is responsible for defining operational requirements and capability needs; Public Services and Procurement Canada manages the contracting and acquisition process; and Innovation, Science and Economic Development (ISED)  oversees industrial benefits and offsets through the Industrial and Technological Benefits (ITB) program. The Industrial and Technological Benefits (ITB) policy (known in the United States as offsets) is regulated and enforced by ISED and applies to foreign companies awarded defense and Canadian Coast Guard contracts over US$77 million that are not subject to trade agreements or for which the national security exception is invoked. Defense procurements valued between US$15-77 million are reviewed for the possible application of ITBs. After a contract is awarded, the contractor must begin fulfilling its commitments by identifying business activities in Canada equal to 100% of the contract value. A key feature of the ITB policy is the Value Propositions (VP), which is the bidder’s economic proposed plan of action in Canada at bid submission time.  A 2022 ITB report by ISED indicates the ITBs annually contribute close to 41,000 jobs, and over US$3.5 billion to Canada’s GDP.

Indigenous Procurement

Canada has established a mandatory target of at least 5% of the value of a federal contract to be awarded to businesses owned and led by indigenous business groups. 

The Defense Industry and Demand for Critical Minerals

U.S defense contractors are experiencing vulnerabilities in their supply chains particularly for the sourcing of critical minerals and rare earth elements (REE), which are essential in the manufacturing of permanent magnets required in key military capabilities. Canada holds 40 to 50% of the world’s known REE reserves and can address supply chain gaps in North America through the adoption of offtake agreements with the Canadian mining industry. 

Resources

Major Defense Events and Trade Shows in Canada

• Best Defence Conference, October 21-22, 2025, London, Ontario
• Canadian Armed Forces (CAF) Outlook Events by CADSI, TBD April 2026, Ottawa, Ontario
• CANSEC, May 27-28, 2026, Ottawa, Ontario
• DEFSEC Atlantic, TBD October, 2024, Halifax, Nova Scotia
   

Key Defense Sector Associations

• Canadian Association of Defence and Security Industries (CADSI)
• Atlantic Canada Aerospace and Defence Association (ACADA)
• Aerospace Industries Association of Canada (AIAC)
• Canadian Marine Industries and Shipbuilding Association (CMISA)
   

Commercial Service Contacts

For more information on the defense sector, contact Commercial Specialist Mehdi Azeriah at Mehdi.Azeriah@trade.gov or by phone at (613) 688-5176.