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Short for ‘Trump Always Chickens Out’, the TACO trade refers to growing belief among investors that US President Trump’s hardline tariff threats are often softened.
Global stock markets use the TACO trade strategy to adapt to Trump’s trade policies, anticipating relief rallies when tariff threats are rolled back. (AP Photo)
Global stock markets have been no stranger to volatility during the presidency of Donald Trump. But, as investors grow accustomed to his unpredictable trade policy shifts — often announced via social media or press briefings — a new strategy has emerged: the TACO trade.
Short for ‘Trump Always Chickens Out’, the TACO trade refers to a growing belief among investors that President Trump’s hardline tariff threats are often rolled back or softened before full implementation. As a result, savvy traders have begun to anticipate relief rallies rather than panic-selling at the first sign of trade war escalation.
Origin of the TACO Trade
The term was first coined by Robert Armstrong, a commentator at the Financial Times, and has since gained traction across Wall Street. The core idea behind the TACO strategy is simple: when Trump announces aggressive tariffs, markets dip—but rather than reacting with fear, traders wait for a reversal or delay in the policy. More often than not, they’re rewarded when Trump walks back the threat, sending stocks soaring.
President Trump, when confronted with the phrase by a reporter, dismissed it, saying, “You call that chickening out? It’s called negotiation.” He insisted that setting high tariffs was part of his strategy to force other countries into concessions.
Recent Examples Reinforcing TACO
Several recent episodes have strengthened investor confidence in the TACO approach:
China Tariffs: Trump hiked tariffs on Chinese goods to a staggering 145%, alarming markets. But within weeks, he scaled them back to 30%, sparking a relief rally in the stock markets.
EU Goods Threat: On May 24, Trump threatened 50% tariffs on goods from the European Union, saying there was “no room to negotiate”. Two days later, after “promising talks”, he pushed the deadline to July 9, sending US stocks sharply higher after the Memorial Day break.
Global Reciprocal Tariffs: On April 2, Trump announced sweeping new tariffs to take effect on April 9. But just hours after they were implemented, he announced a 90-day pause for all countries except China. The S&P 500, which had been teetering on bear market territory, posted its best day since October 2008.
Why TACO Works
The TACO trade hinges on a key behavioral insight: markets react not just to news, but to expectations. Trump’s practice of issuing drastic tariff threats and then reversing course has conditioned traders to expect volatility followed by a rebound. Instead of dumping assets during a tariff scare, many now buy the dip and wait for the “chicken out” moment.
Additionally, bond markets have played a role. Yields have spiked and debt has sold off during tariff announcements — only to recover after Trump backtracks. This suggests the White House is not immune to market reactions, especially when they threaten broader economic stability.
Market Impact and Investor Sentiment
The TACO strategy has created a strange new rhythm on Wall Street: ‘sell on Trump’s threats, buy when he retreats’. For algorithmic traders and hedge funds, this has become a profitable pattern. But, it also reflects growing skepticism among investors about the seriousness of the administration’s trade threats.
Critics argue this creates policy uncertainty and volatility, damaging long-term confidence. Supporters, including Trump himself, frame it as tough negotiation — using bold initial threats to extract better terms.
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