NATO's Cold War with itself

January 22, 2026

In our 2026 outlook, one of our existential questions was “what if NATO dissolves”?   This week, we got a peek behind that door, and it wasn’t pretty.  The market fell over 2% on Tuesday alone, partially due to tariff related threats.  Talk on both sides of the Atlantic escalated.  The ramifications to global security and trade are severe and frankly hard to predict.

People started to ask me questions like: “What happens if the EU sells all our treasury bonds?”  Trying to predict the outcome of extreme scenarios only adds to general risk and uncertainty — and if there’s two things the stock market hates, it’s risk and uncertainty.

Buuuut… all is well now, apparently.  Yesterday afternoon, President Trump backed off on two fronts.  He said he wouldn’t use the military to take Greenland and then later (more importantly) said he wouldn’t impose new tariffs on Europe after all. 

If anyone had any doubt that tariff policy affects the stock market, just look at the chart below.  At around 2:30pm eastern yesterday, when the headline hit Bloomberg that Trump was changing his mind on tariffs, the S&P 500 spiked sharply.  Look at the green circle in the chart below.  That move is 100% Trump-driven.

The market is breathing a sigh of relief.   On one hand, it’s a relief knowing that President Trump’s more extreme impulses do have a limit.   (One wonders who/what caused him to backdown on Greenland.  He threatened tariffs just over the weekend, but by Wednesday, they were gone.) 

On the other hand, not everything is fixed.  The EU trade situation still remains un-finalized.  The strength of NATO has weakened, which might prompt more aggressive moves by either Russia or China.

In an odd twist, it’s helpful to think of the US in a sort of “Cold War” with its NATO allies.  America has stepped back from the extreme scenario.  (We’re back down to DEFCON 3.) But the icy détente remains.  “NATO” remains on our global risk board as one of the big risks for this year.