Canada is staring down a humiliating truth: a country with the world’s longest coastline across three oceans can’t reliably patrol them—because its submarine fleet is basically falling apart.

That embarrassment is now powering one of the most aggressive, headline-grabbing negotiations in modern defense history.

The prize? A $100 billion submarine contract—potentially the biggest defense deal Canada has ever signed. But here’s the twist that has diplomats and CEOs sweating: Ottawa isn’t treating this like a normal military purchase.

Canada is treating it like leverage. Like a weapon. Like a bargaining chip to rebuild an economy battered by tariffs and industrial decline.

In late January 2026, South Korea made its move. Seoul sent its presidential chief of staff to Ottawa alongside major defense and industrial giants—including Hanwha and Hyundai—in a full-blown “sales diplomacy” blitz.

They weren’t casually pitching submarines. They were fighting for a contract that could open the door to decades of Western defense expansion.

But Canada didn’t respond with polite interest.

Canada responded with a demand that shocked everyone:
“We want more than submarines.”

Ottawa allegedly told bidders, in effect: if you want this contract, you will help reshape Canada’s industrial future. That means auto manufacturing commitments, major steel investment, and job creation on a scale normally promised in election campaigns—not procurement meetings.

This wasn’t just unusual. It was almost unheard of. Submarines weren’t the end goal anymore. They became the negotiating tool.

Why Canada is desperate—and why the clock is ticking

The Royal Canadian Navy currently operates four Victoria-class submarines bought secondhand from Britain in 1998—and even then, they were already old, built in the 1980s. Today, only one of the four is truly operational. The rest sit in ongoing repair cycles.

Canada plans to retire them by the mid-2030s and wants its first new submarine by 2035. Miss that window, and Canada faces a nightmare scenario: a submarine capability gap, meaning years with no effective underwater defense at all—at the exact moment the Arctic is becoming a contested zone.

And the Arctic isn’t a distant issue anymore. It’s warming fast, opening routes like the Northwest Passage, pulling in foreign activity, and raising sovereignty alarms. Submarines are one of the only tools that can quietly monitor underwater movements without advertising their location.

Two finalists. Two visions. One explosive bidding war.

By August 2025, Canada narrowed the field to two finalists:

• Germany’s Thyssenkrupp Marine Systems (TKMS) with the Type 212CD: smaller, extremely quiet, designed for stealth and Arctic operations, with air-independent propulsion for long submerged endurance.

• South Korea’s Hanwha Ocean with the KSS-III Batch 2: bigger, longer-range, and the jaw-dropper—a 10-cell vertical launch system capable of firing cruise missiles, giving it a strike capability rare for conventional submarines.

On paper, both meet Canada’s needs. In reality, Canada is forcing both into a totally different contest: Who can rebuild Canadian manufacturing the most?

The demand that changed everything: “Bring us car plants.”

In early January 2026, reports emerged that Canada put a stunning condition on both bidders: auto industry commitments must be part of the deal.

Canada reportedly pushed South Korea to get Hyundai to establish production in Canada—and asked Germany to expand Volkswagen operations as part of its pitch.

South Korea’s presidential chief of staff, Yong Huk, publicly confirmed the pressure, saying Canada’s industry minister Melanie Joly directly sought Hyundai investment to offset the submarine purchase. The message, bluntly framed: “We are buying weapons—and this is what we require.”

What’s driving this hardball approach? Tariffs. Pain. Politics.

The transcript points to 25% U.S. tariffs hammering Canadian goods and disrupting the integrated North American auto system. Plants have closed. Jobs have disappeared. Communities built around manufacturing are staring into uncertainty.

Canada’s auto employment has reportedly dropped around 30% in recent years. Of nine major assembly plants from the year 2000 era, four shut down entirely, three sit idle, and only two are actively building vehicles. The “traditional backbone” of Canadian manufacturing has weakened—and Ottawa knows it.

Now combine that with Canada’s pledge to spend 5% of GDP on defense by 2035, which Prime Minister Mark Carney says could cost about $150 billion annually. That kind of spending creates political pressure: voters won’t accept that money flowing out without visible domestic benefits.

So Canada’s stance is simple: defense spending must double as economic revival.

South Korea’s counterattack: steel money, partnership deals, and a persuasion offensive

South Korea came back with a full-court press. On January 26, 2026, a massive delegation arrived—including senior defense executives and Hyundai leadership.

Hyundai’s executive chair Chung Eui-sun personally joined, signaling that Ottawa’s auto demand was taken seriously even if Hyundai publicly claimed no current plan for a Canadian factory.

Hanwha announced a major deal with Algoma Steel in Sault Ste. Marie, Ontario: a reported $345 million investment including $275 million for a new structural steel beam mill—plus commitments to buy Canadian steel for submarine construction and maintenance.

Translation: Hanwha targeted a tariff-hit company where layoffs loomed and basically told Canada, “Pick us, and we’ll revive your industrial towns.”

Hanwha also signed memorandums with Canadian firms like Telesat, MDA Space, AI startup Cohere, and optics firm PV Labs, and planned an Ottawa office in February 2026. Even its Canadian CEO pick—Glenn Copeland, a former Royal Canadian Navy officer—was a symbolic move: “We speak your language.”

KPMG estimated Hanwha’s plan could generate over 200,000 person-years of employment from 2026–2040—an eye-popping number that sounds exactly like what Ottawa wants… and exactly what skeptics will challenge.

Germany fires back with a long-game offer: Europe, minerals, and a 50-year partnership

Germany isn’t surrendering. TKMS CEO Oliver Burkhard signaled a multi-billion-dollar package could include rare earth mining, AI, and battery production.

More dramatically, German officials floated a 40–50 year tri-navy partnership with Germany, Norway, and Canada—co-designing, building, maintaining, and potentially even jointly crewing submarines.

That’s not just procurement. That’s a shift in Canada’s entire defense alignment—deeper into Europe, potentially less dependent on Washington.

TKMS also signed an agreement with a Vancouver shipyard to set up West Coast submarine maintenance facilities, with talk of building some parts in Canada—though Ottawa reportedly doubts Canada has the capacity to do much of the construction domestically.

The real “$100B question” isn’t submarines. It’s Canada’s identity.

This deal is colliding with massive geopolitical turbulence. The transcript describes Canada signing a preliminary trade agreement with China on January 16, 2026, allowing up to 49,000 Chinese EVs annually at lower tariffs—while China reduced tariffs on Canadian agricultural exports.

Trump reportedly responded with threats of 100% tariffs on all Canadian goods, accusing China of “buying” Canada. Carney’s willingness to defy Washington signals a broader shift: Canada diversifying its trade and security relationships—and the submarine deal fits that pattern perfectly.

By March 2026, both bidders are expected to submit full proposals. The navy hopes for a decision by the end of 2026. And whichever country wins won’t just deliver submarines—it may lock in a defense-industrial relationship into the 2080s.

Canada is gambling that it can buy submarines and buy back industrial power at the same time.

The world is watching to see whether that’s brilliant… or a disaster waiting to happen.