Need to Know: Two views on how to manage Canada’s rocky relationship with the U.S. and what it will take for us to meet our NATO obligations

Welcome to Need to Know, your Saturday dive into thought-provoking research from think tanks, academics, and leading policy thinkers in Canada and around the world, curated by The Hub. Here’s what’s got us thinking this week.

This week, we began getting a sense of what president-elect Trump’s cabinet might look like, subject to Senate confirmation. If their past statements indicate anything, Canada will face rough waters ahead. Florida Sen. Marco Rubio, Trump’s pick for secretary of state, recently said that “terrorists and known criminals continue to stream across U.S. land borders, including from Canada.” This sentiment is echoed by Trump’s proposed border czar, Tom Homan, who’s characterized the Canada-U.S. border as an “extreme national security vulnerability.” Add to this consistent criticisms from prominent Republicans about Canada’s inability to meet its NATO defence spending commitments.

With all of this in mind, let’s take a look at some of the best recent analyses on how Canada should manage its most important international relationship.

“Mattering more” in a changing world

We start with a recent report from the Public Policy Forum. Authored by three prominent Canadian international affairs analysts—Edward Greenspon, Janice Stein, and Drew Fagan—the report lays out a new foreign policy strategy for Canada in a changing world. The authors urge Canada to pursue a “Matter More” strategy in response to a shifting U.S. political landscape and intensifying global challenges.

Asserting that Canada’s importance on the world stage can be elevated by deepening its relationship with its largest trading partner, the U.S., the report recommends a focus on strategic collaborations in critical minerals, technology, energy, and Arctic defence. This approach, termed “Auto Pact 2.0,” draws inspiration from the 1965 Canada-U.S. Auto Pact, which cemented cross-border co-production and interdependence in the automotive sector, and envisions similarly targeted partnerships that benefit both states in high-stakes domains.

Key recommendations include advancing critical minerals collaboration to reduce North America’s reliance on non-democratic nations like China, better aligning Arctic security efforts with the U.S., building a North American framework for technology development and supporting energy independence through expanded renewable and nuclear projects. By “mattering more” through selective partnerships, the report suggests Canada could secure greater economic and geopolitical resilience.

The strategy underscores a proactive approach: Canada must act swiftly to protect its own interests, while strengthening ties with the U.S., helping both nations navigate an era marked by geopolitical tensions and systemic instability.

Navigating stormy weather—the view from Washington 

Christopher Sands of the Wilson Center’s Canada Institute gives us a view from south of the border on how Canada should navigate the “stormy weather” ahead. Sands delves into the intricacies of Canada-U.S. relations, emphasizing the resilience and adaptability required to manage cross-border issues. As both countries face upcoming leadership changes, he argues against the oversimplification of diplomatic ties to personal relationships between leaders. Instead, he presents a nuanced view, detailing a toolkit of diplomatic methods that have been historically employed to address complex bilateral challenges.

Sands categorizes these methods into four approaches: formal, semiformal, protoformal, and informal. Formal arrangements include structured agreements, like the International Joint Commission, which provides a stable, advisory role on boundary and water issues. Semiformal options, such as trade agreements and executive partnerships, enable flexible, politically lightweight cooperation without the need for legislative approval. Protoformal options involve experimental approaches, including special envoy appointments and pilot projects, which help both nations address issues with limited precedents. Lastly, informal methods—built on regional alliances, civil society connections, and personal relationships—allow local and subnational governments to manage issues directly, often before national entities intervene.

Highlighting the durability of Canada-U.S. relations, Sands suggests these strategies have helped both states navigate crises and shifting political landscapes, underscoring the importance of historical precedents as guiding frameworks for our future diplomatic efforts.

What will it cost for Canada to meet its NATO obligations?

Finally, given the recent focus on Canada’s repeated failures to meet its defence spending obligations, a timely report by Canada’s Parliamentary Budget Officer (PBO) examines the fiscal implications of Canada’s pledge to meet NATO’s defence spending target of 2 percent of GDP by 2032.

While military spending is currently projected to reach only 1.76 percent of GDP by 2029-30 under the most recent defence policy, “Our North, Strong and Free,” the PBO report highlights discrepancies in the GDP growth forecasts used by the Trudeau government’s defence policy, noting that its estimates imply an unrealistic four-year economic recession, which would cause Canada’s GDP to drop along with the 2 percent spending.

Adjusting to more accurate growth rates reveals a shortfall in the government’s current spending projections. With accurate GDP growth rates applied, military spending is projected to reach only 1.58 percent of GDP by 2029-30, leaving a shortfall of 0.42 percentage points to achieve the 2 percent target by 2032-33.

Based on corrected GDP forecasts, to achieve Canada’s NATO commitments, military spending would need to nearly double, rising from $41 billion in 2024-25 to $81.9 billion by 2032-33.

The PBO’s hypothetical scenario suggests this increase could be achieved without breaching Canada’s debt-to-GDP target, which is set to decline from current levels. However, the deficit-to-GDP ratio would be more challenging to manage. While the baseline projection anticipates the deficit dropping below 1 percent of GDP by 2026-27, the increased defence spending would keep it at 1.08 percent that year, eventually rising again to exceed 1 percent by 2032-33.

The PBO concludes that while meeting NATO’s target is feasible, it will strain Canada’s fiscal objectives, requiring a careful balance between defence priorities and broader economic sustainability.

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