How to Position for the Greenland and Other 2026 TACOs

When the markets became rattled by the prospect of a Trump threat to annex Greenland over the weekend, I knew that a TACO (Trump Always Chickens Out) walk back was inevitable. I observed in the past that the markets would eventually discipline Trump’s unusual excesses. Indeed, the combination of a spiking 10-year Treasury yield and surging volatility indices pressured the White House to find a face-saving off-ramp.
 

 

In addition, I believe the Greenland Gambit along with the Venezuelan Adventure are part of a pattern of foreign policy moves as domestic policy safety valves leading up to the mid-term election. Investors should view possible U.S. foreign policy initiative between today and November within an electoral framework and react accordingly.
 

 

The Greenland Gambit

By now, the elements of Trump’s Greenland Gambit are well known. President Trump has always expressed a desire to control Greenland. Trump 1.0 offered to buy Greenland from Denmark but was rebuffed. More recently, he sent a text message to Norwegian Prime Minister Jonas Gahr Støre hinting that because he wasn’t awarded the Nobel Peace Prize, he “no longer feel[s] an obligation to think purely of Peace…and think about what is good and proper for the United States of America”. He concluded, “The World is not secure unless we have Complete and Total Control of Greenland”.

Subsequent to the release of that note, Støre confirmed the authenticity of the message and explained that “the prize is awarded by an independent Nobel Committee and not the Norwegian Government”. He reiterated that “Norway’s position on Greenland is clear. Greenland is a part of the Kingdom of Denmark, and Norway fully supports the Kingdom of Denmark on this matter. We also support that NATO in a responsible way is taking steps to strengthen security and stability in the Arctic.”
 

 

The EU reaction to the Greenland Gambit was universally negative, though there is considerable disagreement on how to proceed. Even elements of Europe’s far right have objected to Trump’s tactics, from Alice Weidel of the AfD in Germany, to Nigel Farage of the Reform Party in the U.K. and Jordan Bardella of the RN in France.

When Trump initially threatened a 10% tariff on imports from European countries that rushed troops to Greenland, effective February 1, later rising to 25% on June 1, the most straightforward EU reaction is trade retaliation. The EU could refuse to ratify the so-called Turnberry Agreement, a trade deal signed last summer under which Europe accepted a 15% tariff rate without retaliation.

If it wanted to escalate, Europe could invoke its economic bazooka: the anti-coercion instrument (ACI), which allows the EU to respond with almost any measure. So far, only China has retaliated against the U.S. in its trade war, and the Chinese response exposed a series of U.S. supply chain vulnerabilities, most notably in rare earths and pharmaceutical precursors.

For example, the EU could respond with imposing export duties or controls over pharmaceutical exports from Ireland to the U.S. The vast majority of European exports to the U.S. are concentrated in intellectual property owned by U.S. companies parked in low-tax Ireland. The exports aren’t just restricted to drugs, but IP owned by tech giants like Google, Microsoft and other Magnificent Seven companies.
 

 

More directly, Europe could target U.S. hard power by disrupting its military supply chain in the same way that China disrupted supply chains. The accompanying chart shows the suppliers to the F-35 Lighting II fighter jet. Many of its components and IP are produced or owned by European companies.
 

 

In addition, most small arms used by the U.S. military are produced by European companies, or their IP is owned by European companies. Artillery systems used by the U.S. military are all made by BAE Systems of the U.K. As well, the guns and fire control systems of the M1 Abrams tank are European. The Stryker armoured fighting vehicle is produced mainly in Canada at a plant in London, Ontario.

I could go on, but you get the idea. Europe could retaliate. While there would be considerable economic cost, the political will was building to strike back.
 

 

Domestic Policy Pressures

In the meantime, President Trump and the Republican Party face considerable political pressure ahead of the mid-term November election. The Republicans currently control all three chambers of the government, the White House, the Senate and the House of Representatives. Historically, the party controlling the White House has lost seats in the mid-terms. The current market consensus calls for the Democrats to control the House and the Republicans to retain control of the Senate, but the Democrats nevertheless have a long-shot opportunity to win the Senate in November.

 

A recent WSJ poll shows that President Trump is polling poorly on virtually all issues.

 

More worrisome for the Republicans is Trump’s net approval by state. The following states all have Senate elections in 2026: Georgia: -18.6%, Maine: -18.4%, Texas: -17.2%, Michigan:
-15.8%, North Carolina: -13.6%, Ohio: -9.2%, Iowa: -8.7%, Florida: -7.5%, South Carolina:
-7.3%, Mississippi: -6.9%, Alaska: -6.6%, Louisiana: -5.1% and Nebraska: -1.8%. While not all will break for the Democrats, it is nevertheless concerning for Republicans aiming for control of the Senate.
 

 

As an indication of a focus on electoral priorities, Trump’s Davos speech spent a lot of time on domestic issues like drug pricing, housing and affordability. Trump won the White House by hammering Biden and the Democrats on the issues of affordability, and recent initiatives, such as the order for Fannie and Freddie to buy mortgages to lower mortgage rates, the proposal to allow people to raid their 401k for down payments and a 10% interest rate cap on credit cards are responses to the affordability crisis.

In particular, the NY Times reported that the “Education Department has temporarily paused a plan to seize tax refunds and begin garnishing the wages of borrowers who have defaulted on their student loans”, which suspends the Trump initiatives of reversing Biden-era student loan policies, as a sign of political panic on affordability.

When domestic policy is perceived as weak by the electorate, a common tactic is to pivot to seek out foreign policy successes to boost popularity. However, a CNN report indicated that the net approval for a purchase of Greenland is polling worse than the Epstein file issue.

Future TACOs

As I look ahead between now and the November mid-term elections, I see two obvious candidates of foreign policy chaos based on recent speeches at the Davos World Economic Forum.

One source of Trump ire is likely to be directed at French President Emmanuel Macron (transcript and video here). Macron has been a hardline advocate of the use of the ACI against the latest round of Greenland-related tariffs. Macron’s speech pointedly pushed back against Trump: “We do prefer respect to bullies… science to plotism [conspiracies], and…rule of law to brutality.” As France is part of the European Union, it would be difficult, though not impossible, for the U.S. to sanction such a slight.

On the other hand, Canadian Prime Minister Mark Carney’s speech was lauded in many quarters as an unexpected source of global leadership against U.S. unilateralism, which is likely to rankle Trump. Carney’s speech (transcript and video here) began with a version of the “Emperor new clothes” story by referring to an essay by Czech dissident Václav Havel, later president, The Power of the Powerless. Havel told the story of the greengrocer:

Every morning, this shopkeeper places a sign in his window: “Workers of the world, unite!” He does not believe it. No one believes it. But he places the sign anyway – to avoid trouble, to signal compliance, to get along. And because every shopkeeper on every street does the same, the system persists.
 

Not through violence alone, but through the participation of ordinary people in rituals they privately know to be false.
 

Havel called this “living within a lie.” The system’s power comes not from its truth but from everyone’s willingness to perform as if it were true. And its fragility comes from the same source: when even one person stops performing – when the greengrocer removes his sign – the illusion begins to crack.
 

Friends, it is time for companies and countries to take their signs down.

Carney concluded that it’s time for middle powers like Canada to take their signs down: “Let me be direct: we are in the midst of a rupture, not a transition.” He called for an approach of “values-based realism” by aiming “to be principled and pragmatic”. Carney believes in “building the coalitions that work, issue by issue, with partners who share enough common ground to act together”. In other words, Canada has no choice but to create new alliances.

Specifically addressing the issue of U.S. unilateralism and hegemony: “It means reducing the leverage that enables coercion. Building a strong domestic economy should always be every government’s priority. Diversification internationally is not just economic prudence; it is the material foundation for honest foreign policy. Countries earn the right to principled stands by reducing their vulnerability to retaliation.” Already, Canada concluded a trade agreement to drop the 100% tariff rate on Chinese electric vehicles, which was imposed in tandem with the U.S. in 2024, applicable to an import quota of 49,000 cars, rising to 70,000 in three years, in return for the promise of Chinese investment in EV production in Canada and agricultural and seafood exports to China. The agreement was billed as a form of trade diversification.

In response to Carney’s Davos speech, Trump responded, “Canada lives because of the United States. Remember that, Mark, the next time you make your statements.” These circumstances set up the conditions for a foreign policy collision in the coming weeks and months.

The resolution of the Greenland Gambit has taught Europeans with an important lesson on how to handle Trump. Don’t beg, don’t bluster, but use the leverage you have to impose costs for his behaviour. Push comes to shove, Canadian Prime Minister Carney likely learned the pressure points Canada can apply to the U.S., though they would be at severe cost to the Canadian economy.

Here are two examples of nuclear options available to Canada in case of a dispute. Ontario Hydro and Quebec Hydro are major suppliers of electrical power to the U.S. northeast, and a cut-off or the imposition of export tariffs would cause considerable dislocation to the U.S. economy. As well, Saskatchewan provides virtually all of global production of potash fertilizer. A cut-off or export restriction would bring U.S. agriculture to an immediate griding halt.

In conclusion, investors need to learn to take this and other possible Trump tantrums in stride. Regardless of the apparent chaos and volatility of Trump’s initiatives, his actions are constrained by market spikes in volatility, which can crater stock prices and spike Treasury yields. As well, the Trump White House and Republicans are highly sensitive to the electoral popularity of specific issues. Most recently, the extreme unpopularity of a Greenland purchase and military intervention forced a face-saving retreat.

It is in that context that investors are advised to buy sudden risk-off downdrafts between now and the November election as ways to position to potentially profit from a probable TACO response.

To be sure, some geopolitical risks that lurk in the background are not subject to buy-the-dip TACO positioning. Venezuela could descend into a guerilla conflict, with the U.S. military tied up in a counter-insurgency war right on America’s doorstep. As well, the U.S. is assembling naval and air assets in preparation for a strike on Iran. The Iranian regime may not collapse, which leaves a messy outcome that could potentially destabilize the Middle East.