The defense issue had slumbered since the Boer War. Now the unbounded ambitions of Germany gave it startling urgency. It was about 1908 that the British public first became seriously alarmed over the danger involved in the lessening margin of superiority of the British over the German navy. The alarm was echoed throughout the Dominions. The Kaiser's challenge threatened the safety not only of the mother country but of every part of the Empire. Hitherto the Dominions had done little in the way of naval defense, though they had one by one assumed full responsibility for their land defense. The feeling had been growing that they should take a larger share of the common burden. Two factors, however, had blocked advance in this direction. The British Government had claimed and exercised full control of the issues of peace and war, and the Dominions were reluctant to assume responsibility for the consequences of a foreign policy which they could not direct. The hostility of the British Admiralty, on strategic and political grounds, to the plan of local Dominion navies, had prevented progress on the most feasible lines. The deadlock was a serious one. Now the imminence of danger compelled a solution. Taking the lead in this instance in the working out of the policy of colonial nationalism, Australia had already insisted upon abandoning the barren and inadequate policy of making a cash contribution for the support of a British squadron in Australasian waters and had established a local navy, manned, maintained, and controlled by the Commonwealth. Canada decided to follow her example. In March, 1909, the Canadian House of Commons unanimously adopted a resolution in favor of establishing a Canadian naval service to cooperate in close relation with the British navy. During the summer a special conference was held in London attended by ministers from all the Dominions. At this conference the Admiralty abandoned its old position; and it was agreed that Australia and Canada should establish local forces, cruisers, destroyers, and submarines, with auxiliary ships and naval bases.

When the Canadian Parliament met in 1910, Sir Wilfrid Laurier submitted a Naval Service Bill, providing for the establishment of local fleets, of which the smaller vessels were to be built in Canada. The ships were to be under the control of the Dominion Government, which might, in case of emergency, place them at the disposal of the British Admiralty. The bill was passed in March. In the autumn two cruisers, the Rainbow and the Niobe, were bought from Britain to serve as training ships. In the following spring a naval college was opened at Halifax, and tenders were called for the construction, in Canada, of five cruisers and six destroyers. In June, 1911, at the regular Imperial Conference of that year, an agreement was reached regarding the boundaries of the Australian and Canadian stations and uniformity of training and discipline.

Then came the reciprocity fight and the defeat of the Government. No tenders had been finally accepted, and the new Administration of Premier Borden was free to frame its own policy.

The naval issue had now become a party question. The policy of a Dominion navy, a policy which was the logical extension of the principles of colonial nationalism and imperial cooperation which had guided imperial development for many years, was attacked by ultra-imperialists in the English-speaking provinces as strategically unsound and as leading inevitably to separation from the Empire. It was also attacked by the Nationalists of Quebec, the ultra-colonialists or provincialists, as they might more truly be termed, under the vigorous leadership of Henri Bourassa, as yet another concession to imperialism and to militarism. In November, 1910, by alarming the habitant by pictures of his sons being dragged away by naval press gangs, the Nationalists succeeded in defeating the Liberal candidate in a by-election in Drummond-Arthabaska, at one time Laurier's own constituency. In the general election which followed in 1911, the same issue cost the Liberals a score of seats in Quebec.

When, therefore, the new Prime Minister, Sir Robert Borden, faced the issue, he endeavored to frame a policy which would suit both wings of his following. In 1912 he proposed as an emergency measure to appropriate a sum sufficient to build three dreadnoughts for the British navy, subject to recall if at any time the Canadian people decided to use them as the nucleus of a Canadian fleet. At the same time he undertook to submit to the electorate his permanent naval policy, as soon as it was determined. What that permanent policy would be he was unwilling to say, but the Prime Minister made clear his own leanings by insisting that it would take half a century to form a Canadian navy, which at best would be a poor and weak substitute for the organization the Empire already possessed. The contribution to the British navy satisfied the ultra-imperialists, while the promise of a referendum and the call for money alone, and not men, appealed to the Nationalist wing. Under the impetuous control of its new head, Winston Churchill, the British Admiralty showed that it had repented its brief conversion to the Dominion navy policy, by preparing an elaborate memorandum to support Borden's proposals, and also by formulating plans for imperial flying squadrons to be supplied by the Dominions, which made clear its wish to continue the centralizing policy permanently. The Liberal Opposition vigorously denounced the whole dreadnought programme, advocating instead two Canadian fleet units somewhat larger than at first contemplated. Their obstruction was overcome in the Commons by the introduction of the closure, but the Liberal majority in the Senate, on the motion of Sir George Ross, a former Premier of Ontario, threw out the bill by insisting that it should not be passed before being "submitted to the judgment of the country." This challenge the Government did not accept. Until the outbreak of the war no further steps were taken either to arrange for contribution or to establish a Canadian navy, though the naval college at Halifax was continued, and the training cruisers were maintained in a half-hearted way.