United States President-elect Donald Trump demands that allies should spend 5% of nominal gross domestic product on defence, noted Scotiabank.

Canada spends about 1.25%. It should spend more and live up to its NATO commitment to spend 2%, maybe a touch more, but 5% seems too high to the bank.

Canada presently spends around C$40 billion/year on defence. To raise this to 2% using the estimate for 2024 NGDP would equal over $60 billion/year if implemented overnight, while Canada has pledged to do so only by 2032, said Scotiabank. If NGDP rises at a trend rate of 4% on average 2-- % in real terms plus 2% inflation -- over the next eight years then the annual defence budget by that point will have to rise to over C$80 billion to hit the 2% pledge.

If 3% were to be targeted, then it would mean C$90 billion/year if implemented overnight, or C$125 billion/year if achieved by 2032. If Trump's 5% demand were to be met, it would mean an "astounding" C$150 billion/year spent on defence is implemented overnight versus about C$210 billion/year if implemented by 2032, pointed out the bank.

In other words, whether implemented overnight or phased in by 2032, Canada's defence spending over a full decade would have to rise to between C$1.5 trillion-C$2.0 trillion. That in what is presently about a C$3 trillion economy in nominal GDP terms. It is "not gonna happen," stated Scotiabank.

It's especially not going to happen if "crushing" U.S. tariffs are implemented, according to the bank. The deficit would blow out by tens of billions per year.

All hands would be on deck in crisis management mode with no room for defence. In fact, the risk is more pointed toward putting defence on the chopping block in a dire tariff scenario. It's a question of "jobs over guns," added Scotiabank.