The TACO acronym, coined by Financial Times columnist Robert Armstrong, is a reference to U.S. markets remaining calm in spite of recent turmoil.Mark Schiefelbein/The Associated Press
John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.
Why did U.S. President Donald Trump raise steel and aluminum tariffs to 50 per cent this week? It may have something to do with a recent interaction that he did not like.
“That’s a nasty question” growled Mr. Trump, clearly rattled by a journalist who asked him if the TACO trade was real. “Don’t ever say what you said.”
TACO: Trump Always Chickens Out. The acronym was coined by the Financial Times columnist Robert Armstrong a few weeks ago and quickly caught on across Wall Street. Mr. Armstrong had come up with the term to account for the surprising calm in U.S. markets amid the turmoil of recent months.
Despite clear evidence that foreigners were inching toward the exits and big fund managers were diversifying out of the United States, the main indexes have remained relatively tranquil. Bond yields have risen, but they haven’t spiked in the way everyone feared after Mr. Trump’s “Liberation Day.” Equally, the U.S. stock market isn’t having a good year, more or less flatlining while those of major competitors, such as Germany, take flight. But nor is it having a bad year.
From TACO to MEGA, investors love parodies of Trump acronyms
That’s because each time there has been a sharp fall in prices, retail investors have rushed in to snap up shares and bonds. Mr. Armstrong’s calculation was that they rushed in not because they believed in Mr. Trump, so much as that they didn’t believe him at all. Instead, they were betting on the TACO trade – namely that Mr. Trump talks tough but never follows through on his threats. Like a schoolyard bully who says he’ll beat you up while walking away, investors are judging he lives by the opposite rule of the president Teddy Roosevelt, who advocated talking softly and carrying a big stick. Mr. Trump, everyone seems to now think, is all-talk-no-do.
But if that idea takes root, it would also spell the beginning of its own end. Mr. Trump’s raising of steel and aluminum tariffs is proof of that. If he thinks he’s seen as a chicken, he’ll go out of his way to not look like one.
The idea of the TACO trade threatens to undo most of Mr. Trump’s stated plans for his second term in office.
If not only investors start regarding him as the boy who cried wolf, but everyone else does too, it would mean that, for example, governments negotiating trade deals with Washington would know that all they have to do is hold out for longer because Mr. Trump will eventually cave.
Indeed, while the President has sometimes said the purpose of imposing steep tariffs is to force partners to the bargaining table, the fact that he then gives away his main bargaining chip before he has secured any concessions suggests he’s bluffing.
That provides important context to the administration’s continuing trade talks. Mr. Trump’s self-imposed suspension of his “Liberation Day” tariffs is due to end in five weeks. Yet to date only one country, the United Kingdom, has made a deal, and even that one is more of a framework for future talks.
The President is now demanding everyone else step up with their best offers. But if other countries continue holding out – a strategy that has so far, for instance, worked well for China – he will then have to either put up or shut up.
If the TACO trade idea gains more currency, it reinforces the notion that the administration has got itself into a dangerous place.
At this point, barely four months into his second term of office and less than a year before Congress starts gearing up for its next set of elections, Mr. Trump is beginning to look like a lame-duck president. Reined in by adverse court rulings, saddled with the apparent failure of Elon Musk’s budget-cutting mission, stuck with some incompetent cabinet secretaries who are struggling to get traction for his program in their departments, he is now acquiring the reputation of being someone who can be ignored.
In the coming weeks, two events will force Mr. Trump’s hand, and both will thrust the bond market back into the spotlight.
The first is the end of the tariff suspension on July 9. Assuming some countries still haven’t reached deals with the U.S. by then, Mr. Trump will have to either offer another extension or stick to his guns and reimpose tariffs. The former will weaken his authority, the latter could cause another bond market revolt, as happened after “Liberation Day.”
The second deadline will come when the U.S. hits its next debt ceiling, probably before the end of July. That leaves Congress with just a few more weeks to pass his “Big, Beautiful Bill.” If what results blows the deficit, the bond market may again vote non-confidence.
So another showdown between the President and the bond market seems imminent. Having caved the last time, he may feel he has no choice but to buckle down this time. Ultimately, the TACO trade is a bet that Mr. Trump is a coward. But those betting their nest eggs on that belief are taking a big gamble because if he decides he has to break a few eggs to restore his authority, it may be their nest eggs that get shattered.
To the extent those retail investors banking on the TACO trade are Trump supporters, he may risk alienating some core supporters. But the alternative, of looking like a wimp, may be more than he can bear.
Prime Minister Mark Carney says the U.S. decision to double tariffs on steel and aluminum is not justified and will harm Americans as well as Canadians.
The Canadian Press