The $41 Billion Submarine: What It Means for Canada-Korea Business
# The $41 Billion Submarine: What It Means for Canada-Korea Business
Canada is about to make the largest single defense procurement decision in its history. The Canadian Patrol Submarine Project (CPSP), valued at up to $45 billion CAD over its full lifecycle, will replace Canada's aging Victoria-class submarine fleet with up to 12 new conventionally powered submarines. As of early 2026, the competition has narrowed to two finalists: South Korea's Hanwha Ocean, offering the KSS-III Batch-II, and Germany's ThyssenKrupp Marine Systems (TKMS), offering the Type 212CD.
A decision could come as early as April 2026.
This is not just a defense story. It is the most significant potential inflection point in the Canada-Korea bilateral economic relationship since the Canada-Korea Free Trade Agreement (CKFTA) entered into force in 2015. A Korean win -- or even a split decision -- would catalyze billions of dollars in industrial partnerships, create thousands of Canadian jobs, integrate Canadian firms into Indo-Pacific supply chains, and transform the business relationship between the two countries in ways that extend far beyond submarines.
This article provides the deepest analysis available of what the CPSP means for Canada-Korea business, including economic modeling of the Korean win scenario, supply chain mapping, job creation projections, and the second-order effects that most observers are missing.
---
Key Takeaways
---
Part 1: The CPSP -- Background and Current Status
Why Canada Needs New Submarines
Canada's current submarine fleet consists of four Victoria-class submarines, originally built in the UK as the Upholder class in the late 1980s and early 1990s. Canada acquired them from the UK in 1998. The fleet has been plagued by maintenance issues, and the submarines are approaching the end of their operational life.
Canada has the longest coastline of any country on Earth (243,000 km), stretching across three oceans -- the Atlantic, Pacific, and Arctic. The growing strategic importance of the Arctic, combined with increasing submarine activity by Russia and China in waters adjacent to Canada, has made submarine replacement a national security priority.
The CPSP was formally launched in 2023 to acquire up to 12 new conventionally powered submarines. The project moved through an initial Request for Information phase and a down-select process that narrowed the field from several international competitors to two finalists in August 2025.
The Two Finalists
Hanwha Ocean (South Korea) -- KSS-III Batch-II
The KSS-III (Korean Submarine Sonar System III) is South Korea's most advanced domestically designed and built submarine class. The Batch-II variant, proposed for Canada, is a 3,600-ton diesel-electric submarine with:
Hanwha Ocean is part of Hanwha Group, one of South Korea's largest conglomerates, with growing defense and industrial footprints worldwide. Hanwha's bid emphasizes speed of delivery -- with the first submarine potentially delivered by 2032 and four boats by 2035 -- and deep integration with Canadian industry.
ThyssenKrupp Marine Systems (Germany) -- Type 212CD
The Type 212CD is a next-generation variant of Germany's proven Type 212A submarine, co-developed with Norway. Key features include:
TKMS's bid emphasizes European alliance integration and the submarine's NATO interoperability credentials.
The Split-Order Scenario
In early 2026, reporting by Army Recognition and other defense outlets indicated that Canada is considering splitting its planned purchase of 12 submarines equally between the two competitors -- six from Hanwha Ocean and six from TKMS ([Army Recognition](https://www.armyrecognition.com/news/navy-news/2026/canada-considers-split-purchase-of-12-submarines-between-germany-and-south-korea)). This approach would diversify supply chain risk but increase program complexity and potentially costs.
---
Part 2: Economic Modeling -- The Korean Win Scenario
Direct Economic Impact
The acquisition phase alone -- purchasing up to 12 (or 6 in a split scenario) submarines -- represents a contract value in the range of $20-24 billion CAD for a full Korean award, or approximately $10-12 billion CAD for a split order.
Under Canada's Industrial and Technological Benefits (ITB) Policy, the winning contractor must generate Canadian economic activity equal to 100% of the contract value. This means a full Korean win would obligate Hanwha to direct $20-24 billion in industrial activity to Canadian companies over the life of the program.
| Scenario | Contract Value (CAD) | Required Canadian ITB | Estimated Peak Jobs | |----------|---------------------|----------------------|-------------------| | Full Korean win (12 submarines) | $20-24 billion | $20-24 billion | 12,000-16,000 | | Split order (6 Korean submarines) | $10-12 billion | $10-12 billion | 6,000-9,000 | | Full German win (0 Korean submarines) | $0 (Korean portion) | $0 | N/A |
Job Creation Projections
Defense shipbuilding programs are among the most labor-intensive industrial activities. Based on comparable international submarine programs and defense procurement job multiplier data, we project the following employment impacts for a full Korean win:
| Job Category | Estimated Direct Jobs | Estimated Indirect Jobs | Timeline | |-------------|----------------------|------------------------|----------| | Shipyard and assembly | 3,000-4,000 | 2,000-3,000 | 2027-2040 | | Supply chain manufacturing | 2,000-3,000 | 1,500-2,500 | 2028-2042 | | Engineering and design | 1,000-1,500 | 500-1,000 | 2026-2035 | | Maintenance and sustainment | 1,500-2,500 | 1,000-2,000 | 2032-2065 | | Total (peak year estimate) | 7,500-11,000 | 5,000-8,500 | -- |
These jobs would be concentrated in shipbuilding regions (likely Nova Scotia, British Columbia, or Quebec), but supply chain manufacturing and engineering jobs would be distributed across the country.
The 30-Year Tail
The full lifecycle cost of the CPSP -- including acquisition, maintenance, repair, and operations over 30 years -- is estimated at $40-45 billion CAD. The maintenance and sustainment phase, which begins with the delivery of the first submarine and extends for three decades, represents the majority of the program's total economic impact.
For a Korean win, this means:
---
Part 3: Supply Chain Mapping
Hanwha's Canadian Industrial Partnerships
Since 2023, Hanwha Ocean has systematically built an industrial partnership network in Canada. As of early 2026, the company has signed Teaming Agreements and Memorandums of Understanding with more than a dozen Canadian companies ([Esprit de Corps](https://www.espritdecorps.ca/feature/purchase-of-korean-submarine-will-open-up-new-security-and-economic-opportunities-for-canada)):
| Canadian Partner | Area of Expertise | Potential Contribution | |-----------------|-------------------|----------------------| | Babcock Canada | Marine services, fleet maintenance | In-service support, dockyard operations | | CAE | Simulation and training | Submarine crew training systems | | BlackBerry | Cybersecurity | Secure communications, cyber defense | | L3 Harris | Defense electronics | Combat systems, sensors | | Curtiss-Wright Indal Technologies | Shipboard equipment | Submarine mechanical systems | | Gastops | Monitoring systems | Equipment health monitoring | | J Squared Technologies | Engineering services | Design and integration | | Des Nedhe Group | Indigenous-owned business | Industrial services, economic inclusion | | Modest Tree | Extended reality (XR) | Maintenance and training applications |
This is not a theoretical exercise. Hanwha has visited hundreds of Canadian companies and has conducted detailed supply chain assessments to identify components and systems that can be sourced from Canadian manufacturers.
Supply Chain Tiers
A submarine program of this scale creates economic activity across multiple supply chain tiers:
Tier 1 -- Major Systems Integrators
Tier 2 -- Subsystem Suppliers
Tier 3 -- Component Manufacturers
Tier 4 -- Raw Materials and Services
For each tier, Canadian companies have the opportunity to compete for work packages, with the ITB policy ensuring that a significant portion of this work flows to Canadian firms.
The Indo-Pacific Integration Advantage
One of the most significant -- and underappreciated -- aspects of a Korean win is the potential for Canadian firms to integrate into the broader Indo-Pacific shipbuilding industrial ecosystem.
South Korea is the world's largest shipbuilding nation, with Hanwha Ocean, HD Hyundai Heavy Industries, and Samsung Heavy Industries collectively holding approximately 40% of global commercial shipbuilding orders. A defense partnership with Hanwha Ocean would give Canadian suppliers access to this broader industrial ecosystem, enabling them to compete for commercial shipbuilding and marine engineering contracts beyond the CPSP.
This contrasts with the German option, where Canadian suppliers would gain access to a smaller, primarily European shipbuilding network.
---
Part 4: Second-Order Effects on Non-Defense Sectors
The CPSP's impact will extend far beyond defense procurement. A Korean win would generate cascading effects across the entire Canada-Korea business relationship.
Trade Acceleration
The CKFTA has already eliminated tariffs on 99% of Canadian exports to Korea. But trade agreements create the legal framework; major bilateral projects create the relationships and infrastructure that actually drive trade volumes.
| Sector | Current Canada-Korea Trade | Potential CPSP Acceleration Effect | |--------|---------------------------|----------------------------------| | Agri-food | ~$2 billion/year | Korean partners in defense → Korean interest in Canadian food supply | | Natural resources | ~$3 billion/year | Shipbuilding materials, specialty metals sourcing | | Technology | ~$500 million/year | Defense tech partnerships → commercial tech collaboration | | Services | Growing | Engineering, cybersecurity, simulation services for Korean defense sector | | Clean energy | Nascent | Submarine propulsion R&D → hydrogen fuel cell collaboration |
Investment Flows
A major defense procurement relationship would increase Korean corporate confidence in Canada as an investment destination. Hanwha Group alone has significant non-defense businesses -- including solar energy (Hanwha Q Cells), petrochemicals, and financial services -- that could expand their Canadian footprints following a defense anchor investment.
Other Korean conglomerates -- Samsung, LG, SK, Hyundai -- would also take note. A government-to-government defense relationship signals strategic alignment and political stability, reducing perceived country risk for Korean investors.
Talent Mobility
The CPSP would require the movement of engineers, technicians, and project managers between Canada and Korea. This bilateral talent flow would:
Technology Transfer
Submarine construction involves some of the most advanced engineering disciplines: acoustic stealth, materials science, power systems, autonomous systems, and cybersecurity. Technology transfer agreements associated with the CPSP would bring Korean expertise in these areas to Canada, with spillover effects for Canadian commercial technology sectors.
Areas of potential technology transfer include:
The "Halo Effect" on Small and Medium Enterprises
Perhaps the most significant second-order effect is the awareness and relationship-building impact on Canadian small and medium enterprises (SMEs). The CPSP process has already introduced hundreds of Canadian companies to Korean industry through Hanwha's supply chain engagement. Even companies that do not win CPSP contracts gain:
This "halo effect" could prove more valuable than the direct defense contracts for the long-term Canada-Korea business relationship.
---
Part 5: Risk Factors and Scenarios
Scenario Analysis
| Scenario | Probability (Estimated) | Impact on Canada-Korea Business | |----------|------------------------|-------------------------------| | Full Korean win (12 submarines) | 20-25% | Transformative -- generational shift in bilateral relationship | | Split order (6 Korean, 6 German) | 35-40% | Significant -- establishes defense corridor, smaller scale | | Full German win | 25-30% | Negative short-term -- but CKFTA and commercial ties continue | | Program delay or restructuring | 10-15% | Neutral -- defers impact but does not eliminate opportunity |
Political Risks
Technical Risks
---
Part 6: What Canadian Businesses Should Do Now
For Companies in the Defense Supply Chain
1. Register with the ITB portal -- Ensure your company is listed in Canada's Industrial and Technological Benefits database. 2. Engage with Hanwha directly -- Attend Hanwha Ocean's Canadian industry events and submit capability statements. 3. Assess your submarine-relevant capabilities -- Even if your products are not traditionally "defense," submarine construction requires thousands of commercial components. 4. Explore Korean defense certifications -- Understanding Korean defense procurement standards positions you for broader Korean defense business beyond CPSP.
For Companies in Adjacent Sectors
1. Monitor the decision -- A Korean win or split order will signal expanded bilateral opportunities across multiple sectors. 2. Leverage CKFTA -- Use the free trade agreement to begin or expand Korean market engagement now, building relationships that will deepen if the CPSP goes Korean. 3. Explore Korean investment attraction programs -- Korean government agencies like KOTRA and Invest Korea offer support for bilateral business development. 4. Build Korean market knowledge -- The companies that benefit most from the CPSP's second-order effects will be those already positioned in the Korean market.
For Policy Makers and Trade Associations
1. Advocate for transparent ITB delivery -- Ensure that ITB commitments are tracked, reported, and enforced. 2. Support bilateral talent mobility -- Work toward expanded visa and work permit arrangements for technical professionals. 3. Invest in Korean language and cultural competency -- Canada's defense workforce will need Korea expertise regardless of the CPSP outcome. 4. Create Korea-focused trade missions -- Complement the defense relationship with commercial trade promotion.
---
Conclusion: More Than Submarines
The CPSP is, on its surface, a submarine procurement program. But its implications extend far beyond the hulls that will eventually slide into the water.
For the Canada-Korea business relationship, the CPSP represents a potential step-change -- the kind of anchor project that transforms bilateral trade from a collection of individual transactions into a deep, multi-layered economic partnership. The companies, technologies, talent, and relationships that emerge from this project will shape Canada-Korea commerce for decades.
Whether the final decision favors Korea, Germany, or both, the CPSP has already achieved something important: it has forced Canadian businesses and policy makers to look seriously at Korea -- a $1.86 trillion economy with world-leading technology, a free trade agreement with Canada, and a growing appetite for strategic partnerships.
The submarine decision matters enormously. But the relationship it represents matters even more.
---
About Rise Partners
Rise Partners is Canada's specialized Korea market entry advisory firm. We help Canadian companies understand and enter the Korean market across all sectors -- from defense supply chains to consumer brands. Our team combines deep Korean market expertise with Canadian business understanding to bridge the gap between these two economies.
Want to understand what the CPSP means for your business? [Contact Rise Partners](https://riseholdings.ca/contact) for a strategic assessment of your Korea opportunity.
---