What a US focus on hard power in the Americas means for investors
Leave it to President Trump to brand a massive realignment in US foreign policy and global geopolitics with a bad pun. The so-called “Donrone doctrine” now being articulated through a military intervention in Venezuela and bellicose threats to seize Greenland from Denmark have been framed in reference to the Monroe doctrine, a policy proclaimed by the US’ fourth president James Monroe in 1823 which opposed any non-US intervention in the Americas. That 203 year-old policy reflected a world where the United States was a rising power and European states still dominated global affairs. The “Donroe doctrine,” however, is being dictated from the zenith of US power and is reshaping a world of diplomacy and globalization that, since WWII, the United States played an instrumental role in building.
Sébastien Mc Mahon, is watching these developments closely. The Vice-President, Asset Allocation, Chief Strategist, Senior Economist, and Portfolio Manager at iA Global Asset Management weighed in on how the world as it stands today may be impacted by a United States that shifts from global diplomacy to a focus on its ‘near abroad.’ He offered some glimpses into the possible market and investment impacts that could come from this policy, and how Canadian advisors might want to contextualize this shift for their clients.
“Where things fall apart dramatically now is that you cannot have your spheres of influence geographically as in the past, because the economy is too globalized for that now,” Mc Mahon says. “In the 2000s in the in the Americas it was mostly the US that was present in the local economy. But since 2005, China has been investing massively in South America… If you look at alignment on a security basis, there is some Russian influence in Venezuela, Cuba, and Nicaraguea, but the Americas are all aligned to the US, or independent like Brazil. If you flip the map to economic influence, though, and see who trades with South America, it’s pretty much all China.”
China, Mc Mahon explains, has spent decades investing in South American infrastructure. They’ve constructed ports, railways, and highways to extend soft power and deepen trade relationships. All this was done with an understanding that the Americas were still, from a security standpoint, the backyard of the United States. Now, however, US foreign policy is as much about exclusive economic access as it is about security. Mc Mahon notes the most glaring example of that shift, the America First Investment Policy adopted in February of 2025 which Mc Mahon explains is aimed to push out any foreign company or entity investing in infrastructure in the Americas.
That policy, Mc Mahon, sets the stage for more direct economic and political confrontation between the US and China in South America. While there may be a degree to which Trump walks back some of these policies, Mc Mahon sees key risks emerging from these confrontations. At the same time, he notes that markets are not fully pricing in the market consequences of the “Donroe doctrine.”
While stocks have fallen somewhat, and risk hedges like gold have continued to rise, the possibility of economic conflict with China or a rift in NATO over Greenland could represent deep and fundamental changes to the global order. The main area where Mc Mahon sees these risks meaningfully priced in is the defense sector, as every country now feels an acute need to secure their sovereignty. Commodity prices, too, are beginning to move in anticipation of a more tense globe.
In articulating this policy the Trump administration has made a great deal of noise about leveraging US private enterprise to strengthen their economic pull. Mc Mahon accepts that this may be a flawed enterprise, especially when it comes to the investment required to invest in Venezuelan oil extraction. Oil prices are low at the moment, and seem unlikely to rise dramatically enough to entice companies more motivated by quarterly earnings reports than service to US foreign policy aims. Any enticement for US companies to back up US policy may rely on subsidies not unlike how China has enabled its companies to invest abroad.
While there are certain checks on US policy aims from certain economic forces, other widely-discussed ramifications for the US may not be as significant as some would consider. In the context of a possible attack on Greenland much has been made about the quantity of US debt held in other NATO countries that could be dumped to raise US interest rates considerably. While the long-term consequences of that kind of policy might be dire, Mc Mahon believes that the US could make up for that hypothetical action in the short-term at least. While those kind of possibilities are worth considering, Mc Mahon emphasizes that advisors need to prepare for as many outcomes as possible without succumbing to panic.
“If there is a loss of faith in the U.S. Economy as an investment destination because of political reasons, that means that capital will go elsewhere around the world, where earnings expectations are already elevated,” Mc Mahon says. “You want to be invested globally. Likely, you want to be invested in stocks around the world. You want to be invested in commodities, and you may want to buy treasuries from somewhere else.”
