Canada Accelerates Domestic Defense Manufacturing Amid Shifting U.S. Relations

TORONTO — Inside a Toronto garment factory, the country’s push to reduce reliance on American military suppliers is taking tangible shape. Workers hunched over sewing machines rapidly stitch camouflage-patterned fabric and Velcro strips, while others inspect finished helmet covers destined for the Canadian Armed Forces.

The facility is assembling uniforms for Wuxly, a luxury parka manufacturer among a growing wave of Canadian companies entering the defense contracting space. As military spending surges, other domestic firms are developing remote sensors for the vast Arctic region, building drones to resupply soldiers, and engineering autonomous robots.

This defense sector expansion reflects Prime Minister Mark Carney’s commitment to strengthening Canada’s economic self-sufficiency amid deteriorating relations with Washington, including a fresh escalation this week involving new tariff measures. Canadian startups and established companies, alongside European partners, are positioned to access tens of billions in additional defense funding — driven partly by pressure from U.S. President Donald Trump for increased NATO contributions. While Canada’s investment remains modest compared to the Pentagon’s budget, the strategy aims to bolster domestic defense capabilities rather than simply directing funds to U.S. contractors.

A defense industrial strategy released earlier this year by Carney marks a generational shift for a nation that pioneered modern peacekeeping and long remained content in its southern neighbor’s security shadow.

The plan earmarks an additional $60 billion over the next five years, with government promises to support domestic businesses accessing defense and security supply chains. Canada currently spends approximately $36 billion to $43 billion annually on national defense.

“The scale of investment involved is quite significant by Canadian standards, certainly in peacetime,” said Philippe Lagassé, associate professor at Carleton University specializing in defense policy.

The boom is “quite evident at all the events we’re at. Every defense show is sold out. Lots of new companies and other industries coming into the defense industry, getting involved,” said Wuxly founder and CEO James Yurichuk.

Wuxly’s helmet covers allow soldiers to attach call sign patches or equipment such as lights, cameras, and beacons. The company also produces military parkas and tank covers and has supplied Ukraine’s military with gear, including 40,000 female uniforms — one of its specialties.

Carney has called for upgrading the Canadian military’s Arctic capabilities, committing tens of billions in additional spending to assert sovereignty over the vast, sparsely populated, and increasingly contested region.

“There’s a lot of innovation that can create advantage in the North, and with the Arctic region being so important, we’ve got to clothe our soldiers properly,” Yurichuk said.

A core pillar of the strategy involves diversifying away from U.S. defense contractors. The approach emphasizes tapping a broader global supplier base for military hardware while fostering domestic supply chains.

The strategy envisions investments exceeding half a trillion dollars, creating 125,000 jobs and tripling the defense industry’s size over the next decade by steering contracts to Canadian firms. It calls for accelerated research and development and prioritizes key “sovereign capabilities” including aerospace, robotics, and unmanned systems.

As Canada pursues partnerships beyond the United States, Ottawa has announced deals this year to purchase radar planes from Sweden’s Saab over American competitors and submarines from Germany’s ThyssenKrupp.

Canadian startups like New Frontier Robotics are also positioning themselves to participate.

“There definitely is money in play,” said Nikhil Malhotra, co-founder of the two-person company. “We see it. Obviously, we are going for it.”

The firm is developing a mobile manipulator robot — essentially a robotic arm on a mobile platform — powered by artificial intelligence with both military and civilian applications, known as dual-use technology. Initially targeting manufacturing with robots operating autonomously between assembly lines, the company pivoted after potential customers indicated growing defense sector demand. Robots could also serve support roles at military bases, Malhotra said.

“If you have infrastructure up in the Arctic that needs maintenance, obviously the climate is very dangerous. Are you really willing to risk an operator’s life? The answer is no. It’s better to put this thing on,” said Malhotra, whose company operates from a robotics lab at the University of Waterloo, roughly 100 kilometers west of Toronto.

Canada’s military modernization efforts still face significant challenges, including the risk that opposition parties target Carney’s spending plans in future elections. Companies developing novel technologies could be drawn to the much larger U.S. defense market. Canadian firms also face tough competition against American counterparts with substantially larger R&D budgets, meaning they are “always going to be a bit more at the edge of the technological capability,” Lagassé noted.

Nevertheless, the strategy opens new possibilities for companies like drone manufacturer Volatus Aerospace, based near Montreal.

“Defense was not a popular topic for a small-cap Canadian public company in the past,” CEO Glen Lynch said.

Lynch noted Canada has had limited manufacturing capability not just for drones, “but manufacturing capability in general.”

Like New Frontier, Volatus’ technology is dual-use. Since Canada is not technically at war, companies cannot rely exclusively on military sales. Volatus produces drones and related services for civilian and commercial applications, such as air-dropping medicine to isolated communities, while also maintaining a defense unit producing first-person-view drones — also known as kamikaze drones — which neutralize targets by crashing into them.

The company conducts testing at a 100-acre site north of Toronto, accessed via an unmarked gravel road and surrounded by cornfields. Volatus employees demonstrated several aircraft during a recent Associated Press visit.

The demonstration included a drone with a 60-kilogram (132-pound) payload suspended by cable, and a scaled-down tilt-wing rotor drone capable of carrying cargo over long distances. The aircraft operated autonomously, flying in a circular pattern before landing.

One drone, dubbed the Canary, features payload bay doors and is used to airdrop medical supplies to remote Indigenous First Nations communities in Alberta.

“It could also be used to send resupply packages for soldiers as well as dropping munitions,” said Chief Operations Officer Greg Colacitti.

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