Canada is bolstering its defense industry as US relations fray. A boom
is on for local contractors
[August 28, 2026] By
KELVIN CHAN
TORONTO (AP) — As Canada moves to reduce its dependence on American
military suppliers, the push is on display inside a Toronto garment
factory.
Hunched over sewing machines, two workers rapidly stitch together pieces
of camouflage-patterned fabric and Velcro strips. In the next room,
workers snip stray threads as they inspect the finished product: helmet
covers for the Canadian military.
The factory is assembling uniforms for Wuxly, a luxury parka maker that
is among a flurry of Canadian companies branching into defense
contracting. As Canadian military spending surges, others are developing
remote sensors for the country's vast Arctic region, making drones to
resupply soldiers, and building autonomous robots.
The boom in the defense sector reflects Canadian Prime Minister Mark
Carney's vow to strengthen the country's economic self-sufficiency amid
fraying relations with Washington, including a fresh escalation this
week with new rounds of tariffs.
Canadian startups and established companies, alongside firms in Europe,
are set to benefit from tens of billions of dollars in extra defense
funding, driven partly by pressure from U.S. President Donald Trump to
contribute more to NATO. Canada's investment remains small compared with
the Pentagon's budget, but its strategy aims to boost domestic defense
capabilities, and not just U.S. contractors.
A country known for peacekeeping ramps up military spending
A defense industrial strategy released earlier this year by Carney
represents a generational shift for Canada, which invented modern
peacekeeping and had long been content to remain in the shadow of its
southern neighbor on defense matters.
The defense plan earmarks an additional $60 billion in funding over the
next five years, and the government has promised support for domestic
businesses to sell into defense and security supply chains. Currently,
Canada spends about $36 billion to $43 billion on national defense.
“The scale of investment that is involved is quite significant by
Canadian standards, certainly in peacetime,” said Philippe Lagassé, a
professor at Carleton University specializing in defense policy.
The defense 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, destined for the Canadian Armed Forces, allow
soldiers to attach call sign patches or gear like lights, cameras and
beacons. The company also makes military parkas and tank covers and has
been supplying Ukraine's military with gear, including 40,000 female
uniforms — one of the company's specialties.
Carney has called for upgrading the Canadian military’s Arctic
capabilities, increasing spending by tens of billions of dollars to
assert sovereignty over the vast but 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.
Canadian companies and European allies find new opportunities
A major part of the strategy is diversifying away from U.S. defense
contractors. It focuses on tapping a wider global pool of suppliers of
military hardware — and fostering domestic defense supply chains.
The strategy envisions investments amounting to more than half a
trillion dollars, creating 125,000 jobs and tripling the size of the
country’s defense industry over the next decade by steering contracts to
Canadian companies. It calls for accelerating research and development
and prioritizes developing key “sovereign capabilities” including
aerospace, robotics and unmanned systems.
As Canada pursues partnerships with other allies, in addition to the
United States, Ottawa has announced deals this year to buy radar planes
from Sweden’s Saab over American competitors and submarines from
Germany’s ThyssenKrupp.
[to top of second column] |
Volatus Aerospace COO Greg Colacitti inspects a heavy lift drone
before a test run on July 13, 2026, in Kleinburg, Ontario. (AP
Photo/Kelvin Chan)
 Canadian startups like New Frontier
Robotics also are lining up to play a part.
“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 company is working on a mobile manipulator robot — essentially a
robot arm on a mobile platform — powered by artificial intelligence
that could have both military and civilian applications, in what's
known as dual-use technology.
The initial plan was to target manufacturing, with robots working
autonomously between assembly lines, but potential customers
suggested there was also a growing need from the defense industry.
Robots could also be used for 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 is based temporarily at a
robotics lab at the University of Waterloo, about 60 miles (100
kilometers) west of Toronto.
Startups focus on products with versatility
Canada’s efforts to modernize its war machine still face big
potential challenges, including the risk that opposition parties
target Carney’s spending plans in future elections.
Companies that develop novel technologies could be lured to the U.S.
by its much larger defense market. It also will be tough for
Canadian companies competing against American counterparts with much
bigger research and development budgets that mean they are “always
going to be a bit more at the edge of the technological capability,”
Lagassé said.
Still, the strategy opens new possibilities for companies like drone
maker 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 said Canada has had limited manufacturing capability not just
for drones "but manufacturing capability in general.”
Like New Frontier, Volatus' technology is considered dual use.
Because Canada is technically not at war, companies can't rely on
selling exclusively to the military.
Volatus makes drones and related services for civilian and
commercial uses, such as air dropping medicine to isolated
communities. But it also has a defense unit and makes
first-person-view drones that take out targets by crashing into
them.
The company does some testing at a 100-acre site north of Toronto
accessed by an unmarked gravel road and surrounded by fields of
corn. Volatus employees demonstrated several aircraft on a recent
visit by The Associated Press.
The company showed off a drone with a 60-kilogram (132-pound)
payload slung underneath by cable, and a scaled-down drone with
tilt-wing rotors that can carry cargo over long distances. In a
demonstration, the drones operated autonomously and flew in a
circular pattern before landing.
One drone, dubbed the Canary, has 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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