Macro & Strategy - February 2026

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Livin ’ on the edge

The Donroe Doctrine, Canada, NATO, and your portfolio

“There’s something right with the world today,
And everybody knows it’s wrong
But we can tell ’ em no or we could let it go,
But I would rather be a hanging on”
– Aerosmith

From Monroe to Donroe: A 200 - year story comes back to our doorstep

Every few decades, U.S. foreign policy gets a rebranding.

What started as a short set of paragraphs in President James Monroe’s 1823 State of the Union address has become a sort of operating system for American power in the Western Hemisphere. The original message was simple enough: European powers were no longer welcome to colonize or interfere in the Americas, and in return the United States would stay out of European wars. At the time, the Monroe Doctrine was more an aspiration than a credible red line. The young republic did not yet have the hard power to enforce its will across a continent.

That obviously changed. As U.S. economic and military power expanded from coast to coast and then overseas, the Monroe Doctrine evolved from a rhetorical statement into a practical claim of hemispheric primacy. It was strengthened by the Roosevelt Corollary articulated by President Theodore Roosevelt in 1904 – the famous Big Stick Policy that justified intervention in Latin American countries deemed unstable, ostensibly to prevent European powers from re-entering the region. In practice, geopolitical objectives mingled with corporate interests, triggering the Banana Wars, a series of military and political interventions across Central America and the Caribbean, with lasting damage to the reputation of the U.S. in the region.

The next adjustment came in the 1930s, with President Franklin D. Roosevelt’s Good Neighbor Policy. Washington stepped back from direct interventions, partly to build continental unity against the rising fascist threat. After the Second World War, the Cold War triggered yet another iteration. To contain communism, Washington supported or encouraged regime change attempts and coups across Latin America, from the failed invasion of Cuba in 1961 to the overthrow of President Salvador Allende in Chile in 1973.

The last major intervention was in Panama in 1989, officially to topple an unpopular dictator, Manuel Noriega, and indict him on drug charges. Business interest in the Panama Canal also loomed large. Sound familiar?

With the end of the Cold War, the interventions largely faded, and in 2013 the Obama administration went so far as to declare the Monroe Doctrine dead in a speech by Secretary of State John Kerry.

Yet doctrines don’t die; they evolve. The so-called Donroe Doctrine, a mix of Trump-era instincts and policy documents, looks very much like an attempt to bring the focus of U.S. power back to its immediate neighbourhood. The WhiteHouse’s National Security Strategy published in November 2025 heavily emphasizes drug trafficking from Latin America, especially fentanyl, and preventing adversaries such as China and Russia from gaining control over strategic infrastructure or natural resources in the region. The military operation in Venezuela and the subsequent insistence that U.S. interests should shape the future of its oil sector fit this logic.

There are obvious echoes of the Roosevelt Corollary. Once again, the goal is to keep rival powers out of the hemisphere and to further American commercial interests. But there are also noteworthy differences.

The appetite for large-scale occupations in Latin America appears limited, both in Washington and among the public. The economic stakes are smaller than in the early 20th century, and the ideological foundation behind the Donroe Doctrine is much harder to identify. The Monroe Doctrine and its historical corollaries were regularly justified by some moral frame, whether it was spreading western civilization, defending republics against colonial empires, promoting democracy, or containing communism. Actions did not always match words, but there was a declared higher purpose. In the current iteration, the rationale often looks more personalistic and transactional.

This absence of clear guiding principles matters for investors. Doctrine without a coherent framework tends to produce erratic decisions, abrupt reversals, and surprises. The Donroe Doctrine is less a grand strategy and more a pattern of impulses: a focus on visible wins, a readiness to use tariffs and sanctions, a willingness to weaponize alliances, and a deep suspicion of multilateral constraints.

That being said, clear structural constraints limit how far any modern doctrine can go. In today’s globalized economy, Latin American countries are deeply integrated into trade networks, supply chains, and capital flows that extend far beyond the Western Hemisphere. China has become a top trading partner for much of the region, European investors are entrenched in sectors from energy to transportation, and technology partnerships increasingly span continents.

In this environment, the old principle of keeping external powers out of the hemisphere is difficult to enforce. Economic interdependence acts as a counterweight to geopolitical control.

Diplomatic realities point in the same direction. Most countries in the Americas now maintain diversified relationships with multiple global actors, from Beijing to Brussels to multilateral institutions. This multipolar diplomacy makes unilateral U.S. influence far less straightforward than in the 20th century. Washington can still shape outcomes but must do so alongside other major players that have legitimate political and economic footholds in the region.

Canada in the shadow of a restless neighbour

Canada has long been an exception in the Monroe universe.

The doctrine was fundamentally about keeping Europeans out of the Americas. Canada, tied to the British Empire and then to the Commonwealth, was never treated as a target of U.S. intervention, but rather as a partner that brought its own diplomatic, military, and economic weight. As the British Empire declined, Canada remained a stable democracy broadly aligned with U.S. interests, which further reduced any incentive for overt interference.

That does not mean Canadians have been relaxed about their giant neighbour. Fear of being absorbed into an American empire was one of the motivations behind Confederation in 1867. A union of provinces was seen as more resilient than several small sovereign states sitting next door to an expansionary power. Over time, Canada has adopted multiple policies to safeguard its political, economic, and cultural sovereignty, from foreign investment review to cultural content rules. At the same time, the Cold War and the rise of the United States as a superpower pushed Canada toward deeper integration, especially in trade and security.

The Donroe turn reopens some of these historic anxieties. On paper, a North American focus in U.S. strategy should benefit Canada. The Trump tariff regime has tended to privilege continental trade, which fits the logic of supply chain resilience and friendshoring. In practice, however, the methods have been bruising. Tariffs on steel, aluminum, and autos, threats to terminate free trade, and personal attacks on Canadian leaders have introduced a new level of uncertainty into the relationship. Often it is not clear whether the threats are meant as negotiating tactics or as genuine goals. Either way, they force Ottawa to plan for a world where the most important economic partner is also an unpredictable source of risk.

The consequence is a subtle but real shift in Canadian policy. There is now a far more explicit desire to diversify trade patterns, develop new export markets, and reduce one-sided dependence on the United States. This shift does not mean decoupling, which would be unrealistic, given geography, integrated supply chains, and shared security interests. But it does mean a more deliberate effort to build alternative options and to defend domestic priorities, even at the cost of friction with Washington.

The Donroe Doctrine brings two layers of risk. First, direct policy shocks, such as tariffs, border measures, or regulatory pressure. Second, indirect spillovers from U.S. actions in Latin America or the Arctic that alter global risk premia, commodity flows, or alliance structures in which Canada is deeply embedded.

NATO at a crossroads and the thought experiment of a world without it

No discussion of the Donroe Doctrine is complete without a look at its impact on alliances, especially NATO.

A turn toward the Americas implies disengagement from Europe. Indeed, Trump-era rhetoric, such as criticism of European burden sharing and open questioning of the value of NATO, has already put significant strain on the transatlantic architecture. But with the threats of annexation of Greenland (at this writing, a “framework of a future deal on Arctic security” has been mentioned, bringing down the heat), what could have been a slow process of disengagement may turn into a messy divorce. Even though such a scenario still looks like a tail risk rather than a base case, it is no longer unthinkable to imagine a future where NATO is hollowed out or even dissolved.

For Europe, an absent or unreliable U.S. security guarantee would accelerate the push toward strategic autonomy. Defence spending, already rising since the invasion of Ukraine, would most likely jump further as countries rushed to rearm. Germany and other core economies would face pressure to translate industrial capacity into military power. A more fragmented and militarized Europe would be less predictable and potentially less stable, even if it remained formally allied with North America in some looser format.

For Russia, the temptation to probe and test boundaries would grow. The simple fact that NATO exists, with its Article 5 commitment, acts as a powerful deterrent. Without it, or with a weakened version, the risk of miscalculation increases.

Canada sits at the intersection of all these shifts.

It is both a North American and an Atlantic country. A weaker NATO would push Canada to increase defence spending, rethink its posture on the Arctic and the Atlantic, and renegotiate its strategic role with Washington and European capitals.

The Arctic deserves a special mention. As ice melts and sea routes open, the region becomes more relevant for resource exploration and military positioning. U.S. interest in Greenland, whatever its feasibility, is part of that contest. Canada, with extensive Arctic territory and a long-standing NORAD partnership, cannot escape strategic competition in the Far North.

From a macro point of view, a world with a diminished NATO is a world with higher tail risks. Defence budgets rise, fiscal positions deteriorate, and the probability distribution for inflation widens. The expected path of global growth may not change dramatically in the near term, but the variance around that path does.

Market and investment implications: From doctrine to positioning

The direct effect of most geopolitical events on global markets tends to be modest and short-lived. Even major conflicts often leave little trace in long-term index charts unless they alter fundamentals such as global energy supply or the shape of trade networks.

In that sense, the Venezuelan story is a classic case. The country is economically small, and although it sits on immense oil reserves, ramping up production meaningfully would require massive investment ($100 billion over the next decade according to experts) and several years of rebuilding. As such, there is little reason to think the ouster of Nicolas Maduro will leave a lasting impact on global energy markets.

But the Donroe shift is structural. Rising fragmentation and alliance stress will probably outlast the Trump administration and matter cumulatively for portfolio construction. Some already established trends are here to stay, while new risks are emerging. Here are the main implications we see for Canadian investors.

1. Expect a higher geopolitical risk premium

A more transactional U.S. foreign policy, combined with the erosion of multilateral norms, points to more frequent policy shocks. Tariffs can be introduced or removed overnight. Sanctions, export controls, and domestic content rules can rewire supply chains rapidly.

Market volatility will not be permanently elevated every day, but the probability of sudden spikes is higher than it was in the benign globalization period after the fall of the Soviet Union. Volatility is not just a risk; it is also an asset for those able to harvest it systematically through strategies that sell insurance when fear is excessive and buy it when complacency returns. Precious metals are also relevant as long-term insurance against policy mistakes, inflation surprises, and loss of confidence in fiat currencies.

2. Embrace broad global diversification

Over the past 15 years, the U.S. equity markets have massively outperformed the rest of the world, thanks to a unique combination of tech dominance, domestic growth, institutional credibility, and dollar strength. A retrenchment of the U.S. toward its hemisphere, combined with more aggressive use of economic coercion, is likely to erode some of those advantages. We do not advocate a short U.S. stance, but we are cautious about extrapolating past relative returns. At the same time, we do not know where tensions will flare up next. This context calls for broad regional diversification as opposed to concentration within the U.S. or other specific markets. Given that the U.S. has become the source of uncertainty, rather than a safe haven in times of turmoil, investors could flee the U.S. dollar and rotate out of U.S. Treasury bonds.

3. Lean into real assets and commodities, with a Canadian tilt

Fragmentation, reshoring, and higher defence spending are all supportive for real assets. The push to secure supplies of energy, food, metals, and rare earths is a durable theme. Canada is well positioned as a producer of oil, gas, uranium, potash, and various metals, including several that are critical to green technologies. The risk of competition from Venezuela is real, now that the U.S. has moved to secure its oil reserve but is manageable under most scenarios. Within a diversified portfolio, we favour a strategic allocation to commodities and to Canadian producers with strong balance sheets and credible capital allocation policies.

4. Be wary of long - duration nominal bonds

The current environment is challenging for traditional fixed income. As we argued in our December 2025 piece, several advanced economies face fiscal trajectories that are difficult to reconcile with low trend inflation and low nominal yields. Higher defence spending, climate transition investment, and aging populations all compete for fiscal space.

The Donroe Doctrine adds another layer by making U.S. and allied fiscal commitments more uncertain and potentially more volatile. A more coercive, hemispherically focused U.S. policy mix raises the likelihood of supply chain rewiring, elevated geopolitical risk premia, and more persistent inflation dynamics. Foreign holders of U.S. assets, especially in Europe, are already signalling a willingness to reassess their Treasury exposure in response to rising policy unpredictability. These forces collectively put upward pressure on term premia, steepen yield curves, and reduce the reliability of long-duration nominal bonds as hedging instruments. The risk of inflation surprises remains elevated, and the compensation offered by long-duration nominal bonds does not look particularly attractive. We prefer shorter maturities, selective credit, and inflation-linked instruments as part of a broader diversification toolkit.

Bottom line

The return of a hemispheric focus in U.S. policy, under the loose label of the Donroe Doctrine, is not a neat, internally consistent grand strategy. It is a mix of instinct, domestic politics, and genuine strategic concerns about China, Russia, and the security of supply chains. Canada stands at the forefront of these developments.

Canada must navigate a more erratic U.S. partner, a weaker NATO framework, and a global environment with higher tail risks. There will be rising tensions between Canadians’ desire for greater sovereignty and the U.S. assertion of hemispheric dominance. Balancing relationships with our southern neighbour and other powers, such as China and the European Union, will require adept statecraft. Domestic policy choices about defence, climate, fiscal sustainability, and industrial strategy will have far-reaching ramifications.

This is no easy place to be in, and the path ahead is treacherous. But there are opportunities. Canada stands to benefit from increased demand for reliable commodities, safe infrastructure, and predictable institutions. The country can position itself as a preferred supplier of energy and critical minerals to allies worried about overdependence on unstable or adversarial regimes. It can also use its reputation to attract capital and talent in a world that is rerating political risk.

For portfolio construction, the message is not to panic or to swing for the fences. It is to recognize that the distribution of outcomes has widened and that resilience has become more valuable. Flexibility is key to navigate this more volatile environment.

The original Monroe Doctrine was about drawing a line and telling outsiders to stay out. The Donroe version, whatever final shape it takes, is less about drawing clear lines and more about constant renegotiation of power, trade, and security within a crowded and contested hemisphere. For investors, the challenge is to build portfolios that can live with that permanent negotiation, and perhaps even thrive on the opportunities it creates. In other words, stay positioned for balance while the world keeps testing the edge.

Positioning

We continue to overweight equities, with a clear preference for Canada and emerging markets. Both should benefit from the global growth upswing expected in early 2026 and from firming commodity prices. Canada provides leverage to cyclicals and resource sectors, while emerging markets stand to gain from stronger global trade and a rotation away from U.S. leadership. Valuations remain attractive, and earnings momentum is improving, making non-U.S. exposure a compelling source of return and diversification.

We continue to underweight government bonds. Valuations have improved and yield curves have steepened, but the fundamental challenges for duration persist. Large fiscal deficits and heavy government borrowing continue to crowd out private credit and keep rates elevated. With U.S . growth likely to accelerate in the first half of 2026, we see little reason to add duration at this stage.

Our view on commodities is still constructive, particularly for base metals, such as copper, aluminum, and zinc. The global economy is in a competition for resources, driven by AI infrastructure, power needs, and manufacturing capacity. Recent headlines about Greenland underscore this dynamic. Loose fiscal policy and rising sovereign borrowing also increase the appeal of tangible, inflation-sensitive assets. If the Federal Reserve cuts rates into a reaccelerating U.S. economy, inflation expectations could rise, strengthening the case for commodities.