From the Fraser Institute

By John Ibbitson

Because we live in dangerous times, and because an honest country keeps its word, Canada should meet its NATO commitment to spend at least 2 per cent of GDP on defence. But there’s another reason to live up to that promise—it’s good for trade.

Countries that are able to defend themselves earn the respect of their allies. That respect can provide tangible benefits. Consider Cyprus and the Auto Pact.

In the winter of 1964, in the depths of the Cold War, violence between Greek and Turkish Cypriots threatened to escalate into war between Turkey and Greece. President Lyndon Johnson, anxious to prevent war between two NATO members, was hugely grateful when Prime Minister Lester Pearson agreed to dispatch a peacekeeping force to the island.

“You’ll never know what this may have prevented,” said Johnson. “Now what can I do for you?” As Pearson noted in his memoirs, “I had some credit in the bank.”

A year later, Canada and the United States signed the Auto Pact, which guaranteed minimum levels of production for the Canadian auto industry. “I believe that Johnson’s willingness to agree to the Auto Pact the next year, an agreement that hugely benefited Canada’s auto sector, may well have been Pearson’s reward for Cyprus,” wrote historian J.L. Granatstein years later.

Canada’s relations with its NATO allies cooled in the years when Pierre Trudeau was prime minister. Trudeau considered pulling out of NATO entirely, but in the end contented himself with greatly reducing Canada’s troop presence in Europe. But Trudeau began to show new respect for NATO when he sought to diversify Canada’s trading relationships. “No tanks, no trade,” West German Chancellor Helmut Schmidt reportedly told him. Trudeau subsequently boosted defence spending and Canada acquired German Leopard tanks.

In the 1980s, as Brian Mulroney sought to improve relations with the U.S., his government maintained  defence spending at or near 2 per cent of GDP, even as the government reduced spending in other areas to bring down a chronic deficit. On Mulroney’s watch, Canada retained a robust commitment to NATO and NORAD. In February 1990, former Cold War antagonists agreed to a process for German reunification during the Open Skies conference in Ottawa; six months later, Canada joined a U.S.-led coalition that ejected Iraqi forces from Kuwait.

And in the midst of this stalwart support, Canada and the U.S. negotiated their historic free trade agreement.

Then came the so-called Decade of Darkness, as Jean Chretien’s government cut funding to the military to help balance the budget. In the 2000s, Stephen Harper ensured that the Canadian mission in Afghanistan was properly equipped, but his government further cut spending in the wake of the 2008-09 financial crisis. By the time Justin Trudeau came to power, defence spending was at 1 per cent of GDP.

While it appears Justin Trudeau’s government increased defence spending, part of that is the  accounting trick of putting veterans’ benefits in the budget. In fact, Canada remains virtually the sole outlier among NATO members in having no credible plan to get to 2 per cent any time soon.

Last spring, 23 U.S. senators (both Democrat and Republican) issued a letter taking Canada to task for failing to meet its defence commitments. And they spoke plainly. “We are concerned and profoundly disappointed that Canada’s most recent projection indicated that it will not reach its two percent commitment this decade.”

In that sense, Donald Trump was speaking for everyone in Washington when, as president-elect, he told reporters that “we basically protect Canada… we’re spending hundreds of billions a year to take care of Canada.”

That doesn’t in any way excuse the punitive tariffs the administration imposed on Canada and Mexico over the weekend. Those economic sanctions are capricious, vindictive and mutually damaging. Canada had no choice to but to respond in kind.

But it’s also true that other countries no longer take this country seriously. During the Biden administration, the U.S., the United Kingdom and Australia entered into the AUKUS security pact. Canada wasn’t invited. And QUAD security dialogue involving Australia, India, Japan and the U.S. is not QUINT, because we weren’t asked to join.

Canada will have a new federal government within months. Its highest priority must be to restore free trade with the U.S. One way to negotiate seriously with the Trump administration may be to offer a specific concrete program of investment in the NORAD partnership, in exchange for the removal of tariffs.

If the Americans agree, it wouldn’t be the first time that trade and defence were intertwined.

John Ibbitson