Trump’s first time ever use of Section 338 tariffs has raised risk to the defense investment sector because of the possible change in the Canadian F-35 future purchase decision.
This is an opinion piece. We do not forecast an outcome. We do assess a risk. Then we follow with supporting citations. My own conclusion is at the end.
Here’s the list of questions demanding contemplation.
Given what we know as of today, if you were in the defense procurement inner circle in Canada, would you advise your Prime Minister to proceed with the full order of the F-35, which ties you to dependency on Americans for spare parts and maintenance and upgrades for the next quarter century?
Or would you reconsider the plan to be fully integrated with the US defense operations and look for a European alternative for your new fighter?
Also, would you decide to split your decision into two separate planes?
No one knows the answers.
But the use of the Smoot-Hawley Section 338 tariff by Trump on Canada has triggered the previously unthinkable, with spillover effects that are huge. Ancillary damage originating in a Section 338-type tariff war is not just about a few dollars (whether American Ben Franklins or Canadian Loonies) collected by a customs agent at the border, but something far more significant.
Once settled, the multibillion-dollar procurement of 88 American-made F-35 fighter jets may be a casualty of Trump’s tariff war. Originally, Canada was to upgrade the entire Royal Canadian Air Force’s aging CF-18 fleet with F-35s, and now that plan is no longer a certainty.
Following the collapse of bilateral trade talks in Washington, President Trump invoked Section 338 of the Tariff Act of 1930, slapping 50% tariffs on up to $28 billion of Canadian goods. Ottawa has prepared the list to fire back with dollar-for-dollar retaliatory tariffs. The F-35 program is NOT subject to any tariff payment.
It has, however, has become Canada’s most potent non-tariff weapon. Domestic Canadian political figures, including British Columbia Premier David Eby, are openly pressuring the Prime Minister to ditch the American defense giant Lockheed Martin. They argue that Canada should not hand billions to a nation actively disrupting its economy.
Behind closed doors, the Canadian government is examining a delicate legal and strategic landscape. Ottawa is contractually locked into an initial purchase of 16 F-35A jets. They are in production. Funding is complete.
The remaining 72 uncontracted jets are now caught in a sweeping government review launched by Canadian Prime Minister Mark Carney. Canadian Defense Minister David McGuinty has refused to provide a public completion timeline. He is using the open review process as a crucial piece of leverage in broader economic negotiations.
It looks as if Canada seeks to break its historic dependence on US defense suppliers. That was 70% of Canada’s military spending. Potentially, not anymore.
Ottawa is aggressively exploring non-American alternatives. The Swedish-made Saab Gripen has emerged as the leading candidate to fulfill a “mixed fleet” strategy.
Saab is pursuing a savvy, mutually beneficial approach. They’re capitalizing on Carney’s “Buy Canadian” directive by offering full technology transfers and promising to build a dedicated domestic assembly line inside Canada. This approach allows Canada to steadily lay the groundwork to pivot away from Washington, threatening the future of the full 88-plane F-35 agreement and further future American purchases.
The pros and cons of the argument breakdown as follows.
Evidence favoring continuation of the F-35
1. Canada is legally and financially committed to the first 16 aircraft.
National Defence says Canada remains committed to acquiring the initial 16 F-35As. The first eight are scheduled for delivery to Luke Air Force Base for Canadian training, with the first aircraft expected in Canada in 2028.
(“Delivering Canada’s Future Fighter Jet Capability” | Canada.ca, House Committee on Public Accounts (PACP), Office of the Auditor General, Report 2.)
2. F-35 preparations are continuing while the review remains underway.
In April 2026, National Defence said the review was ongoing but that preparations for receiving and introducing the F-35 remained on track. It also said the CF-18 could not be extended beyond 2032 without risking a fighter-capability gap.
(National Defence testimony notes, April 27, 2026 | Canada.ca)
3. Canadian military officials reportedly favor retaining the entire F-35 purchase.
Reuters reported in August 2025 that the defense review made the case for continuing with 88 F-35s. Officials reportedly found no military benefit in splitting the fleet and warned about duplicated training, maintenance and logistics.
(“Canada defense review makes case for sticking with F-35 jets, sources say” | Reuters)
4. Canada continues buying equipment specifically compatible with the F-35.
In July 2026, the government announced approximately C$800 million for Joint Strike Missiles to be integrated into future Canadian fighters, explicitly including the F-35.
(“Prime Minister Carney secures new defence partnerships at the 2026 NATO Summit” | Prime Minister of Canada)
5. The F-35 already has a substantial Canadian industrial footprint.
According to National Defence, more than 110 Canadian companies have received over C$5.2 billion in F-35-related contracts. Abandoning the program could threaten some of that work, although the exact consequences would depend on Canada’s continued membership in the F-35 partnership.
Evidence supporting a Gripen or mixed-fleet outcome
1. The Canadian government has explicitly left other aircraft on the table.
Defense Minister David McGuinty told a Senate committee in April 2026 that aircraft from other countries were part of the review. Reuters identified Gripen as the principal alternative under discussion.
(“Canada is still reviewing plan to buy US fighter jets, defense minister says” | Reuters)
2. Canada’s official review includes the possibility of a mixed fleet.
National Defence’s briefing material says the review is examining “all options, including a mix of fighter aircraft.”
(“Delivering Canada’s Future Fighter Jet Capability” | Canada.ca, House Committee on Public Accounts (PACP), Office of the Auditor General, Report 2.)
3. Carney’s defense policy now gives more weight to Canadian production and strategic autonomy.
The February 2026 Defence Industrial Strategy directs the government to build in Canada when possible, partner with trusted allies and seek greater sovereign control over acquired systems.
“Prime Minister Carney launches Canada’s first Defence Industrial Strategy to strengthen security, create prosperity, and reinforce strategic autonomy” | Prime Minister of Canada
4. Canada is developing a much closer relationship with Saab.
Ottawa selected Saab as the preferred company for negotiations over the GlobalEye airborne surveillance system. The proposed arrangement includes Canadian-built Bombardier aircraft, Canadian mission work and technology transfer.
“The Government of Canada selects preferred supplier for Airborne Early Warning and Control discussions” | Canada.ca, Defense Investment Agency
5. Industry is preparing for possible Canadian Gripen sustainment.
In July 2026, GE Aerospace and Magellan Aerospace signed an agreement proposing Canadian maintenance and overhaul of the F414 engine used in the Gripen E, conditional on Canada purchasing the aircraft.
“GE Aerospace and Magellan Aerospace Sign Memorandum of Understanding for F414 Sustainment” | GE Aerospace
6. The new trade confrontation has increased political pressure.
British Columbia Premier David Eby publicly urged Ottawa to reconsider sending billions of dollars to an American fighter manufacturer while the United States imposes punitive tariffs on Canada.
“Eby urges Carney to put $12B US fighter-jet deal and American coal on the table” | MSN
A Gripen fleet would provide more Canadian assembly, greater access to technical data and less dependence on an American F-35 support system. But it would not provide complete independence from the United States. The Gripen E uses the American-made GE F414 engine and would retain some exposure to US components, weapons, and export controls.
More importantly, Canada would need to reconcile a new Gripen procurement and production schedule with the mandatory retirement of its CF-18s by 2032. A mixed fleet would also require separate training, maintenance, spare parts, software and logistics systems.
7. Pressure could cause lasting damage to our close U.S.-Canada relationship
William Reinsch argues that the breakdown of U.S.-Canada trade negotiations was “not a TACO moment,” meaning President Trump did not retreat from his tariff threat as many expected.
“Not a TACO Moment” | CSIS
Although Washington reportedly offered reductions on steel, aluminum, and automotive tariffs, Canada viewed the deal as inadequate and distrusted whether any U.S. commitment would remain final. Reinsch considers the American approach hypocritical and coercive: Washington condemned Canadian retaliation against unilateral U.S. tariffs, then answered it with still-higher tariffs.
Reinsch expects Trump to respond to Canada’s resistance by escalating rather than immediately backing down. He warns that continued pressure could undermine or effectively destroy the USMCA, and encourage Washington to pursue a separate arrangement with Mexico. His broader conclusion is that treating Canada more harshly than many U.S. adversaries is economically self-defeating and a serious strategic mistake.
In conclusion, here’s my best guess.
Trump has sufficiently poisoned the atmosphere to remove full Canadian dependency on the United States. But the Canadian military folks know that an integrated collective NORAD is in the interest of both countries. The American military folks are similarly aligned. They each don’t like this trade war, but they each are bound to serve their governments.
Canada is genuinely considering the Gripen, particularly as part of a mixed fleet. But the contractual commitment to the first 16 F-35s, the RCAF’s apparent preference, existing infrastructure, and the 2032 deadline make complete abandonment of the F-35 distinctly less likely.
I think the split fleet is coming. Saab will build a plant in Canada. Lockheed gets a smaller order. That is my opinion only. I think the US has bungled this badly. The section 338 tariff was and is a huge mistake.
Remember what we wrote on Sunday: “In a trade war the guns are pointed inward.”
Citation List
- “Will Canada cancel its order for US-made F-35 jets?” | DW News (August 28, 2026). Detailing the multi-billion-dollar scale of the deal, the threat to Arctic/NORAD defense, and the rising prominence of Sweden’s Saab Gripen as an alternative during the trade war.
- “Why Some in Canada Want Out of the F-35 Deal With the US“ | New York Times (August 27, 2026). Highlighting testimony from the US NORAD Commander regarding fourth-generation aircraft capabilities, Carney’s “Buy Canadian” push, and Saab’s domestic assembly line offer.
- “Canadian Premier Has 2 Ideas to Hit Back at Trump: F-35s and Coal“ | Business Insider (August 2026). Capturing BC Premier David Eby’s public demands to weaponize the F-35 deal in response to economic aggression.
- “Ottawa’s F-35 review ‘point of debate’ between Canada, U.S. as trade talks heat up: McGuinty“ | CP24 / CTV News (August 10, 2026). Reporting on the 16 jets locked into production, the lack of a timeline from Defense Minister David McGuinty, and US pushback regarding NORAD security.
- “Mark Carney’s defiance: Canada shows the world how to respond to Donald Trump’s threats“ | The Conversation (August 25, 2026).Documenting the collapse of the Washington trade negotiations and the immediate triggering of the Section 338 tariffs.
- “On Aug. 21, Canadian PM Mark Carney suspended trade negotiations…“ | Thinking Art on Facebook / Global Trade Updates (August 2026). Outlining the specific timelines, the 50% US tariff scope, and Canada’s upcoming September 8 dollar-for-dollar retaliatory package. See also “US hits Canada with 50% tariffs as Carney vows to retaliate” | Miami Herald.
- “Canada ready to further distance itself from US on military procurement“ | CBC News (August 29, 2026): Verifying the baseline financial commitment to the initial 16 jets, long-lead funding for 14 additional units, and the ongoing review of the remaining balance.
- “Canada to back out of F-35 deal with the US?“ | WION News (April 29, 2026).Outlining the initial roots of the defense review and structural concerns over defense industrial sector dependence on the United States.
- “Will Canada Pick Gripen Over F-35 After Latest Aircraft Deal with Sweden?“ | WION / Defense Analysis (June 1, 2026). Breaking down Saab’s previous multi-billion-dollar airborne early warning (GlobalEye) contract win over US competitors and the tactical pairing of the Gripen.
- “Ottawa’s F-35 review ‘point of debate’ between Canada, U.S. as trade talks heat up: McGuinty“ | BNN Bloomberg (August 10, 2026).Detailing the political background of the Liberal Party’s Defense Industrial Strategy to restrict the historical flow of 70 cents of every defense dollar to the US
- “Trump picked a trade fight with Canada. US defense firms may pay the price“ | The Hill (August 28, 2026). Documenting the collapse of trade talks over US demands for F-35 purchase guarantees and Canada’s long-term plan to pivot half a trillion dollars into domestic and non-US allied defense spending.
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