The unravelling of the Transatlantic alliance carries severe consequences that are either being ignored or hidden from the public. This analysis explores a specific scenario of U.S. withdrawal from NATO and the cascading effects for asset allocators.
The author has an M.Sc. in International Management from the University of Strathclyde (2012), with a major component in Strategy and Scenario Planning.
AN OVERVIEW
Over the past year, it has become completely clear that Europe (within which we include the UK for convenience purposes) and Canada are not prepared for the true scale of the challenge and conflict that faces them. Both economies are hampered by years of poor economic policy, while their American counterparts built technological capacity and economic resilience.
Europe and Canada both find themselves at America’s mercy with a change of policy.
However, it appears there is either a failure of imagination or political unwillingness to confront the nature of the challenge that faces them — that these countries may need to contend with an adversarial relationship with the U.S., one which carries drastic consequences for their sovereignty.
Canada specifically is in a weaker position after years of relying on poor policy decisions, while Europeans are obsessively preparing for a confrontation with Russia, which, as it turns out, might not be their only enemy.
That in and of itself should be of concern: a break in the previously close relationship is not something America’s allies were prepared for, despite years of rhetoric by the man put in charge by the American voter — President Donald Trump.
This has now escalated from rhetoric to the official state line, according to the 2025 National Security Strategy, published in December 2025. Observers will note the starkly partisan language — there is no interest in talking to or hearing from counterparts. This has also been noted by almost all counterparts who have negotiated with the Americans.
If we rely on the National Security Strategy document for a template, the administration’s actions offer a logic for the world to refer to and plan their strategy accordingly. The clearest example of this policy is now spilling over in public for everyone to see — the spat between America and Canada. Senior officials are publicly throwing insults at their counterparts — unthinkable in previous administrations.
THE STARK REALITY
Based on the above, we are now anchored in the belief that the United States, flanked by Israel, has gone from an ally to a structural risk to the security and sovereignty of its closest allies.
Israel and the U.S. in its current form are in an unbreakable security and defence partnership. This partnership is so all-encompassing that existing and past relationships have folded or are cracking. So much military capacity has been expended and pulled from other posts to fight the 2026 Iran war alongside Israel that America is now looking to build on a “war footing”. The U.S. has subsequently moved to replenish depleted munitions and accelerate defence production.
Examples of the fraying partnerships are noted below.
NATO is showing cracks — Trump threatened in May 2026 to pull 5,000 U.S. troops from Germany following a spat with Germany’s Chancellor Friedrich Merz over the 2026 Iran war. The Pentagon subsequently confirmed a reduction of approximately 5,000 troops from Germany, before Trump announced weeks later that the United States would send an additional 5,000 troops to Poland — an early warning of how quickly America’s security guarantee can be put on the table.
The president is openly threatening the sovereignty of Canada, America’s closest spiritual ally — bound by history, culture and geography rather than treaty alone. Prime Minister Mark Carney has drawn a hard line in response: “Last spring, I warned that America is trying to break us so that they can own us. And I promised: ‘That will never, ever happen.’” Referring again to the NSS document, the American position — to deny non-Hemispheric competitors the ability to position forces or control strategically vital assets “in our Hemisphere” — draws a clear boundary. In effect, the United States holds a right of first refusal over any Canadian security arrangement and, as a result, raises serious questions about Ottawa’s options to chart a separate course.
The relationship has even burned the previously most important relationship to Trump and other Republican presidents — Saudi Arabia and the rest of the GCC. The president has threatened to bomb Oman if it “gets in the way” of U.S. efforts to reopen the Strait of Hormuz — not the first such threat he has made against Muscat during the 2026 Iran war.
Significant U.S. missile-defence assets have been pulled from South Korea and diverted toward the conflict in Iran, including Patriot and THAAD-related systems and interceptors. The carrier USS George Washington, which was based in Japan, was subsequently moved to the Middle East to relieve the USS Abraham Lincoln.
This leaves the multiple parties mentioned above without their primary security guarantor, and an antagonist administration that has explicitly targeted Canada, NATO territories and GCC allies, to name a few.
America’s willingness to use force as a stick in negotiations has not escaped Prime Minister Mark Carney’s attention: “It’s not a case of the U.S. dictating the terms … It’s not a case of [one country] demanding and the other begging. It’s a negotiation.”
The calculation Canada has to make here is whether it is prepared for this trade war to spiral into something else. President Trump’s rhetoric has escalated multiple times in the second presidency. He has not shied away from using the military along with tariffs as his tools of choice.
Under this president, America seems to be following a policy that pairs tariffs with military threats. While being accommodating in the medium and short term might be the only option for many countries, they will have to start building their own economic and military deterrents at home if they want to retain their sovereignty.
In this regard, Canada and Europe are saying the right things, but one wonders if they have truly internalised the message. So far, the Americans are the only ones who have indicated they are ready to build on a “war footing”. Among the European nations, only Germany appears to be seeing the signs and preparing to build accordingly. Per their 2026 strategy document, Germany is positioning itself as an increasingly important anchor of NATO in Europe should the need arise.
While focused on Russia as the main threat and doubling down on European anxieties regarding Russia, it may be important to read between the lines and consider the broader context of the American-European alliance when analysing this policy.
Still, the speed at which Americans were ready to move on Greenland caught Europe off-guard, yet Germany’s strategy document does not mention what happens if America exits NATO. What are German contingencies should the U.S. exit NATO?
It is not a reach to say that Europe should be preparing for a NATO without America, or worse, an antagonist America with military positioned accordingly at all times.
The next obvious step is an onshoring and restoring of critical defence capabilities — for which Germany too has taken steps forward but is reliant on American technology and capabilities.
The American security policy is one of deterrence — European policy seems to be one of reluctant adherence to that doctrine.
An acceptance of this policy would mean a change in demeanour and reshoring of defence capacity to Europe, if not within the borders of specific countries. An external dependency on potential enemies needs to be redressed.
In truth, it appears that Europe cannot comprehend America as an enemy-state even if America is explicitly making threats.
This unpreparedness can only be addressed if defence becomes the strategic priority for all the countries involved. At the moment, we do not see the wartime footing which will be required to sustain a build of that magnitude — although Canada seems to be at least acknowledging the new reality under Carney.
The real deterrence is not weaponry but the ability to produce weaponry at scale when required. Germany’s build-out is planned through 2039 — are they willing to bet the American populace, which has twice voted for Donald Trump’s policy and rhetoric, will not vote for a similar candidate?
A true reality-check requires clear-eyed vision on what truly faces them. Europe is grasping to keep an alliance alive that is being slowly suffocated by America’s policy shift — they might find that their F-35 jets are operationally constrained if they need them the most.
Canada faces a more dire version of the same problem. While America’s relations with Europe are begrudging and resentful, it is treating its Canadian counterpart with disdain and apathy.
A fact noted by PM Mark Carney in his consequential speech at Davos — the American order worked and we ignored the problem. Carney and Canada are still hoping that this is only a trade war — the alternative is harder to accept given Canada’s Regular Force stands at fewer than 70,000 active personnel.
With the above background, we expect a severe crisis of sovereignty among the U.S. transatlantic partners if the United States pulls out of NATO.
THE SCENARIO
The withdrawal of the United States from NATO, its alliance and dependency on Israel, and a subsequent pivot toward an isolationist, AI-driven fortress model will fundamentally break the post-WWII global security architecture.
Rather than a peaceful transition to regional balance, this shift triggers a chain reaction of European social fracturing, middle-power subordination, and a highly aggressive, unilateral U.S. defence boom.
THE FRAGMENTATION OF EUROPE:
The illusion of collective European defence collapses under the weight of U.S. withdrawal, accelerated by incidents like the Greenland crisis and Liberation Day Tariffs.
Every Man For Himself: European nations entirely abandon multilateral coordination through Brussels or NATO. Instead, individual states unilaterally scramble to secure private, bilateral defence pacts with Washington, using remaining financial leverage to buy American protection.
The Baltic Realignment: Germany’s willingness to lead frontline defence proves structurally insufficient against the vacuum left by the U.S. nuclear umbrella. Facing an existential threat and lacking Western cohesion, the Baltic states opt for survival over resistance, voluntarily shifting into a localized alignment or defensive alliances with Russia.
Chickens Come Home to Roost: Forced to rapidly increase military expenditures amid an economic downturn, weaker European economies face structural and fiscal challenges. The slashing of social safety nets to fund defence triggers widespread domestic unrest. This economic pain, interacting with unresolved immigrant integration friction, supercharges political and religious extremism across Western and Southern Europe, rendering the continent politically paralyzed.
THE 51ST STATE
Canada’s attempt to assert strategic independence or organize a “Middle-Power Coalition” (via initiatives like Mark Carney’s economic adjustments) proves entirely futile against the gravity of U.S. geographic hegemony.
Sovereignty Subordination: The U.S. security doctrine will actively prevent the emergence of any independent security framework on its northern border.
The Price of the “Lost Decade”: Hampered by a decade of poor economic growth and structural fiscal weakness, Ottawa possesses little to no fiscal capacity to build independent Arctic or maritime deterrence. Canada is forced to capitulate to Washington’s terms, accepting a subordinate, integrated defence relationship that effectively signs over sectoral sovereignty to the United States.
THE RE-BIRTH OF THE U.S. DEFENCE INDUSTRIAL BASE
While U.S. defence primes take an initial blow from the loss of integrated European procurement, the domestic market undergoes a massive, tech-driven renaissance.
The Munitions Super-Cycle: The depletion of conventional stockpiles following the 2026 Iran war acts as a massive domestic fiscal injection. Legacy primes successfully reconstitute and domesticate their supply chains, insulated by an aggressive U.S. re-armament mandate.
The Silicon Valley Takeover: Next-generation defence tech providers (e.g., Anduril) achieve market primacy. The shift moves heavily toward cheap, hyper-capable, mass-produced autonomous drones and AI-integrated operating systems, drastically lowering production costs and boosting operating margins.
THE RISE OF “UNILATERAL INTERVENTIONISM” AND THE MERCANTILE ORDER
U.S. isolationism does not equal pacifism. Instead, the technological shift alters the geopolitical and economic calculus of global warfare.
Lowered Threshold for Conflict: Because automation and AI-driven systems drastically reduce the potential for American human casualties, the political cost of military engagement drops. The U.S. appetite for rapid, unilateral overseas operations and targeted “adventures” actually increases.
The Mercantile Order: Operating strictly on realpolitik rather than ideological alliances, the U.S. becomes the ultimate global arms dealer. To fund its own industrial appetite, Washington aggressively exports advanced hardware and autonomous software to competing factions across Asia and the Indo-Pacific — simultaneously supplying rivals like India and Pakistan, alongside South Korea, Taiwan, Singapore, and fractured European remnants.
POSITIONING FOR THE MERCANTILE ORDER
Disclosure: The following is for informational and educational purposes only and does not constitute investment, legal or tax advice, or a solicitation to buy or sell any security or asset. Gold, Bitcoin and defence-sector equities carry distinct risks, including volatility, liquidity and regulatory risk; readers should consult their own advisors before acting.
The core takeaway for investors is that once “the Peace Dividend“ has ended, security will become a purely transactional commodity.
We are breaking away from the rules-based order to what we call the Mercantile Order — a world in which security is bought and sold rather than guaranteed by alliance.
The countries and companies that successfully control their own means of production and domestic industrial supply chains related to defence will thrive in the Mercantile Order.
This thematic framework does not provide specific equity ratings; rather, these reports are meant to act as a complement to any stock analysis report that investors may want to rely on to better inform their long-term capital allocation decisions.
In keeping with the tone and scenario outlined in this paper, we think family offices, individual investors and institutions would be well served by considering how portfolios should be positioned for a world in which security becomes increasingly transactional and industrial capacity becomes strategically valuable.
We see three areas that warrant particular consideration.
DEFENCE: FROM LEGACY PRIMES TO THE NEXT GENERATION
Investors should consider exposure to both established defence primes and emerging defence companies.
The legacy manufacturers are already positioned to benefit from increased government procurement, replenishment of depleted stockpiles and the rebuilding of domestic defence-industrial capacity. However, the more asymmetric opportunity may lie further down the technology curve.
The conflicts in Ukraine and the Middle East have demonstrated the increasing effectiveness of relatively inexpensive, rapidly deployable autonomous systems. Drones and other AI-enabled defence technologies are changing the economics of modern warfare: inexpensive systems can increasingly threaten assets that cost orders of magnitude more to produce.
For investors, this creates a potential opportunity beyond the traditional defence primes. Private and early-stage companies developing autonomous systems, drones, counter-drone technology, AI-enabled battlefield systems and other high-volume defence technologies may ultimately capture a disproportionate share of the growth in defence spending.
The challenge, of course, is that investing at this stage carries substantially greater company, technology, liquidity and execution risk. For sophisticated investors capable of accepting those risks, however, the emerging defence-industrial ecosystem deserves consideration alongside established manufacturers.
GOLD AND THE DEBASEMENT TRADE
We also believe investors should consider an allocation to gold as the post-war monetary and geopolitical architecture becomes less stable.
The end of the traditional transatlantic security relationship would represent more than a defence realignment. It would accelerate the transition from ideological alliances toward transactional relationships, while potentially increasing the incentive for countries and institutions to diversify away from excessive dependence on the United States and the U.S. dollar.
This dynamic intersects with the persistent fiscal challenge facing the United States. If Washington remains unable or unwilling to impose meaningful constraints on government spending, concerns over monetary and fiscal discipline could increasingly reinforce the “debasement trade.”
Gold therefore becomes relevant not simply as an inflation hedge, but as a politically neutral reserve asset in an increasingly fragmented world.
The argument is not that the dollar disappears, nor that gold replaces it. Rather, a less predictable geopolitical order may encourage governments, institutions and private investors to hold a greater proportion of assets outside the traditional dollar-centric system.
BITCOIN AS A CONTINGENCY ASSET
For a much smaller subset of investors — particularly family offices, institutions and individuals with significant assets or physical exposure in active or potentially active conflict zones — we believe Bitcoin warrants consideration as a contingency asset.
This is not the same argument as the traditional investment case for Bitcoin.
In a rapidly deteriorating conflict environment, the ability to transfer value across borders can become materially more important than conventional portfolio characteristics. Bitcoin’s portability and ability to be transferred without reliance on a traditional banking intermediary may therefore provide an escape hatch in extreme circumstances.
This should not be confused with a low-risk allocation. Bitcoin remains highly volatile and carries significant technological, regulatory, custody and liquidity risks. For most investors, these characteristics make it unsuitable as a substitute for conventional reserve assets such as cash or gold.
For investors facing the specific risk of capital mobility becoming constrained by conflict, however, a small allocation could serve a different purpose: not maximizing returns, but preserving the ability to move value when conventional financial infrastructure becomes impaired.
THE INVESTMENT IMPLICATION AND CONCLUSION
The Peace Dividend is ending.
If the assumptions underpinning the post-war security architecture continue to weaken, security will increasingly become a function of industrial capacity, domestic production and technological independence. Countries that cannot produce critical military and strategic goods will become dependent on those that can. Companies controlling the production of those goods will consequently acquire greater strategic importance.
The same principle extends beyond defence.
Energy, critical minerals, semiconductors, autonomous systems, industrial automation, communications infrastructure and other strategically important supply chains may increasingly be evaluated not only according to their economic value, but according to their importance to national security.
This is the transition we describe as the Mercantile Order.
In such an environment, historical alliances become less reliable as a measure of security. Geography, industrial capacity, technological capability and control over domestic supply chains become more important.
The transition from the post-war order to the Mercantile Order is bookended, in our view, by Churchill’s historic declaration of the alliance of the English-speaking peoples at one end, and Mark Carney’s speech at Davos in 2026 at the other.
For asset allocators, the question is therefore no longer simply where economic growth will occur, but how to position portfolios to capture the opportunities that arise from geopolitical uncertainty while containing the downside — and, for investors with assets or exposure in potential conflict zones, how to protect capital and maintain access to it when conventional financial infrastructure may come under pressure.