Opportunity Amid Disruption: Supporting Canada’s Strategic Industries

Canada’s economy is under attack. But tariffs are only part of the story. Our national prosperity is also threatened by the tectonic forces of climate and demographic change. The shifting environment calls for rethinking and reaffirming the foundations of Canada’s economic development.

Amid these challenges, there are opportunities. Achieving a strong and resilient future will require Canadian leaders to refocus on the identification and development of strategic industries—those that are vital for our economic and physical security.

Identifying Strategic Industries

Strategic industries underpin Canada’s security and global influence. Economically, they bolster Canada’s resilience and leverage the country’s strengths, including our natural resource wealth, growing service economy, and skilled workforce. They can also encompass indispensable services, like national defence or critical infrastructure. Geopolitically, Canada’s most strategic industries are those parts of the economy that can be wielded as leverage in negotiations with other countries and that will remain globally important in the decades to come.

Supporting strategic industries is critical for mitigating the impact of the current trade conflict with the United States and bolstering Canada’s long-term growth and security. While there are many strategic industries, we highlight four areas where clear policy direction and targeted investment can have an outsized impact on Canada’s prospects. These areas are also most aligned with the current government’s priorities; namely, defence; mining (particularly for critical minerals); energy and utilities; and transportation and logistics.

Flipping on the defence switch

Given the Trump Administration’s antagonistic rhetoric and annexation threats, Canada is no longer able to fully rely on the military support of the United States. As well, we face renewed security threats from countries like Russia and China. As a result, Canada’s military needs revitalization.

Major shifts are already underway. After not meeting its NATO military spending obligations for years, Canada intends to meet the organization’s former 2.0 per cent of GDP spending target this fiscal year.¹ The funding will increase pay and benefits in the armed forces, improve recruitment and retention, purchase new aircraft and armed vehicles, and bolster Canada’s defence industrial capacity.

However, more must be done. In June, the new defence spending target for NATO members was raised to 5.0 per cent of GDP. This target has two components: 3.5 per cent of member nations’ GDP must be allocated to core military spending, and 1.5 per cent must be allocated to defence-related infrastructure spending. The federal government anticipates it will meet the new target by 2035.

To be successful in this goal, three major things will need to happen.

Overcoming Fiscal Barriers

Within NATO’s accounting framework, some of Canada’s military spending increase will derive from a reshuffling of existing programs under the military spending rubric. Some of the Canadian Coast Guard’s current budget, for example, will fall under the new defence spending umbrella.² Yet, a large fiscal gap will open if plans to increase defence spending are not met with measures to increase government revenues.

Purely growing the economy won’t necessarily improve Canada’s ability to meet its new defence obligations, as NATO’s spending target is fixed to member countries’ GDP level. As Canada’s economy expands, the defence bill (in dollar terms) will continue to expand. To meet the new NATO targets, public finances must essentially be reoriented, representing a shift in core government priorities and values. The higher spending will be permanent, not a one-time increase, so it must be sustainably incorporated into public finances.

In July, federal cabinet ministers were asked to find “ambitious” savings aimed at cutting 7.5 per cent of program spending for the next fiscal year, and 10 per cent and 15 per cent savings in subsequent years.³ This could begin to move the needle in offsetting the burden of planned new spending, though more will need to be done. Given the magnitude of the challenge, we have previously argued that some combination of spending cuts, selective tax increases, and higher deficits will be needed.

Maximizing benefits

The opportunities that increased military spending will present are sizable. For example, the funds could help revitalize Canada’s manufacturing base by shifting procurement toward domestic sources where possible. This could support our domestic vehicle manufacturing, aerospace, and shipbuilding industries,⁴ which could also indirectly benefit the steel and aluminum industries, which have been hard hit by U.S. tariffs. Expanding production capacity at home could open new export opportunities.

Defence procurement could also be used as a negotiating tool with global partners. With money to spend, Canada could strategically use procurement to build relationships with allied countries.

Increased defence spending could also expand our economic potential. Investments in transportation infrastructure, such as ports, are one example that could be dual purpose, supporting both military and civilian needs.

This spending will be most effective when paired with the development of a defence industrial strategy, which would allow Canada to be deliberate in the benefits it expects and attains through its military investments.⁵ In 2024, a report from the Auditor General of Canada found that the Industrial and Technological Benefits Policy (an existing program aimed at fostering domestic benefits from procurement) “was unable to demonstrate that the policy met its objectives, which included supporting the long‑term viability and growth of the defence industry.”⁶ Improved criteria and impact assessment will help ensure domestic benefits are realized.

Jumpstarting innovation

New fiscal commitments for defence provide Canada with the opportunity to rewire its procurement processes, build our domestic defence-industrial capacity, and ultimately foster domestic innovation.

The lack of procurement efficiency is a recurring challenge in Canada’s defence industry. Cost overruns and lengthy timelines, among other adverse consequences, have spurred several government inquiries. In 2024, the Senate Standing Committee on National Defence released a report outlining dozens of recommendations for improving procurement, including outlining the procurement process to identify and remove duplication, measures to improve transparency, and adopting a continuous replacement model for major equipment to ensure readiness.⁷

One of the best ways to support Canada’s defence industry and foster innovation will be to procure equipment domestically whenever possible—a key recommendation from the Senate report.⁸ By purchasing domestically-sourced military equipment, the government signals its intent to support the development of Canada’s defence industrial base. This would spur new investments in Canada’s capacity to develop and produce its own equipment and technology in a virtuous circle.⁹

Whenever appropriate, off-the-shelf equipment can be used to avoid relying on costly solutions often manufactured abroad. The nature of defence is also changing, supporting this philosophy shift. As a recent op-ed explains: “The central tension in modern defence technology is no longer just about quality, it’s about tempo. The exquisite versus the attritable.”¹⁰ Procurement processes must increasingly value speed and adaptability, driving innovation across Canada’s industrial base.

Implemented effectively, domestic defence investment could also provide fertile ground for fostering innovation and improving Canada’s productivity. Spending on research and development in the defence industry often has positive spillovers for civilian applications, which provides opportunities for productivity growth.

Shovel-ready for critical minerals

Canada holds abundant natural resource wealth, including plentiful sources of critical minerals. The “critical” designation refers to a set of mineral resources that meet the following criteria:

And at least one of the following criteria:

These minerals, including nickel, copper, lithium, and uranium, are essential inputs for clean technologies and advanced manufacturing. As such, securing global supplies of critical minerals are necessary for building economies of the future.

The development of Canada’s critical mineral mining capacity is not only important for domestic economic growth but would also provide us with negotiating leverage. Europe’s dependence on Russian natural gas threw its economies into turmoil when Russia cut off exports in retaliation for sanctions. Similarly, the U.S. currently relies on China, a geopolitical rival, for many of its critical mineral imports. De-risking critical mineral supply chains by sourcing inputs from Canada would appear to fix a glaring vulnerability for the U.S. economy.¹² If Canada’s capacity to extract, refine and export critical minerals is improved, this bargaining chip would help in future trade negotiations with the U.S. or other countries.

In 2022, the Government of Canada released its first Critical Minerals Strategy, aiming to “become a global supplier of choice for responsibly sourced critical minerals.”¹³ Mineral exploration and mining are well-established; however, there are well-identified bottlenecks in each of these steps. Mineral exploration struggles from a lack of private capital investment in junior mining companies, who typically carry out exploration and sell defined deposits to larger mining companies.¹⁴ To aid exploration, the federal government has extended the Mineral Exploration Tax Credit until early 2027.¹⁵ Moving forward, coordination with the provinces could result in additional incentives for junior explorers.

Once resources are identified, turning them into an operating mine is a lengthy process that includes acquiring permits and undergoing environmental reviews. The Mining Association of Canada estimates that the time from an initial discovery to first production of a mine takes an average of 17 years.¹⁶ By 2035, Natural Resources Canada estimates Canada would need to build 15 new mines to meet the demand for raw materials created by the four proposed electric vehicle battery plants in Canada.¹⁷ The demand for minerals is growing and the urgency of speeding up the process remains vital.

By 2035, Natural Resources Canada estimates Canada would need to build 15 new mines to meet the demand for raw materials created by the four proposed electric vehicle battery plants in Canada.

The recent passing of the One Canadian Economy Act, which will expedite nation-building projects, could accelerate critical mineral mining. Naturally, one challenge that the mining sector will face is ensuring that environmental protections and Indigenous rights are upheld even as project timelines are accelerated. Public opposition to major project development, or even litigation against the One Canadian Economy Act, could hamper the sector’s growth. Some opposition MPs, environmentalists, and Indigenous groups have already raised concerns.¹⁸ Since Canada’s resource wealth is broadly distributed, the benefits of critical mineral extraction and refining can also be widely shared. Consultation with, and benefit-sharing for, Indigenous groups involved with major projects could help ensure success, as evidenced by the development of LNG Canada and the Coastal GasLink pipeline in British Columbia.

Regulatory clarity and planning on how new mining projects will fit into Canada’s environmental goals will also help move projects forward. The Auditor General of Canada found that the federal critical minerals strategy did not include sufficient risk analysis related to climate impacts.¹⁹ Although the demand for critical minerals requires expediency, comprehensive considerations of environmental risks that could damage Canada’s security in the long run cannot be neglected.

Public infrastructure investment in mining-rich areas (e.g., northern British Columbia) could also help attract private investment in projects and speed up development.²⁰ The Mining Association of Canada has also proposed an expansion of mining tax credits that could be used to offset the costs of building or electrical work, which would be beneficial.²¹

Beyond raw extraction, Canada would benefit from building refining infrastructure to add value to critical minerals, whether they are exported or used domestically. Expanding domestic capacity in the midstream of the critical mineral value chain will provide materials to fuel the energy transition while also opening export opportunities. If Canada’s downstream sector develops further, permitting is simplified and accelerated, and domestic demand for minerals rises, this would likely encourage private-sector investment in refining capacity.

Powering up Canada’s energy ambitions

Canada has all the makings of an energy superpower, and becoming one is a priority of the current government.²²  From oil and gas to hydroelectric power, coal to uranium, Canada produced approximately 4 per cent of the world’s total primary energy in 2022.²³ Indeed, the magnitude of Canada’s exports of oil and gas is the primary reason for its trade surplus position with the U.S.—an irritant of President Donald Trump. As it stands, Canada’s abundant energy resources are in high demand globally, and much of this potential remains untapped. Our energy sector puts Canada in an advantageous position and supporting it will only enhance the leverage it provides.

Investment in energy generation, distribution, and transmission will be one of the most important stories of Canada’s long-run economic trajectory. However, one of the primary challenges for the energy sector will be shifting from GHG emitting to non-emitting energy sources.

Canada will need to reckon with the role that fossil fuels will have in our economy over the coming decades. Oil and gas are strategically important and contribute substantially to national prosperity, but also to emissions. Prime Minister Mark Carney has already said that a new pipeline connecting Alberta to the Pacific Ocean is likely.²⁴ The development of major LNG projects on British Columbia’s coast are also potentially lucrative endeavours. The ability to ship more oil and gas to non-U.S. countries is essential for securing our place as an energy superpower, allowing us to fetch competitive prices for these resources in international markets and providing Canada with greater negotiating leverage with the United States.²⁵

However, greenhouse gas emissions have fostered a climate crisis, posing a significant risk to Canada’s way of life. Expedited consideration for renewable energy projects needs to be on the table, particularly if Canada’s net-zero target is to be taken seriously. Ultimately, clarity on Canada’s long-run energy mix is essential. And, as with critical mineral development, expediting major energy projects cannot come at the expense of consultation with Indigenous groups and other stakeholders.

Canada has all the makings of an energy superpower, and becoming one is a priority of the current government.

Nuclear energy also provides an important opportunity for non-emitting energy. Canada remains one of the world’s largest producers of uranium, with extraction concentrated in Saskatchewan. What is more, with ample reserves, Canadian exports could benefit from increased demand. There are dozens of nuclear reactors that are currently under construction or planned globally.²⁶ As well, new small modular reactors could lead to the deployment of nuclear power in new situations both at home and abroad.²⁷

One limitation is that Canada lacks the domestic capacity to enrich uranium. Canadian CANDU reactors don’t require enriched uranium, but most nuclear plants that are planned or under construction do. The development of enrichment capacity could improve the versatility and marketability of Canadian uranium. However, Canada would need to overcome major financial and legal barriers before this could happen.²⁸

Finally, the abrupt shift in energy policy in the United States could provide Canada with an opportunity. The Trump Administration has restricted tax credits for wind, solar, and hydrogen projects, while improving incentives for the oil and gas industry.²⁹ Federal incentives for electric vehicles have also been removed.

If the U.S. is betting on an oil-rich future at a time when global oil demand is expected to be near a plateau,³⁰ Canada could seize the advantage by betting on a cleaner energy future. One of former U.S. President Joe Biden’s officials encouraged Canada to reach out to clean energy investors and innovators in the United States, who could find a more hospitable investing climate in Canada.³¹ In 2024, Canada ranked second on the Global Cleantech Innovation Index, falling below the United States. Charting a clear path could help to close this gap.

Connecting the dots with transportation infrastructure

The COVID-19 pandemic highlighted the need for robust supply chains. Since then, as climate and geopolitical risks have grown, the need to streamline and secure Canada’s transportation networks and supply chain infrastructure has taken on dramatically greater importance. Reinforcing and expanding Canada’s transportation and logistics capacity will be essential for export diversification initiatives, defence and security, and improving Canadian living standards.

First, investment is needed for the maintenance and repair of existing assets. In 2022, a federal Supply Chain Task Force found that “since the 1980s, the ratio of infrastructure investment to trade volumes has been steadily declining. While Canada’s trade volumes have increased, investments in infrastructure have not kept up — and the transportation supply chain is reaching its limits.”³² Existing transportation infrastructure must also be reinforced to withstand the impacts of climate change, which can disable transportation networks and create substantial backlogs. In 2021, extensive flooding in British Columbia led to highway and rail line washouts, impeding access to the Port of Vancouver. On top of these investments, new trade infrastructure is needed to shift away from the United States and toward European and Asian markets. Export diversification will be moot if Canadian products cannot be increasingly shipped overseas.

Given their importance, supply chains are already a government priority. The National Trade Corridors Fund was launched in 2017, providing capital to develop airports, seaports, railways, highways, and access roads intended to improve and increase the flow of goods in and out of Canada. Dozens of major projects have been funded by the program, which is set to last until 2028. This fund will continue to support assorted supply-chain projects, and some have argued for it to become permanent.³³ The National Supply Chain Office was also launched in late 2023, with the intention of producing a national supply chain strategy by mid-2024. However, this plan is still under development and must now contend with a rapidly shifting geopolitical environment.

The national supply chain strategy is urgently needed. National coordination and long-term transportation planning in Canada will help to prioritize infrastructure projects with the greatest potential benefit.

The national supply chain strategy is urgently needed. National coordination and long-term transportation planning in Canada will help to prioritize infrastructure projects with the greatest potential benefit. Recent research from Signal49 Research acknowledges that “a systems-level vision of the trade network is required to deliver federal and provincial—territorial strategic objectives.”³⁴ This vision will also be required to meet the broader coordination required to pivot trade toward Asia and Europe.

The One Canadian Economy Act is a potentially great leap forward for accelerating infrastructure development. By expediting projects and removing federal internal trade barriers, momentum has begun to shift. “Corridor” approaches, or networks of highways, railways, ports, and other transportation infrastructure intended to bolster economic development along a given region, could help. The federal government is pondering the creation of a Western and Arctic Corridor, which would connect British Columbia’s coast to Hudson’s Bay through the Prairies and eventually connect to Nunavut, adding new port infrastructure as well.³⁵ Prime Minster Mark Carney also pledged to supply a $5 billion Trade Diversification Corridor Fund during his campaign.³⁶

To maximize the advantages of these proposed projects, provinces must coordinate to remove internal trade barriers, including transportation regulations and barriers to labour mobility. This process has tepidly started but will take time.³⁷ The provinces have also begun to coordinate on broader infrastructure plans. Saskatchewan’s premier pitched the idea of a port-to-port corridor connecting Canada’s northern Pacific and Arctic coasts.³⁸ The premiers of Alberta and Ontario have signed memoranda of understanding to study the feasibility of new pipelines and railways between the two provinces. However, Premiers Smith and Ford also discussed the need for federal support for these projects, including the repeal of Canada’s net-zero mandate and the proposed federal emissions cap.³⁹ This kind of support again raises the question about which direction Canada is headed—the central consideration for supporting Canada’s strategic industries.

Clarity, democracy, prosperity

The world is changing, as is Canada’s place in it. It is time for Canada to be deliberate about supporting its strategic industries and build on the momentum already taking shape. We’re experiencing a surge of national pride. Clarity on what kind of economic future we’re aiming at, as well as what core values we hold, will help provide a deeper foundation for this national identity, particularly if it’s planned in a democratic way that provides benefits for all Canadians.

By ensuring Canada’s defence, critical minerals, energy, transportation, and other key sectors are well-supported and fit together in a coherent plan, Canada will carve out a path toward prosperity. Developing these industries will also provide greater leverage for wielding Canada’s strengths in negotiations with the U.S. and other trading partners.

Canada’s fiscal capacity will face constraints. However, it’s likely that many improvements to trade and transportation infrastructure can serve a dual purpose—counting toward the new NATO defence spending target while also providing material benefits for the civilian sector, for example. Road, rail, and port infrastructure built to support northern resource development could double as a projection of Canadian sovereignty in the Arctic and be used to mobilize military equipment. Conversely, higher defence spending at the scale being considered “is not just a military act, it’s an industrial policy, a demographic strategy and a national development program.”⁴⁰

Direction and support for Canada’s strategic industries will centre on the next federal budget. Balancing competing fiscal priorities is never an easy task, though the next budget could be the most important in a generation. It should take a long-term view. Long-term plans for capitalizing on Canada’s industries that will be globally important in several decades will help to foster greater self-reliance, helping to weaken the impact of U.S. tariffs over time, and expand our capacity to diversify trade to international partners who need what we produce.

As the Canada–U.S. relationship is being reset, we’re examining what Canada must do to thrive in this changing world. Get the latest research.