TACO Trade
There are two basic ways to successfully deal with a bully: you can stand up to him, or you can laugh at him. Wall Street is apparently now taking the second route, as traders openly ridicule Donald Trump.
There's a new acronym making the rounds on Wall Street: "TACO," or (more specifically) the "TACO trade." It stands for "Trump Always Chickens Out," and it refers to the resilience of the markets after a cycle which is becoming more frequent in Trump's tariff war. The cycle starts when Trump, in a fit of pique, announces insanely-high tariffs will be levied. The market then tanks. Trump then backs off and announces he will be "pausing" the tariffs, or severely rolling them back. The market then gains back what it had lost.
Here's the latest iteration of this new phenomenon:
The market dropped on Friday, when Mr. Trump threatened to ratchet up tariffs to 50 percent on goods from the European Union, a move that could have done severe economic damage to Europe and the United States. But at the time, some analysts like Salomon Fiedler of Berenberg, a German bank, said it wouldn't last.
"Wild threats by Trump are not unusual," he wrote in a note that day. "Given the damage the U.S. would do to itself with this tariff, he will probably not follow through."
Late Sunday, Mr. Trump said that the E.U. tariffs would be delayed to July, which led to a global market rally the next day. "These retreats are so frequent that investors should rationally expect them," Paul Donovan of UBS Wealth Management wrote as stocks in Europe jumped Monday morning.
And as U.S. markets, which were closed on Monday for Memorial Day, joined the rally on Tuesday, Chris Beauchamp of IG Group summed it up with "TACO trade triumphs once again."
They could just have easily called it the "wolf trade," since you could also fit it into the metaphor of "the boy who cried 'Wolf!'" But TACO trade is pretty catchy, I have to admit.
Trump has gone through this cycle numerous times now, with Canada, Mexico, China, the E.U., and specific industries or products that get exemptions from tariffs after major companies' leaders beg the White House to relent. We've all seen the rollercoaster ride the markets have taken during each of them, as investors get whiplash from the sudden changes.
Trump keeps painting himself into a corner with his tariffs, since levying high taxes on countries or certain industries is not painless -- it causes pain on both sides of the equation. Trump can inflict great damage on (for instance) China's economy by slapping a 145 percent tariff on their products, but this also does great damage to the U.S. economy as well. This happens both from the reciprocal tariffs China slaps on our products and from the fact that such a high rate is effectively a trade embargo, which leads to factories shutting down in China but also leads to empty shelves in American stores. Tariffs are a double-edged sword, which Trump doesn't like to admit. Whether he admits it or not, though, tariffs cut both ways, and this economic reality has forced him to back off time and time again.
If Trump were serious about levying such high tariffs, he wouldn't chicken out in the end, but this would lead to serious economic pain in America that would all be laid at his feet. Because he doesn't want to shoulder this blame, he always backs down. And the markets have begun to figure this out.
This is also likely strengthening the hand of all the countries in negotiations over trade with the White House. If they know that Trump is essentially a paper tiger, never willing to follow through on his dire threats of sky-high tariffs, then it changes other countries' bargaining position in a big way.
It's been hard to keep track of all the various different tariffs Trump has announced, but we will be approaching two milestones soon which will test the TACO theory in a big way. The first is July 9th, which is the end of the 90-day pause Trump announced for his worldwide tariff rates. If trade deals are not in place by that date, then all the tariffs Trump originally announced on "Liberation Day" are supposed to reappear in full. Roughly a month later will be the end of the 90-day pause on the Chinese tariffs. We'll see what happens when these deadlines arrive.
Donald Trump is slowly and painfully learning that his simplistic view (which is either delusional or just wildly ignorant, take your pick) of how tariffs operate is just not correct at all. The way he's always spoken of them, he thinks that tariffs are paid by the foreign country's government and that they are completely cost-free for American importers, businesses, and consumers. None of that is true, of course. Foreign governments do not pay one dime of the tariffs; in fact, the American businesses and consumers are the ones who pay it. Either the business makes less profit or they raise their prices and the consumers pay the tax. But the foreign country and the foreign businesses selling the product pay nothing. They do take an economic hit, when American importers stop ordering their products (because with the tariffs it would be impossible to sell the goods at a price Americans would be willing to pay). But the tariffs are all paid by Americans, one way or another.
Trump has had to face this reality, over and over again. And when the pressure gets to be too much (either through C.E.O.s calling up the White House to explain the reality of the situation, or through the markets reacting negatively), Trump chickens out and backs down.
Trump was asked about the new term by a reporter today, and you can tell he is not a big fan of the new TACO acronym (he called the question "nasty") by watching the video of the word salad response he came up with in response. I suppose you could call it his TACO salad response?
Kidding aside, Wall Street and the rest of the world all seem to have a new view of Trump's tariff threats. This could end two ways, though. If the TACO cycle holds, then other countries will just call Trump's bluff and say: "Go right ahead and slap whatever tariff you want on our products. We'll be ready to talk when you are forced to back down again." Or Trump could get incensed by the fact that nobody is taking him seriously (and by the TACO label), and instead actually not chicken out and keep tariff rates sky-high no matter what happens to the markets or the American economy. This would backfire on him spectacularly, as his approval numbers would tank even further than the dismal point they're at now, but he might not care if he's in enough of a snit over not being taken seriously.
The only other way out of this mess would be if Congress stood up for itself and took back the power to levy tariffs. Taxes, according to the Constitution, are the purview of Congress, not the president. Trump is using "emergency powers" to levy the tariffs, but Congress was the one who handed presidents that power, and they could always take it back. But at this point, that doesn't seem too likely -- at least not before things get a lot worse economically.
Instead, we'll probably all continue on this rollercoaster ride as Trump's on-again-off-again tariff tantrums continue. Because Wall Street has figured out that it's all performative and that if they hold tight and wait it out, there will inevitably be a TACO at the end of it.
Chicken tacos, anyone?
-- Chris Weigant
Follow Chris on Twitter: @ChrisWeigant
The only other way out of this mess would be if Congress stood up for itself and took back the power to levy tariffs.
. . . or he could take the off ramp the courts gave him today.
Obviously, this was all written before the big breaking news:
https://www.huffpost.com/entry/ap-trump-tariffs-lawsuits_n_68379989e4b00a0537e023f7
-CW
You conclude that Wall Street is about to stop panicking and selling off whenever Trump announces another insane tariff rate against an economic partner. They've figured out the 'TACO' nature of his tariff policies: he always backs down, so why bother with the panic and the sell-off any more?
OK, good. But in fact, you also offer an alternative future:
"Or Trump could get incensed by the fact that nobody is taking him seriously (and by the TACO label), and instead actually not chicken out and keep tariff rates sky-high no matter what happens to the markets or the American economy. This would backfire on him spectacularly, as his approval numbers would tank even further than the dismal point they're at now, but he might not care if he's in enough of a snit over not being taken seriously."
Whoa. That's entirely different from this TACO humor, isn't it? Trump's pique and uncontrollable id actually results in permanent, long-term, hugely destructive tariffs, for which Wall Street didn't sell off because they think their TACO take on the situation is the right one.
But having raised this possibility as if it is a serious factor in our economic planning, you immediately dismiss it as improbable, and go back to the comforting wrap-up line, "Chicken tacos, anyone?"
Why bring up the nuclear option, so to speak, only to immediately dismiss it?
@John,
interesting point, what if Donald decides to head over the cliff after all?
JL
Chris on [2],
Interesting! But, as with most of these lower court decisions challenging the Republican administration's apparently illegal overreaches and seizures of arbitrary power, it's just not clear what the practical effect will be. The article makes that clear - none of this is final, and the Supreme Court is going to have to make a decision eventually. Like, say, about 18 months from now. Great.
I did notice that the HuffPo article asserted that Trump's tariff policies are 1) designed to return manufacturing industries to the U.S from abroad; and 2) designed to force importers to agree to better trade terms that would allow manufacturing to continue abroad.
Completely contradictory, of course, as we've discussed on this column for many weeks now. And the HuffPo writer, like so many hapless economics reporters, doesn't seem able to point out the contradiction to its readers, but writes nonsense just the way it comes out of the White House.
Why does the media allow itself to be the Trump White House's bitch like this?
@john,
I agree with you that it's silly to report the administration's alleged reasons for imposing the tariffs. however, the fact that the two narratives are contradictory to each other is hardly the most salient point. in all likelihood they didn't consider either of these goals except post-facto. that's been the administration's m.o. all along - ready, fire, aim. presumably we're in the "aim" phase at the moment, and if either of those aims (or any other) ends up being remotely successful, they'll claim that was the only goal all along.
JL
The orange one held a public humiliation and swearing in ceremony for Fox Defamation Specialist Jeanine Pirro on Wednesday. The White House press was hilariously underwhelmed and too busy asking nasty questions about TACOs to care about her.
You don't want to ask questions? - Fat Donny
You just want to talk to him, I get it. - Pirro
@jfc,
If Donald decides to be smart about it, he'll use the court decision as an off-ramp to the TACO issue, like you suggested. but what odds would you give that Donald decides to be smart about it?
JL
Here’s my monthly this ALL makes perfect sense if Trump/Krasnov is being “run” by the Kremlin.
I cannot recall a single response to my theory from Weigantia. I’d like a reality check, please.
I believe that it's very improbable that he'll take the off-ramp. The appeal is likely already underway.
He seems to have the critical thinking skills of a toddler. He could have tried to do something about covid and been a hero. Instead, he did what he did. Likewise, he could have put the economy on cruise control and crowed about how wonderful he is. Instead, he's hellbent on destroying the economy so that he can blame it on Biden. Most importantly, he's mentally defective and I believe he just enjoys overtly behaving like a mobster goon.
[9] I said this under Tuesday's column:
VladP must be thrilled. He knows an empty threat when he sees one. The senate will act! LOL. Why does Fat Donny need a bill? To make sure it never happens? He just waves his magic wand at everybody else, but he's Putin's bitch.
If that's not enough validation for you, I'm afraid you're out of luck with me.
@caddy,
Donald is not bright enough to intentionally function as a spy nor even an asset of a foreign country. His habits and preferences happen to align quite well with Putin's agenda, and Putin figured out very quickly how to manipulate him, which is why there's obviously been mutual support. however, Donald is way too much of an egotist to ever intentially operate under anyone else's direction. He'll go to his grave believing everything he ever did was his own original idea.
JL
Vlad probably reminds him of Fred and he's just trying to please Daddy.
So the answer to the question was three weeks.
We cannot say we did not see that coming.
. . . and now another judge has ruled against Fat Donny's tariffpalooza. When it rains, it pours. Poor Donald. So unfair.
nypoet22
6
in all likelihood they didn't consider either of these goals except post-facto. that's been the administration's m.o. all along - ready, fire, aim. presumably we're in the "aim" phase at the moment, and if either of those aims (or any other) ends up being remotely successful, they'll claim that was the only goal all along.
Yes, sir. Exactly! Totally... 100%. :)
John From Censornati
7
You don't want to ask questions? - Fat Donny
You just want to talk to him, I get it. - Pirro
Somebody should have at least asked Jeanine Pirro how many more unqualified alcoholics were remaining at Fox News Entertainment from which Trump could staff his administration. She hasn't practiced law in near two decades.
@kick,
are you sure you didn't mean Fox News SPORTS entertainment?
those guys can make professional wrestling out of anything.
JL
This is quite a lively and on-topic discussion.
Speaking of when and if Trump will take the off-ramp, I read another blog's analysis of the consequences of the recent Trade Court ruling that the president has no power to impose tariffs.
Briefly, the writers concluded that the Appeals Court in question, the Federal one, is very likely to uphold the ruling on clear legal grounds. That court has national jurisdiction, so the Supreme Court would have little reason to hear an appeal at its level, and even the Supremes are likely to stick to the law when it is so plainly written.
The president could try to get Congress to change the laws and give him the tariff power that he doesn't currently have, but how likely is that with this Congress?
The writers conclude that the off-ramp - Trump simply not talking about tariffs any more and pretending the entire thing never happened - will be taken by the end of this year.
@john,
I am skeptical of that scenario ever occurring. but if so, i'm sure the rightwingosphere will laud donald's "genius" for pushing the courts to clarify the law and forcing other countries to jump at shadows.
JL
I'm curious of what would happen if SCOTUS keeps the ruling or punts and Trump defies continuing with tariffs. Would a state like California kick out the federal tariff collectors on grounds they are acting illegally, put in state collectors and become a tariff free or tariff lite state?
TACO, TACO man
I gotta be a TACO man
nypoet22
18
are you sure you didn't mean Fox News SPORTS entertainment?
I meant the whole enchilada... ummm... TACO!
those guys can make professional wrestling out of anything.
The Department of Education comes to mind. ;)
John M from Ct.
19
Speaking of when and if Trump will take the off-ramp, I read another blog's analysis of the consequences of the recent Trade Court ruling that the president has no power to impose tariffs.
Legally? I believe there are several routes Trump could legally impose tariffs:
* Trade Act of 1930. POTUS could impose tariffs up to 50% on imports from nations that discriminate against the United States.
* Trade Act of 1974, Section 122. POTUS could impose tariffs up to 15% but limited to 150 days.
* Section 232 tariffs such as those imposed by Trump on steel, aluminum, automobiles could be used to cover other sectors but not used like global blanket tariffs.
Briefly, the writers concluded that the Appeals Court in question, the Federal one, is very likely to uphold the ruling on clear legal grounds.
Seems likely at the Appeals Court level, but did those writers factor in the fact that Trump is notorious for attempting to leapfrog over that level and go directly to the Supremes? He'll attempt a stay while the court considers the issue or he'll attempt to go direct to SCOTUS. Chaos will ensue, etc.
That court has national jurisdiction, so the Supreme Court would have little reason to hear an appeal at its level, and even the Supremes are likely to stick to the law when it is so plainly written.
These Supremes!? Alito et alia? They are just as likely to strike it down based on some procedural BS they invent or twist themselves into a pretzel to stall the entire issue.
The president could try to get Congress to change the laws and give him the tariff power that he doesn't currently have, but how likely is that with this Congress?
Not happening with this Congress; he doesn't have the votes.
The writers conclude that the off-ramp - Trump simply not talking about tariffs any more and pretending the entire thing never happened - will be taken by the end of this year.
No way. Trump will double down and use whatever means he has to impose those tariffs as long as he can, even if they're temporary. The Castrated Caucus will do nothing... for now. Trump does have legal ways he can impose tariffs... just not the one he's chosen.
IMO :)