What has come to be referred to on Wall Street as the “TACO” trade has gathered attention in recent weeks. The acronym stands for “Trump Always Chickens Out” because traders have noticed a pattern whereby U.S. President Donald announces aggressive tariffs and markets tumble, but then Trump backs down when faced with the economic and political repercussions of his own announcements and markets subsequently rally.
Financial Times columnist Robert Armstrong used the term in print in early May, writing that “the administration does not have a very high tolerance for market and economic pressure, and will be quick to back off when tariffs cause pain.”
While that analysis has become the conventional wisdom over the past month, it was far less clear to markets during the first 100 days of Trump’s term. Stocks plummeted and currencies became volatile as the U.S. president announced various strict tariff measures. Despite the market rebound, damage has still been done. Some tariffs have been implemented, the threats of severe taxes on international trade remain and the uncertainty created by those threats is harming many countries’ financial outlooks.