Canada is leveraging a bidding war for a $40 billion submarine contract to boost investment in its civilian sectors and reduce economic reliance on the United States. The contest pits South Korea’s Hanwha against a German-Norwegian team led by Thyssenkrupp, with final bids due next month.
The move comes as trade tensions with Washington have increased under President Donald Trump’s tariffs and threats related to the renegotiation of the US-Mexico-Canada free trade agreement (USMCA). Prime Minister Mark Carney’s government is seeking commitments beyond the defense contract itself, demanding to understand what additional benefits Germany and South Korea can offer Canada’s economy.
“Carney is capitalising on a unique moment of opportunity afforded to Canada by this bidding war,” said Xavier Delgado, a fellow at the Conference of Defence Associations Institute in Ottawa. “This represents his version of the art of the deal.”
The economic impact of US trade policies is already being felt. Official figures released on , showed Canada’s economy shed 24,000 jobs last month, with manufacturing being the hardest-hit sector. General Motors recently laid off hundreds of workers at its Ontario plant, with further job losses anticipated among parts suppliers.
This submarine project is part of Canada’s largest defense investment drive since World War II. Ottawa is also revisiting a contract to purchase 88 F-35 fighter jets from the US, as part of a broader plan to double trade with non-US partners over the next decade. The goal is to lessen dependence on the US economy.
“We have to do things differently,” stated Stephen Fuhr, Canada’s secretary of state for defence procurement, during a visit to Hanwha facilities in South Korea. “We’re still friends with the US and we’re still going to work with the US, but we’re just not going to be as reliant on them.”
Canada is actively seeking investment commitments beyond the defense sector. South Korea’s foreign minister Mélanie Joly reportedly solicited automotive investments from Hyundai, while also suggesting that Germany’s Volkswagen might be willing to offer more. Hyundai, however, stated it currently has no plans to establish vehicle manufacturing operations in Canada, but is “reviewing a range of co-operation opportunities, including potential collaboration in the hydrogen energy sector to support Canada’s clean energy transition.” Volkswagen declined to comment.
Hanwha Ocean has already responded to Canada’s demands, signing a C$345 million (US$253 million) memorandum of understanding with Ontario-based Algoma Steel to build a new steel beam mill. Algoma Steel recently laid off 1,000 workers due to the impact of US tariffs. Hanwha has also secured deals with Canadian companies in areas such as artificial intelligence, satellites, and software.
The Canadian submarine contract is strategically important for South Korea, which aims to become the world’s fourth-largest defense exporter. Peter Ward, a research fellow at the Sejong Institute think-tank in Seoul, noted that securing the deal would signal a serious commitment from Canada to focus on the Indo-Pacific region. Defense exports, alongside memory chips, represent a rare bright spot in South Korea’s economy, which faces increasing competition from China and the effects of US tariffs.
“They really want this a lot,” said Ward.
For Thyssenkrupp Marine Systems (TKMS), the contract is also critical, as the company produces highly sensitive defense technology at a time when Europe, like Canada, is seeking to reduce its reliance on the US. Germany is proposing to integrate Canada into an existing submarine partnership with Norway, involving joint training, logistics, and operations of TKMS’s Type 212CD submarines designed for Arctic conditions.
German Defence Minister Boris Pistorius, during a visit to Ottawa with his Norwegian counterpart Tore Sandvik, emphasized the long-term benefits of cooperation. “We are not just talking about just selling a certain number of submarines,” Pistorius said. “It’s about co-operation over decades.” Sandvik added, “We’re trying to bring Canada into this partnership, so we’ll have an Arctic and northern common fleet. Hopefully they will buy German submarines and not Korean submarines.”
Delgado noted the advantage of Germany being a NATO member, but also highlighted the compelling package offered by South Korea, which includes partnerships with multiple Canadian technology and industrial companies. A source familiar with Ottawa’s thinking indicated that South Korea would need to demonstrate a willingness to upgrade its relationship with Canada, including increased military cooperation and interoperability, to win the contract.
A Canadian military official suggested that “any submarine is better than no submarine,” emphasizing that Hanwha’s potentially faster production timeline could deliver boats more quickly than its German counterpart. Richard Shimooka, a defence researcher at the Macdonald-Laurier Institute in Ottawa, observed that “Canada’s military ranks are frustrated because these large defence tenders become more about employment and politics rather than fixing the immediate security deficit.”
Despite these concerns, Fuhr reiterated that the submarine decision “will come down to the one that presents the best economic opportunity.”
