Our pick of foreign investment review developments to watch in a tumultuous 2026:

  • Canada’s realpolitik response to 2025’s turbulence in international economic relations - seeking trade and investment agreements with a broader range of countries - may well lead to a diversification of sources of foreign investments in Canada and potentially more favourable reviews under the Investment Canada Act (ICA) for investments in certain sectors.
  • Recently articulated “economic security” concerns are unlikely to be a major hindrance to foreign investment in the current climate.
  • 2026 may see greater openness by the Canadian government to certain foreign state investments, but we expect close scrutiny to continue for investments in potentially sensitive businesses.
  • Investments in sectors such as critical infrastructure, critical minerals and sensitive technologies, even non-controlling investments, may face delays as Canada’s new pre-closing national security clearance goes into effect in 2026.

1. Realpolitik: Canada may re-calibrate its review of certain foreign investments

Canada’s relationship with its closest neighbour and other countries is rapidly evolving. Since the trade wars initiated by the US, the Canadian government has been navigating a volatile economic environment. Trade restrictions and strained relations can lead to lower investments due both to uncertainty and to changed investment incentives. The Canadian government has sought to counter US actions by diversifying its trade and investment relationships beyond the US. How will this affect Canada’s review of foreign investments?

Background

For the past four decades, Canada has generally taken a welcoming stance to foreign investment under the ICA. Few transactions have been rejected under the ICA’s “net benefit to Canada” review test. Moreover, there has been a sharp drop in the number of these ministerial reviews as the financial thresholds for review soared a decade ago.

By contrast, a national security review process established in 2009 has grown to become the predominant review process. Under this regime, the federal Cabinet can prohibit investments, authorize investments subject to terms and conditions or require divestitures where an investment has been completed. In addition, the responsible minister may negotiate undertakings from foreign investors to mitigate national security risk.

Enforcement of this regime has increased over the past decade reflecting a rise in the number of perceived threats to Canadian security. Unsurprisingly, investors from countries that have had strained or hostile relations with Canada have been subjected to elevated scrutiny, lengthy reviews and rejections or withdrawal decisions.

Realpolitik - Re-calibrating foreign investment review

There are signs, however, of a shift in Canada’s approach to foreign investment. With the seismic rupture in Canada’s economic relationship with its largest trading partner, the Canadian government is proactively and aggressively pursuing new sources of investment, not only from traditional partners but also from countries that it has in the past referred to as “non-likeminded.”

This shift reflects the realpolitik approach Canada is now pursuing to counter the impact of US trade measures - Prime Minister Carney’s strategy of taking the world “as it is” and not “as it should be.” This involves a reset away from “friendshoring” towards a more hard-nosed prioritization of economic interests.

This re-calibration is exemplified in the Canada-China Economic and Trade Cooperation Roadmap (the Roadmap) released in mid-January during Prime Minister Carney’s visit to China. The Roadmap highlights how Canada “welcomes Chinese investments in Canada” in energy, consumer products, agriculture and other sectors1” suggesting that in these sectors, Chinese investors will be more likely to receive more favourable reviews. Further, China and Canada agreed to increase transparency for foreign investment “in accordance with their domestic legal frameworks,” pointing to the potential for improved opportunities for Chinese investments in Canada.

This move to broaden Canada’s sources of investment - alongside more favourable outcomes in foreign investment review - also goes beyond China. The Canadian government recently entered a free trade agreement with Indonesia, and is aggressively pursuing trade and investment agreements with the Mercosur trade bloc in South America, India, the UAE and Qatar, among others.

Red light, green light - A case by case analysis

All that said, while a more positive relationship with China and other countries could mean more greenlit investments for their investors, the specific facts of each investment will determine the outcome. In particular, with respect to China:

  • It remains unlikely that Chinese investment will be permitted to invest in high risk businesses, such as those that involve the transfer of critically sensitive Canadian technology or sensitive personal data to China.2
  • Investments by Chinese investors in the targeted sectors of the Roadmap may be more readily approved - either because the potential harm from such investments is lower than other sectors or because the Canadian government would make greater efforts to resolve concerns through mitigation measures (e.g., security protocols).

Political interfacing in national security review: How do decisions relating to national security threats vary between governments and over time? Isn’t national security risk an objective, technical analysis?

National security decisions are taken by the federal Minister of Industry in consultation with the Minister of Public Safety and/or the federal Cabinet. As a political decision, there is significant leeway for other considerations to factor into the analysis - including Canada’s foreign relationships.3

This subjectivity is apparent when different governments come to different national security conclusions regarding the same investment. For example, in the 2015 O’Net/ITF Technologies transaction, the Conservative government led by Prime Minister Harper rejected the investment while the Liberal government led by Prime Minister Trudeau reversed that decision, authorizing it subject to conditions. In that case, the Liberal government consented to the Federal Court setting aside an order of the Harper Cabinet, despite the government having very broad discretion in national security matters.4 More recently, in January 2026, the Canadian (Trudeau) government’s November 2024 order to a Chinese-owned social media company to wind up its Canadian operations is now subject to re-consideration. Although this outcome was ordered by the Federal Court of Canada, it has been reported that the Canadian government under Prime Minister Carney agreed with the company to this review. The fact that this followed the Roadmap with China is likely no coincidence.

In summary, with Canada’s new focus on encouraging foreign investment, it is likely that in 2026 the Canadian government will exercise discretion to facilitate a smoother review of foreign investments from countries with which it has recently entered trade and investment agreements. However, this discretion is much less likely to be exercised in favour of investors from countries regarded as higher risk where the investment is in sensitive sectors (e.g., critical infrastructure, critical minerals, advanced technologies).

2. “Economic security” concerns not likely to be a major hindrance to foreign investment

In 2025, the Canadian government expressly recognized the national security risk presented by economic-based threats. In March 2025, when faced with a highly volatile tariff and trade environment, the Minister of Industry formally declared that “economic security is national security.” The Guidelines on the National Security Review of Investments were updated to “ensure that the ICA continues to be responsive to the evolving threat environment.” The national security risk factors set out in the Guidelines now expressly include whether an investment could undermine Canada’s “economic security” through the enhanced integration of the Canadian business with a foreign economy.

Under the economy security rubric, the government could consider whether an acquisition could shift jobs, research and development, head office functions, intellectual property ownership or key manufacturing operations abroad, potentially hollowing out domestic capability or resiliency.5 In applying this factor, the government has stated that it would consider, among other things, the size of the Canadian business targeted, its place in the innovation ecosystem and the impact on Canadian supply chains. The Canadian government might also consider whether a Canadian target was being acquired at a fire sale price due to the battering of the Canadian economy.

While Canada has the power to reject foreign investments where they would cause economic harm to the economy, will this be a factor that it will consider?

There is little doubt that the Canadian government would seriously scrutinize and potentially block an investment that would do unequivocal harm to the Canadian economy or an important sector. However, it is unclear how frequently this type of investment would arise. The type of circumstances where the ICA might be used to curtail an investment could arise where a Canadian business is being purchased only to shut it down or move it offshore. Apart from these types of scenarios, it seems doubtful that the Canadian government will regularly invoke economic security as the sole basis to reject foreign investments. With respect to US investors in particular, Canada would also no doubt consider the trade and diplomatic implications of “poking the bear” in a year when CUSMA (or USMCA as it is called in the US) is being negotiated.

3. Potentially modest increase in openness to foreign state investors in Canada in 2026 

National security risks are generally viewed as higher for state-owned investors from countries such as China, Russia and Iran. Indeed, in 2022, the Minister of Industry issued a statement indicating the Government would be closely scrutinizing investments by state-owned investors in Canadian critical minerals companies.6 In addition, amendments to the ICA in 2024 included a provision allowing the federal Cabinet to determine that a “net benefit to Canada” review could apply to investments by state-owned enterprises that did not meet the relevant financial threshold if such review were judged to be in the public interest. Although not yet in force, this amendment reflects ongoing concerns about foreign state ownership in the Canadian economy.

Based on the significant resources Canada is devoting to promoting foreign investment in Canada, will we see greater openness to state-owned investors?

As with private sector investment (discussed in Part 1 above), the Canadian government will consider each investment on its own merits, weighing the risk presented by the foreign state and the vulnerability of the target sector. For countries with which Canada is negotiating trade or investment agreements, we expect a greater spirit of openness to investment, including enhanced efforts to mitigate risk. At the same time, the Canadian government is unlikely to disregard well-known risks it associates with certain states if the target assets represent a national security vulnerability. In addition, while investors that are only partly owned by the state may raise fewer concerns depending on the control or influence exercised, the Canadian government has made it clear in its statements on critical minerals that it will heavily scrutinize private companies with close links to foreign states.

In this connection, it is notable that the Canadian government did not appear to blink when the US government announced it would purchase minority stakes in two Canadian critical mineral mining companies with operations in the United States: a 10% stake in Trilogy Metals which has an Alaskan project (copper, zinc)7 and a 5% interest Lithium Americas Corp., which is developing a lithium project in Nevada.8 Natural Resource Minister Tim Hodgson dismissed national security concerns, saying that “the positions are small and the United States is an ally.”9 Further, he noted for one of the transactions that the sole asset is in the US. It is likely, however, that the Canadian government would be less sanguine if the US took a controlling stake in Canadian companies with critical mineral assets in Canada.

4. Pre-closing national security clearance for sensitive sectors coming in 2026

2026 is expected to witness the establishment of a pre-closing filing and national security clearance requirement introduced in 2024 amendments to the ICA. This regime will be applicable not only to acquisitions of control but also to the purchase of non-controlling interests by foreigners who would have access to material information or assets of the target business and some influence over the target (e.g., a board seat). The pre-closing filing requirement will only apply to targets engaged in certain prescribed business activities. These are likely to include sensitive target sectors, such as critical minerals, critical infrastructure and advanced technology. The government is expected to provide investors with guidance on the prescribed business activity categories.

It is anticipated that the new regime, while not yet in effect, will be in force by mid-2026. Transactions subject to the new pre-closing clearance requirement will be unable to close until the national security review process has run its course (as opposed to the current scenario in which notifications are permitted post-closing). Given that the review process can take 200+ days (though may be completed more quickly), it could lead to major delays in deal timelines, even for minority investments. Moreover, if the prescribed business activities of the target are defined in an overly broad manner, the impact will be magnified. Given that there will be substantial penalties (of CA$500,000 or more) for a failure to file under the new process, merging parties will need to plan well ahead and consult with foreign investment counsel early on to assess national security risk and potential mitigating measures.