The United States and Canada are both racing to rebuild their defense industrial bases, recognizing that future conflicts will be determined not only by military capability, but by the ability to produce at scale. But they cannot succeed alone — and importantly, they do not need to start from scratch.
After decades of reliance on globalized supply chains for everything from consumer products to critical defense technologies, the United States is reasserting a more active industrial policy, using tools ranging from the Defense Production Act to incentivizing private capital investments and even selective government equity stakes. Canada is undergoing a parallel shift, with increased defense spending commitments, the recent release of its first Defence Industrial Strategy, and the newly launched Defence Investment Agency.
These efforts create significant opportunity, but also carry risk. While the United States and Canada already share deep and often underappreciated industrial integration, in some sectors, this collaboration is applied late or unevenly. Without more deliberate alignment early in the process, the two countries may duplicate investments, compete for scarce labor and capital, and reinforce shared supply chain vulnerabilities rather than reduce them.
The alternative is not a fully integrated, top-down dual industrial strategy. The political realities on both sides of the border make that unlikely in the near term. But a go-it-alone approach is equally unrealistic. The more practical path lies in expanding and aligning what already works. For decades, the two countries have operated with significant industrial cooperation through shared supply chains, joint investments, and policy frameworks such as the National Technology and Industrial Base. The challenge now is to extend that cooperation more deliberately — by building co-production into major programs, aligning demand signals, and reducing barriers to cross-border collaboration.
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Why Is Collaboration Necessary?
China has pursued a deliberate strategy of shaping global economic relationships in ways that create long-term leverage. The United States has already experienced the consequences of reliance on China for critical minerals, processed materials, and key components essential to defense systems, but more disruption is likely.
For many countries that have pursued efficiency-driven globalization for decades, the economic pull of China’s market makes unilateral disengagement difficult, even when national security concerns are clear. Luckily, for many countries, allied markets represent a significantly larger combined economic opportunity than China alone. The challenge, therefore, is not simply one of dependence, but of working together through aligned demand, investment, and industrial policy to create markets and demand signals that can compete with the gravitational pull of China’s economy.
Recent U.S. and Canadian actions reflect a growing willingness to shape markets more directly through private-public investment and a broader recognition that industrial capacity should be expanded, not just optimized. These efforts have some historical precedent, but they also represent a meaningful departure from traditional free market approaches — particularly in the scale and scope of government involvement in proactively directing investment toward strategically important sectors.
In the United States, the current approach focuses on both large, targeted investments designed to move the needle in key areas of the industrial base and expanding the range of mechanisms available to spur investment beyond traditional appropriations. These include loans (through government offices such as the Office of Strategic Capital as well as private financing), direct company investment, and, in some cases, government equity participation.
Canada is pursuing a complementary approach, structured around its recently released Defence Industrial Strategy’s “build-partner-buy” framework. This approach emphasizes strengthening domestic capacity in priority areas such as shipbuilding, critical minerals, and munitions (build), deepening collaboration with trusted allies (partner), and leveraging global markets where appropriate (buy). Central to this effort is the new Defence Investment Agency, which, like U.S. efforts, is intended to expand the government’s ability to catalyze private investment and support industrial development beyond traditional procurement.
Both the United States and Canada would benefit from continued cooperation in shipbuilding, critical minerals, and munitions that reinforce, rather than undermine, the underlying economic system. More deliberate and early alignment in these sectors could shorten production timelines for critical systems, improve surge capacity, and provide greater control over supply chains that are currently fragmented or externally dependent. For example, where the United States has shuttered many of its critical minerals refineries, Canada maintains and is expanding meaningful capacity in areas such as extraction and processing. Herein lies an opportunity for more deliberate cross-border cooperation — linking mining, processing, and manufacturing across the two countries — to strengthen supply chain resilience and maximize economic value.
Rebuilding, But on Parallel Tracks
For decades, the United States and Canada have pursued durable, underappreciated industrial cooperation, treating their defense industrial bases as closely linked. This truly began with arrangements such as the North American Technology and Industrial Base Organization, and was formalized through the National Technology and Industrial Base, an arrangement under U.S. law that effectively recognizes Canada as part of the U.S. defense industrial base for purposes of collaboration, investment, and procurement.
Under this arrangement, Canadian firms are eligible to compete for U.S. Defense Production Act Title III investments and have successfully done so, and cross-border supply chains are deeply embedded in sectors such as aerospace and munitions. Companies on both sides of the border operate as part of shared production networks — often without the awareness of policymakers — including long-standing relationships involving firms such as Boeing and General Dynamics Ordnance and Tactical Systems. More recently, Canadian industry has played a direct role in scaling munitions production, including participation in U.S. 155mm artillery supply chains with follow-on significant Canadian funding for 155mm round production.
The United States and Canada have committed to coordinated investments, public-private partnerships, and industrial base development through the 2020 U.S.-Canada Joint Action Plan on Critical Minerals Collaboration, intended to expand North American production of critical minerals essential to defense, aerospace, and advanced manufacturing. As recent Center for Strategic International Studies analysis highlights, Canada is already a key supplier of many of these materials and represents one of the most viable alternatives to China’s dominance in critical mineral supply chains. Meaningfully, the plan has already led to several coordinated investments with funding from both the United States and Canada.
At the same time, this integration is not uniform across all sectors, and its effectiveness often depends on when and how collaboration is brought into the process. For example, the United States and Canada have each faced persistent challenges in maintaining and scaling domestic shipbuilding capacity, particularly for specialized vessels such as icebreakers. Historically, these efforts have been pursued largely in parallel, despite shared requirements for Arctic and naval capabilities and overlapping constraints in workforce, infrastructure, and supplier networks. A similar pattern is visible in critical minerals, where coordination has been stronger at the level of strategy than execution.
A Practical Path Forward
Recent developments suggest a more coordinated approach may be emerging. The Icebreaker Collaboration Effort Pact, announced by the United States, Canada, and Finland in 2024, with a joint statement of intent signed in late 2025, represents a recognition that no single country can efficiently meet growing demand for Arctic-capable vessels on its own. Under the agreement, the first ships will be built in Finland — leveraging its world-leading icebreaker expertise — while partners work to expand production across North America. Canadian industry is already positioning to participate directly in this effort, including through the acquisition of U.S. shipyard capacity to compete for icebreaker construction and related work. This approach aligns design, production, and industrial capacity across trusted partners in a way that would be difficult for any country to achieve independently.
At the same time, the initiative highlights how late such coordination has come. Both the United States and Canada are now working to rebuild shipbuilding capacity after years of underinvestment. The lesson is not that cooperation has been absent, but that earlier and more deliberate coordination — particularly in sectors with long lead times like shipbuilding — can deliver meaningful gains in both capacity and efficiency. The Icebreaker Collaboration Effort Pact demonstrates that this kind of international industrial collaboration is achievable today. The opportunity now is to apply this model earlier and more consistently across sectors.
The United States and Canada do not need a grand, fully integrated industrial strategy to move forward. They need more deliberate alignment in priority areas, built on existing decades of close industrial cooperation and adapted to current political and institutional realities.
Three steps would make an immediate difference.
Embracing Co-Production from the First Stages
First, co-production should be built into major programs from the outset, particularly in sectors such as munitions, shipbuilding, critical minerals, and advanced manufacturing. Too often, cross-border collaboration is introduced late, after requirements, sourcing assumptions, and workshare expectations have been finalized.
In the U.S.-Canadian context, that means running into predictable constraints tied less to formal restrictions than to how programs are structured — including congressional oversight, service-level acquisition decisions, and regional political pressures over where jobs and production will land. While the National Technology and Industrial Base framework mitigates many legal barriers, perception and implementation challenges remain. Designing programs with shared production roles from the beginning would not eliminate these constraints, but it would make them manageable by embedding binational sourcing and workshare expectations into acquisition strategies and program baselines before cost, schedule, and political considerations become fixed. This approach reduces the need for late-stage adjustments that are often more difficult to insert at that point in program execution.
Better Alignment of Demand Signals
Second, demand signals should be aligned more deliberately across the two countries. Recent collaboration has shown that alignment is possible at the central level — through mechanisms such as the Pentagon’s industrial base policy office and Defense Production Act authorities on the U.S. side, and counterparts in Canada such as Natural Resources Canada and the new Defence Investment Agency. These entities can coordinate capital and policy tools, as demonstrated by joint U.S.-Canadian investments in projects like Fireweed Metals. The United States has also stood up additional mechanisms — such as the Office of Strategic Capital (established in late 2022) and the Economic Defense Unit (officially launched in early 2026) — that could further support aligned investment, even as their cross-border application continues to evolve.
However, to fully realize the benefits of synchronized alignment, it should extend more consistently to the level where industrial outcomes are ultimately determined: programs. This should be done as the services build budgets, particularly through portfolio acquisition executives and program offices shaping sourcing decisions and production timelines. And multi-year procurement commitments — coordinated where possible — can provide the predictability needed to unlock private investment and scale production.
Achieving this level of alignment will require greater transparency and coordination in planning, particularly given differences in U.S.-Canadian budgeting and acquisition processes. Past coordinated investments illustrate that these challenges are real, but not insurmountable.
Addressing Barriers to Collaboration
Third, barriers to collaboration should be addressed through targeted, practical steps. While the National Technology and Industrial Base framework facilitates cross-border participation in procurement and industrial base investments, it does not eliminate key export control and security requirements. In the U.S.-Canadian context, barriers include restrictions on the transfer of technical data, technology-release decisions, classification and program-protection rules, and delays related to facility and industrial security approvals.
Importantly, the two countries already benefit from unique mechanisms such as the Canadian International Traffic in Arms Regulation exemption, which allows certain license-free transfers of unclassified defense articles and services to Canadian entities. However, this exemption is limited in scope and does not extend to many forms of technical data sharing or re-export to third countries, creating practical constraints for Canadian firms operating in global markets.
Rather than attempting to overhaul these systems, the United States and Canada should focus on streamlining processes within existing frameworks. This could include expanding the use of exemptions and fast-track approvals for trusted entities, standardizing timelines for technology-release and security review decisions, improving reciprocity and coordination in industrial security and facility clearances, and making more consistent use of existing industrial base mechanisms that already enable cross-border participation under the National Technology and Industrial Base framework. In parallel, contracting approaches can be adapted to better accommodate binational production, including clearer pathways for incorporating Canadian firms into U.S. programs. These are incremental steps, but taken together, they can significantly reduce friction without weakening necessary safeguards.
None of these steps will be easy. Political sensitivities around sovereignty, domestic jobs, and industrial policy remain significant in both countries, and current dynamics in Washington and Ottawa complicate deeper alignment. Advancing these targeted proposals will require clear messaging that frames cooperation not as a concession, but as a means of strengthening domestic industry, creating jobs, and improving national security on both sides of the border.
History suggests that durable advantage accrues not only to those with resources, but to those who can organize and mobilize them effectively into cooperative systems. The United States and Canada already possess the foundations of such a system. The opportunity is to move faster and further together.
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Christopher Zember has held senior executive positions in the Department of Defense, defense industry, and academia, and served on the International Security Council at the World Economic Forum. He is president of Z Factor, a defense strategy firm, and holds an adjunct faculty position at Johns Hopkins University. The views expressed are his own.
Jerry McGinn, Ph.D., leads the Center for the Industrial Base at the Center for Strategic and International Studies. He is a proven executive, thought leader, and former senior defense acquisition official.
Image: Petty Officer 2nd Class Nate Littlejohn via DVIDS.
