The Rise of the “TACO Trade”: How Trump’s Tariff Talk Shakes Wall Street

Wall Street has a new buzzword that’s gaining traction: the “TACO Trade.” Short for “Trump Always Chickens Out,” the term reflects a recurring pattern observed by financial analysts and investors, where markets plunge in response to aggressive tariff threats from former President Donald Trump, only to rebound swiftly once he walks those threats back.

What Is the TACO Trade?

Coined by Robert Armstrong, a columnist at the Financial Times, the “TACO trade” encapsulates a specific behavior pattern that market watchers have seen multiple times in Trump’s economic playbook. The formula is straightforward:

Trump makes a dramatic tariff threat (usually against the EU, China, or another major trade partner).
Markets react negatively, fearing an impending trade war.
Trump later announces a delay, revision, or softening of the threat.
Markets recover — sometimes sharply.

The latest example occurred in late May 2025. Trump vowed to impose a 50% tariff on European Union goods, rattling global investors. Then, just days later, he claimed to have had a “good call” with European Commission President Ursula von der Leyen, announcing a delay in the tariff decision until July 9. Markets reacted positively: the Dow Jones surged 721 points — a 1.73% gain — as investors welcomed the reprieve.

“The TACO trade engages once again,” said the Saxo Market Call podcast, highlighting how markets were again whipsawed by Trump’s tough talk followed by a diplomatic walk-back.

Market Memory: Not the First Rodeo

This isn’t the first time such a sequence has played out. In April 2025, Trump’s announcement of “Liberation Day” tariffs led to an immediate market sell-off — which reversed course once the tariffs were paused.

Similarly, markets saw an upward bounce when Trump backpedaled on triple-digit tariffs on China, eventually agreeing to lower the rate, despite initial tough rhetoric. These repeated incidents are what led Armstrong and others to satirically frame the trend as a trade strategy in itself.

Trump Responds to ‘TACO’ Criticism

When asked about the “TACO trade” label, Trump appeared dismissive and visibly annoyed.

“I’ve never heard that. You mean because I reduced China from 145 percent that I set down to 100, and then down to another number…? You call that chickening out?” he said in response to a reporter’s question during a recent press conference.
— NDTV Report

Despite his pushback, the label is catching on, especially among traders and analysts who see Trump’s tariff threats as more bark than bite — with predictable market implications.

The Takeaway for Investors

While the term “TACO trade” might sound flippant, it represents a very real market phenomenon. In an environment where policy uncertainty drives price swings, investors are increasingly learning to anticipate reversals in Trump’s economic pronouncements.

In fact, some are beginning to position themselves in advance of the U-turn, taking advantage of predictable patterns rather than reacting to the headlines themselves.

As one analyst noted:

“Trump’s tariff threats may be loud, but history shows they often lack follow-through. The TACO trade is the market’s way of saying: wait for the pause.”