Canada risks 'diplomatic isolation' if it fails to meet NATO spending target, business leaders warn

One of the country's leading business voices is warning that Canada faces "diplomatic isolation" if it's not prepared to deliver a concrete plan next month to raise defence spending to meet NATO's benchmark.

The Business Council of Canada — which has been wading more and more into the debate on national security lately — made the assessment in a letter to Prime Minister Justin Trudeau.

The letter comes as both NATO defence ministers and G7 leaders prepare to gather at separate meetings in Europe, and as leaders of the NATO alliance nations get ready for a summit in Washington, D.C. next month.

The council said the upcoming meeting in Washington could see Canada singled out. It is the only one of the 32 member nations that has not articulated a plan publicly to invest at least two per cent of gross domestic product in the military by the end of this decade.

"The consequences that would result from this diplomatic isolation, in terms of both our security and economic partnerships, will have broad ramifications for all Canadians," says the two-page letter to the prime minister, dated June 7, 2024.

"Fortunately, it is not too late. Your government could still make a public statement prior to the summit that it will review and revise its defence spending plans to achieve the full two per cent by 2029-30."

The council, composed of chief executives and entrepreneurs in the country's major companies, said Canada needs NATO in perilous and uncertain times.

"It is vital that Canadians work cooperatively with our NATO allies to defend our borders, our interests and our values," says the letter. "If we, as a country, fail to make this benchmark level of investment in defence, as successive Canadian governments including yours have promised, we will put lives and livelihoods at risk."

Earlier in the spring, the Liberal government's latest update to its defence policy pledged billions of dollars more in defence spending. But Canada's military spending is still only set to reach 1.76 per cent of GDP by the end of the decade.

Documents leaked to the Washington Post a few years ago said Trudeau told allies that Canada would never meet the two per cent benchmark.

Both the Liberal government and the Conservative opposition have pledged only to "work towards" the goal. U.S. Ambassador to NATO Julianne Smith recently noted that Canada was the only alliance member without a timeline to reach the goal.

'We have been called out'

A bipartisan group of U.S. lawmakers also recently penned an open letter calling on Canada to meet the commitment all NATO members made at last year's summit in Vilnius, Lithuania. All 32 nations pledged to make two per cent of GDP an "enduring" target — the minimum expected investment, in other words, not the maximum.

"This is an area where we have been called out," Goldy Hyder, president and chief executive officer of the Business Council of Canada, told CBC News. "It used to be called out quietly in Washington. Now, it's being done very publicly."

Business leaders, he said, believe the country must have the sovereign capacity to protect its citizens. And Canadians believe the government must keep its commitments to NATO, Hyder added.

Foreign Affairs Minister Mélanie Joly was put on the spot about Canada's recalcitrance on Tuesday when she appeared on a panel at the U.S.-Canada Summit in Toronto, sponsored by Eurasia Group and BMO Financial Group. Seated next to U.S. Sen. (D) Chris Coons, of Delaware — one of the U.S. officials who signed the open letter — Joly defended the government's record on military investment.

Foreign Minister Mélanie Joly, left, and Sweden's counterpart Tobias Billström hold a joint news conference on, among other things, the security situation, current NATO issues and Sweden's and Canada's bilateral relationship, in Stockholm, Sweden on Wednesday May 29, 2024. (Anders Wiklund/AP)

She said Canada's potential purchase of new submarines, and other equipment not yet costed in the defence policy, will go a long way toward meeting the NATO commitment.

"I'm convinced that we can be on the path to two per cent," Joly said. "And I know the minister of defence is working on this, and more is coming into that regard."

In response, Coons echoed other U.S. officials in saying that the trajectory of defence spending in Canada is good to see. But he didn't let Joly off the hook entirely.

"If we can see a path towards two per cent, that's credible," he said. "That will go a long way towards strengthening our defence relationship."

In a recent report, the Parliamentary Budget Office estimated that to hit the two per cent target, Ottawa would need to spend an extra $57 billion on defence from 2023–24 to 2026–27 ($15.5 billion more in 2023–24; $14.5 billion more in 2024–25; $14.1 billion more in 2025–26; and $13 billion more in 2026–27).

Hyder said that in business meetings he's had in Europe, he's gotten questions about why Canada hasn't delivered a concrete defence spending plan.

"What we're saying to the government is, the Canadian business community sees this as the priority because it's so important to our own national security, but also our relationship with the United States of America," he said.

"So making a commitment to say we will get to that two per cent target should not be that hard to do."