Canada rethinks military spending as Trump turns up the pressure

Yahoo

7 days ago

OTTAWA — Finance Minister François-Philippe Champagne is signaling a bold shift in Canadian defense spending — one where the military is a national priority.
'We need to rebuild our armed forces. We need to rebuild infrastructure. We need to build new defense systems, but we need to do that where we support Canadian industry, Canadian workers and Canadian autonomy,' Champagne told POLITICO in a wide-ranging interview in his 18th-floor corner office.
Canada is nowhere near the NATO spending target of 2 percent of GDP. A report from the alliance pegs it at 1.37 percent, making it one of the worst offenders in the alliance. Former Prime Minister Justin Trudeau once privately advised NATO officials that Canada would never meet the target, according to documents leaked from the Pentagon two years ago.
Now, Secretary-General Mark Rutte says that target is likely to rise to 5 percent at next month's NATO summit in The Hague.
U.S. President Donald Trump and his ambassador to Canada, Pete Hoekstra, have implored Canada to pony up on defense. It's the same message American administrations have been sending to Canada for decades, including from Barack Obama's Democrats.
Champagne has served in numerous senior Cabinet portfolios: international trade, foreign affairs, industry and now as Carney's right hand at finance.
'We want to do big things. We want to do them fast,' he said.
Here is a transcript of our conversation, edited for length and clarity.
You met King Charles. How'd that go?
Today was a day that will go down in history. I love it when he said, 'the true north, strong and free.' I think it resonated in the minds of Canadians and in the hearts of Canadians.
How's that going to resonate in Washington?
They'll see that Canada has its own distinct institutions, that indeed we are a great nation, that we have an ambitious agenda for Canada of the 21st century. And that although we will always be friends, we will find our way like we did. When I look at 2025, it reminds me of 1945, where C.D. Howe kind of reinvented modern industrial Canada. It's one of these moments in history where we're really rebuilding the nation. And I think we're fit for purpose. We will be the supplier of choice to the world.
What message did you take away from U.S. Treasury Secretary Scott Bessent and Federal Reserve Chair Jerome Powell last week at the G7 finance ministers meeting in Banff?
The desire to work collaboratively with colleagues to tackle the big issues. We talked about over capacity, non-market practices. We talked also about going after money laundering, the call to action on financial crimes.
The communique had some strong language on Ukraine. It called it a brutal war. It blamed the fighting on Russia. How hard was it to get the U.S. to agree to that language on Ukraine? Did you sense the Americans growing frustrated with Russia? We've since seen what Trump has said.
Without going into the detail of the discussion, there was really a sense of unity, understanding that Ukraine is fighting for democracy for all of us. And that it is incumbent upon us to look at every possible way where we can support Ukraine in this existential fight. And the message to the world is that we stand shoulder to shoulder, we're going to hold Russia to account.
And very important in the communique is the statement that Secretary Bessent made whilst we were last in Washington that all the colleagues stood behind, which is the fact that anyone who supported directly, indirectly, the Russian war machine against Ukraine will not be able to benefit from the reconstruction of Ukraine. That statement in the communique embodies the unity of the G7, and our resolve to support Ukraine.
What's Canada going to bring to the Ukraine reconstruction conference?
We will need to partner with the private sector. I see a big role for Canada when it comes to energy, conventional energy, when it comes to nuclear energy, when it comes to engineering firms. Canadian firms are very present. Fairfax is the largest insurer in Ukraine. There is a moral imperative to support Ukraine in its reconstruction, but there's also a lot of opportunities for Canadian companies.
You see a role for Canada and getting behind insuring risk? You mentioned Fairfax.
There's discussion being led by the U.K. and Norway about making sure that there would be an insurance and a reinsurance market for people who want to operate in Ukraine. I know there's discussion with EDC [Export Development Canada] with respect to that, and the fact that Fairfax is the largest insurer in Ukraine, we have a great positioning.
Ukraine's energy infrastructure has been targeted heavily.
When we say Canada wants to be an energy superpower, people have talked a lot about conventional energy. But if you look in the nuclear field, Canada is one of the few countries in the world which can offer, basically, training for the people who build reactors.
We provide the fuel, and we can also do the decommissioning. So you could almost sell energy as a service with these firms.
Today, energy security is key to providing stability and prosperity to people. It's true when it comes to Ukraine, it's true when it comes to Eastern Europe. It's true when it comes to both South Korea and Japan.
The Americans want to partner on nuclear too, right? It's part of their energy plan.
Nuclear power is going to be part of the energy mix. When you look at the remanufacturing that is happening in a lot of Western countries, and if you add to that the digital economy around quantum and AI, you cannot talk today about quantum or AI without talking about energy.
Your previous ministers had these various tax credits for clean energy. Are these credits going to stay? Are you going to streamline them, to become an energy superpower?
What I like about a lot of these tax credits, they were based on production. We were smart when we did that. For example, in the EV sector, and when we attracted these investments, the great thing in that is that we had a strategic and prudent approach with respect to fiscal policy.
These credits have been very helpful for Canada to attract significant investment.
Will they stay in place, or will they change?
We want to build the strongest economy of the G7.
We need to have one Canadian economy, not 13. We need to give preferential treatment to Canadian companies when it comes to public procurement so that they can build a country together.
We're going to fight the U.S. tariffs because they are certainly harmful to the Canadian economy, and I would even add also make North America less competitive. At the same time, we're going to protect our workers and our industry and we're going to build this country. That's what you heard today, very much in the throne speech. This is about a vision for Canada. This is about a strong and confident Canada.
You've held virtually every major portfolio in Canada. How are you going to leverage all of that here?
I know the machinery of government. I know how Ottawa works, and I have the relationships to make things happen. Because when you are here sitting at the finance department, you have kind of this oversight in terms of what's going on in government to support the prime minister.
Your predecessors in this job have been really good at saying no to defense spending. Things have changed. And Mark Rutte said today: 5 percent. What do you think?
The outcome we want to achieve is to protect Canada, protect Canadian sovereignty. The world has changed significantly. I was at the G7 finance ministers. Clearly, there's a lot of discussion around defense spending that's going to be needed to collectively ensure the defense of our respective countries. But on the other end, it's smart investments, because we need to make sure what we're going to invest is going to serve to protect our sovereignty, build our armed forces, but at the same time, rebuild our industrial base in the country. Because we need to have a stronger defense industrial base here.
You need to do smart procurement, smart investment and a smart approach to defense spending. We need to rebuild our armed forces, we need to rebuild infrastructure. We need to build new defense systems, but we need to do that where we support Canadian industry, Canadian workers and Canadian autonomy.
Is that how we're going to get to 5 percent?
The discussion now is how we're going to get to 2 percent.
But things could change in a month?
That goes back to why I think it was wise, prudent for me and the prime minister, to decide that we would have a budget in early fall. I want to bring stability and predictability. With the NATO defense summit coming in June, with the trade dispute we have with the United States, things could shift. Obviously, we have a big exercise around government efficiency.
If you look at the big buckets on my radar screen: How can I support the minister of defense to protect Canada, protect our sovereignty and build our industrial defense base and our industrial defense industry? The second bucket is around government efficiencies and how we make a government more efficient, working with the minister of AI.
Speaking of the prime minister, how would you describe your working relationship with him?
We come from similar backgrounds. In a sense, we've been evolving in different international circles. We know some of the same people. We have this vision about an ambitious, strong and confident Canada. We both come with our experience, our expertise, and a common desire to bring Canada to be the best country and the best economy of the G7. This is no small endeavor. We're very complementary and that's why we get along. I think we will, together with our colleagues at Cabinet, be able to achieve big things.
You guys are doing so much stuff so fast. There was a bit of confusion around when there would be a budget. How did that happen?
Listen, we came to the conclusion it would be in the best interest of Canada … to bring a serious budget in early fall, once we have more clarity around defense, around the trade war that is happening now in the world, and certainly when we have also initial feedback from our initiatives on government efficiency. For me, this is about responsible government.