It was TACO Tuesday in U.S. financial markets. But after each major stock index soared earlier in the week of May 25, President Donald Trump wasn’t in a celebratory mood. Trump learned on Wednesday, May 28, that Wall Street has begun referring to market surges based on his suspension of tariffs on foreign goods as “TACO” trades – short for “Trump Always Chickens Out.”
Taxing trade
Wall Street has adopted a mocking nickname for the stock market bounce that follows President Trump’s suspension of tariffs: TACO trades, short for Trump Always Chickens Out.
“Don’t ever say what you said,” Trump snapped at a reporter who asked about the mocking acronym. “That’s a nasty question. To me, that’s the nastiest question.”
The ‘TACO theory’
The term was coined by Robert Armstrong, a columnist for the Financial Times. He was commenting on a trend in which traders buy stocks at a low price after Trump announces a new tariff, then wait to sell high when he inevitably rescinds or postpones the tariff.
“The recent rally has a lot to do with markets realizing that the U.S. administration does not have a very high tolerance for market and economic pressure and will be quick to back off when tariffs cause pain,” Armstrong wrote on May 2. This is the TACO theory: Trump Always Chickens Out.”
This scenario played out in recent days after Trump announced that he would impose a 50% tariff on goods from the European Union, effective June 1.
On Friday, May 24, a day after the announcement, the S&P 500 fell by 0.7%, the Dow Jones Industrial Average by 0.6% and the Nasdaq Composite by 1%.
Taxing trade
The S&P 500 dropped 0.7% on May 23 after President Trump imposed a 50% tariff on goods from the European Union. The index rose 2.1% on May 27 after Trump delayed the tariff.
Over the Memorial Day weekend, Trump spoke with Ursula von der Leyen, president of the European Commission, and agreed to negotiate a new trade deal. Trump wrote on social media that he would delay the 50% tariff until July 9. “It was my privilege to do so,” he said.
It was the latest in more than 50 tariff announcements since Trump returned to the White House in January, according to The Washington Post. On Tuesday, May 27, the next day of trading, the S&P went up 2.1%, the Dow by 1.8% and the Nasdaq by 2.5%.
And the following day, Trump heard from a reporter that traders were mocking him all the way to the bank.
‘That’s unbelievable’
“It’s called negotiation,” Trump said of his back-and-forth tariff announcements. “They wouldn’t be over here today negotiating if I didn’t put a 50% tariff” on European goods.
He continued: “They’ll say, ‘Oh, he was chicken. He was chicken.’ That’s unbelievable. I usually have the opposite problem. They say, ‘You’re too tough, Mr. President.’”
In any event, TACO trades may be short-lived. The Court of International Trade ruled Wednesday, May 28, that many of Trump’s tariffs were illegal, calling into question the future of the president’s signature trade policy.
