As has increasingly become the norm since Donald Trump first unleashed his supersized “Liberation Day” tariffs two months ago, the markets once again saw a huge upswing on Tuesday after the president announced he was pausing the hefty import taxes he had threatened to impose on the European Union just days before.
And Wall Street investors have now picked up on the president’s pattern of backing down from his trade-war threats and are buying stocks accordingly, knowing that Trump’s backtracking will inevitably cause a stock market rebound.
They are calling them “TACO” trades, an acronym for “Trump Always Chickens Out.”
The president was incensed on Wednesday afternoon when a reporter asked him about the new Wall Street strategy — and acronym — insisting that he was getting significant concessions from other countries with his dealmaking.
“You call that chickening out?!” Trump shot back, referencing his pause of tariffs on the European Union.
“Because we have $14 trillion now invested, committed to investing when Biden didn’t have practically anything. This country was dying. We have the hottest country anywhere in the world… Six months ago, this country was stone-cold dead.”
He then turned to the reporter, who was covering the swearing-in ceremony for Washington, D.C.’s new interim U.S. attorney Jeanine Pirro, and groused that she asked a “nasty question,” adding that his constant backing down on his tariff threats was a “negotiation” tactic. “Don’t ever say what you said. That’s a nasty question,” he grumbled. “To me, that’s the nastiest question!”
Financial Times columnist Robert Armstrong first coined the cheeky term, and it refers to the notion that markets will immediately tumble based on Trump’s economic threats, only to jump sharply after he relents a short time later.
“It pains me to admit that Rob came up with something so witty and apt before I could think of it, but he is spot on,” Armstrong’s Financial Times colleague Katie Martin wrote earlier this month. The key piece of evidence was on April 9, when the US president ‘paused’ the supersized tariffs that he had outlined a week before, on what he termed ‘liberation day.’ Markets gagged on the details and he backtracked, at least in part.”
Indeed, there have been other instances over the past few weeks that have seen the president step back from the ledge after stocks reacted poorly to his ultimatums. After suggesting he would have Federal Reserve chair Jay Powell removed, he soon distanced himself from the idea after markets sank.
He also agreed to temporarily roll back most of the tariffs against China as they seek a long-term trade deal, resulting in Wall Street and global markets essentially wiping out the losses that were caused by the Liberation Day tariff announcement.
The same thing happened this past weekend. In a Truth Social screed, Trump threatened to raise import taxes on the European Union to 50 percent starting June 1, claiming the EU was formed “for the primary purpose of taking advantage of the United States on trade” and the bloc “has been very difficult to deal with.” He also fumed about the trade deficit between the United States and the EU.
The market predictably dropped in response to the president’s remarks. Just as predictably, Trump shifted his tone on Sunday, saying the tariffs would be delayed until July 9 because European Commission President Ursula von der Leyen had requested an extension. “The Commission President said that talks will begin rapidly,” he added.
Global markets soared on Monday and Wall Street, which was closed for Memorial Day, joined the rally on Tuesday. Meanwhile, investment experts and traders pointed out that this was now baked into the cake.
“TACO trade triumphs once again,” IG Group’s Chris Beauchamp told The New York Times.
“Investors have kind of figured Trump out a little bit,” Murphy and Sylvest senior wealth adviser Paul Nolte remarked to The New York Post. “He’s like the poker player at the table that you know is making some bets and then when pressed by the other players at the table, he folds.”
Exit Stage Left Advisors president Ted Jenkin added that once Trump delivers bad news, investors are now “buying those stocks when they are beaten down, waiting for him to chicken out and watching those stocks rebound in value.”
“These retreats are so frequent that investors should rationally expect them,” Paul Donovan of UBS Wealth Management pointed out as global stocks soared on Monday.
Meanwhile, economists have also noted that the “madness” created by Trump constantly crying wolf with his economic and trade policies is unlike anything ever seen in American history.
“It was always taken as a given that when the president spoke on Monday, he would likely still mean it on Tuesday,” University of Michigan’s Justin Wolfers told Barron’s, adding there was no “BACO trade” under Joe Biden. “That’s no longer true. But what’s really hard is that it’s not even obvious when it’ll be true, and when it won’t be. Madness.”
