At the end of May, a South Korean attack submarine entered Victoria Harbor, British Columbia, as a floating commercial proposal for one of the largest military contracts in Canadian history. A few days later in Ottawa, Germany’s defense minister stood alongside his Canadian counterpart, advocating for a different approach: the future of the Canadian fleet lies in closer cooperation with Europe and the use of a German-made submarine.
Canada is nearing a decision on the winner of a contract to build up to a dozen vessels, with significant political and financial stakes. One executive involved in the process estimates that the contract could ultimately exceed 100 billion Canadian dollars (70.4 billion US dollars) when factoring in decades of support and maintenance. David Perry, president of the Canadian Global Affairs Institute, suggests that the total cost could approach 120 billion Canadian dollars when considering long-term operation and maintenance.
Prime Minister Karney’s strategy and economic benefits
The submarine decision tests Prime Minister Mark Karney’s strategy of leveraging new foreign policy and defense spending to achieve economic benefits. The former central bank chief took office last year, convincing voters that he could shield Canada from tariff threats by President Donald Trump by fostering stronger global relationships.
Significant investments in military equipment and personnel mark a sharp departure from the approach of his predecessor, Justin Trudeau. Karney aims to transform these expenditures into investments and job creation in manufacturing and technology. His cabinet is urging both the Germans and South Koreans to provide attractive additional terms in their bids, such as investments in the automotive sector, which could help Canada mitigate the economic fallout from Trump’s trade war. Like all political strategies, this approach involves compromises.
Competition between Asian power and NATO allies
The submarine decision compels Karney to choose between a rising Asian economic power, with which Canada seeks closer ties, and long-standing NATO allies. This choice will impact the country’s military capabilities, industrial base, and alliances for decades to come.
For months, Canada has been courted by South Korean firms Hanwha Ocean Co. and HD Hyundai Heavy Industries Co., competing against a German-Norwegian consortium led by Thyssenkrupp Marine Systems (TKMS). Both bidders have presented comprehensive proposals that extend well beyond the submarines themselves. Two distinct visions have emerged: Hanwha offers a submarine design already in service, promising faster delivery—a claim it underscored by mooring its KSS-III in Victoria that day.
TKMS’s bid, centered on the Type 212CD submarine being developed by Germany and Norway, emphasizes operational compatibility with NATO allies and a deeper strategic alignment with Europe. This message was reinforced in Ottawa by German Defense Minister Boris Pistorius. The German government is optimistic that Canada will select their offer, and that Pistorius’s lobbying efforts will prove effective, according to a source familiar with the situation who was not authorized to speak publicly.
South Korean President Lee Jae-myung also discussed the deal with Karney but told reporters that he “could not really assess the outcome.” “Overall, expectations are quite high, but it is not easy to be optimistic,” Lee said. “It was very difficult to get a clear picture of the situation.”
Source: Bloomberg