Canada is bracing for a sharp downturn in its economic relationship with the United States after talks collapsed and punitive tariffs came into effect. The breakdown has thrown defence procurement into the spotlight, with the future of the country’s 88‑jet F‑35 order now uncertain and alternative suppliers such as Sweden’s Saab seeking to fill the gap. Counter‑tariffs set for 8 September are expected to provoke further retaliation, while senior officials on both sides trade accusations about the impact on North American security.
Trade talks collapse amid new tariffs
Negotiations between Ottawa and Washington ended abruptly on Friday, just before President Donald Trump’s latest 50 % tariff on US$20 billion of Canadian exports entered force. The two sides had reached a tentative agreement days earlier, but Prime Minister Mark Carney withdrew at the last moment, citing changed U.S. terms. In response, Canada announced a “dollar‑for‑dollar” counter‑tariff regime that will take effect on 8 September. The Trump administration has warned that it may respond with further escalation, and U.S. Transportation Secretary Sean Duffy told Fox News that it was “foolish” for Canada to think it could win a trade war with Mr. Trump. He also made the false claim that Canada lacks a military.
Defence procurement caught in the crossfire
Throughout the negotiations, defence issues were discussed in broad terms, according to Erin O’Toole, a former Conservative leader and member of Canada’s Advisory Committee on Canada–U.S. Economic Relations. Mr. O’Toole said the lead negotiators made clear that the goal was to keep the trade dispute separate from other bilateral engagements, including military co‑operation. Canada and the U.S. remain deeply integrated at an operational level, through joint exercises and the North American Aerospace Defence Command (NORAD). Yet the procurement of the equipment actually used in those operations is more vulnerable to political pressure.
“The level of aggression shown against us cannot just be sloughed off. It has to be responded to,” Mr. O’Toole told The Globe and Mail. He added that this could mean re‑evaluating major acquisitions such as the fighter‑jet programme. In March 2025, Mr. Carney ordered a review of the planned purchase of 88 F‑35 jets from Lockheed Martin. The review is still ongoing, and the order has been legally limited to just 16 aircraft. Meanwhile, Saab’s president, Micael Johansson, has been courting Ottawa with the Swedish‑made Gripen, positioning it as a viable alternative.
Competing bids for Canada’s fighter jets
An ocean away from the trade‑talk hub in Washington, thousands of visitors and delegations from 37 allied air forces gathered at Sweden’s Malmen Airbase for the centenary of the Swedish Air Force. The event showcased both F‑35 and Gripen fighters side by side. When Mr. Johansson learned of the collapsed talks on Saturday morning, he responded with a measured assessment. “I don’t think Canada will give up F‑35 completely. They will, of course, go forward with that to some extent. I have no clue how many,” he told The Globe.
Defence analysts argue that the F‑35 remains the most suitable platform for Canada and NORAD. Christopher Coates, a former deputy commander of NORAD and a senior fellow at the Macdonald‑Laurier Institute, said, “Certainly, in the case of the F‑35, there is no better option from a Canada or from a NORAD perspective than the F‑35.” He warned that allowing a trade rift to impair Canada’s ability to defend North America would be a strategic mistake.
Raquel Garbers, a former director‑general within the Department of National Defence and principal architect of Canada’s defence policy, offered a contrasting view of the bilateral relationship. “While Canada’s relationship with the U.S. is based upon economics, the United States’ relationship with Canada is based upon defence and security issues,” she said. Ms. Garbers, who also holds senior fellowships at the Macdonald‑Laurier Institute and the Australian Strategic Policy Institute, cautioned that if the U.S. judges Canada’s procurement decisions as jeopardising its own security, the economic fallout could worsen. She urged Ottawa to find a way to manage the relationship constructively while building niche capabilities that make Canada indispensable.
Strategic implications for North American security
Ottawa is also preparing a tariff‑relief plan for businesses caught in the cross‑fire, reflecting an effort to cushion the domestic economy. “Canada’s strength will always lie in being inside the U.S. orbit,” Ms. Garbers noted. “It needs something to protect against overreach, and that means making itself indispensable.” Industry leaders see an opportunity to pivot toward defence manufacturing. Eliot Pence, CEO of Ottawa‑based Dominion Dynamics and a member of the Advisory Committee on Canada–U.S. Economic Relations, said, “We can create leverage for ourselves if we decide to invest in ourselves.” While other sectors such as automotive face punitive duties, the defence sector could become a new pillar of Canada‑U.S. economic interaction.
The unfolding situation raises questions about the long‑term resilience of North American defence integration. If trade disputes start to dictate equipment choices, the interoperability of Canada, the U.S., and NORAD could be compromised. Analysts stress that any shift away from the F‑35 must be weighed against the broader strategic imperative of maintaining a unified, capable air‑defence network across the continent.
Why it Matters
The escalation of trade tensions is not merely an economic dispute; it is reshaping the foundations of North American security. Canada’s ability to secure the fighter jets it needs to fulfil its NORAD commitments is now entangled in diplomatic bargaining, risking a capability gap that could affect continental defence. The stakes are high for both nations: the U.S. relies on a cooperative Canada for integrated air‑space management, while Ottawa depends on a stable defence relationship to protect its sovereignty and contribute to shared security objectives. How Canada navigates this challenge will determine whether trade friction erodes or reinforces the strategic partnership that underpins defence on both sides of the border.
