Wall Street has coined a new term for Trump's tariff threats

'After taking Trump very seriously for a week or two after "Liberation Day," markets are working on the assumption that he can safely be ignored'

(Image credit: Kevin Dietsch / Getty Images)

President Trump wants you to know he's not chicken, said Matthew Mpoke Bigg in The New York Times. At a press conference last week, a reporter infuriated Trump by asking him about the "TACO trade." TACO stands for "Trump Always Chickens Out." The term was coined by a Financial Times columnist to describe how Wall Street is taking advantage of a "pattern in which markets tumble after Trump makes tariff threats, only to rebound sharply when he relents." Trump has built a career on flexing political muscle, and the term clearly got to him. "Don't ever say what you said," Trump said. "That's a nasty question." Yet as much as Trump wants to deny it, the TACO trade perfectly describes the Trump economy, said Michael Hiltzik in the Los Angeles Times. The TACO trade is "a two-step process: Buy the dip—the lowered prices following a Trump tariff announcement—and sell at the higher prices after Trump's inevitable chickening out pushes stocks back up."

"After taking Trump very seriously for a week or two after 'Liberation Day,' markets are working on the assumption that he can safely be ignored," said John Authers in Bloomberg. The problem is that if the markets know this, then the rest of the world does, too. If he can't back up his threats, Trump loses any negotiating leverage he may have had. Eventually, he will have to "show he's serious. If he reaches the point where he doesn't chicken out, the market might choke on its tacos." Even if some investors have profited, the TACO trade is still dangerous for the markets, said Alexandra Canal in Yahoo Finance. Trump's tough talk and limited action has been a boon "for retail traders who have jumped in to 'buy the dip.'" Over the longer run, though, as one Wall Street analyst puts it, "this is a roller-coaster ride. Not good for long-term planning and not good for corporate investment."

Wall Street never really understood Trump in his first term, said David A. Graham in The Atlantic. This time, "investors have begun to grasp the pattern" of Trump's bluffing. Unfortunately, the TACO trade is like every arbitrage in the financial markets: It "eventually loses its power once people get hip to it." Trump may be temperamentally inclined to chicken out, but "he can easily be dared into taking bad options." The worst-case scenario is that the less investors take Trump seriously, the less pressure there is for him to reverse course. And if it ever turns out that Trump is for real, it's the investors who will turn tail and watch the markets tank in the ensuing panic.