In April, global markets were rocked by Donald Trump’s larger-than-expected “Liberation Day” tariffs imposed on economies around the world.
But the flurry of trade announcements delivered by Trump from the White House Rose Garden that morning has so far failed to play out as the President likely envisioned. Less than two months on, many of the countries hit with sharply higher “reciprocal” tariffs have yet to see them take effect, with the US either pausing or scaling back measures above the 10 per cent baseline.
Markets have now coined a new viral acronym – TACO, short for Trump Always Chickens Out – reflecting a growing view that the President’s tough trade talk often gives way to concessions. Rather than a one-off, this pattern is increasingly seen as a recurring cycle that investors can capitalise on during market dips.
A Financial Times financial commentator, who coined the bold TACO theory, pointed out that the Trump administration is happy to put forward as many aggressive trade policies as it likes – until the economy and markets get too close to boiling over.
Investment markets have taken notice – cue equity markets showing signs of stability, a fall in the price of gold, and narrowing bond yields.
According to AMP’s Shane Oliver, there could be a trading opportunity for investors amid the chaos, but timing is crucial.
“The hard thing is always to work out what President Trump’s initial statement will be that upsets markets, so that’s always going to be hard to predict,” Oliver told InvestorDaily.
“Once it happens, though, the evidence suggests that he often backs down or softens,” the economist noted. “[TACO] is consistent with Trump punching someone in the nose, then backing away, and we’ve seen that time and time again. We saw it in 2018, to some degree.”
In recent days, Trump’s so-called “Liberation Day” tariffs were blocked by a US Federal Trade Court, only to be temporarily reinstated, adding to the policy whiplash that’s keeping investors on edge.
“Trump could always use other laws to impose the same tariffs – most of them anyway – so it hasn’t gone away,” Oliver said.
“So it’s almost half a dozen times in the last three months where Trump has imposed pretty aggressive tariffs and then backed down when he started to worry about the consequences.”
But Oliver underscored that this wager, while a trading opportunity, is a short-term one, mainly because it’s difficult to predict when Trump will get markets aggressively offside, and when they will rebound.
“So the trick for investors, I guess, is to wait for Trump to deliver his shock, then look for the value that’s been created on the assumption that at some point, he’ll go back or he’ll do a backflip,” he said.
But investors are not the only ones to take notice of this particular trend set by the President, whose second term in office began just over four months ago. Namely, according to Oliver, whole economies have identified this habit and perhaps feel less vulnerable because of it.
“Foreign governments might conclude that Trump always backs down, so what’s the point of approaching? What’s the point of negotiating? I have a feeling that’s what the Chinese were doing,” the chief economist said.
“In the case of China, for example, where there was a back down, China didn’t even show any inclination to negotiate with the US, which approached China. And it seems to me that Trump gets fearful that economic consequences would be significant, so that he’s forced to back down, whether you call that chickening out or not.”
What is Trump worried about?
Trump has often touted himself as a man of the markets, posting on Truth Social last year that the Dow Jones gained on the expectation he would win the election – aligning stock rallies to his own success.
But as markets have faltered, in an interview with Fox News in March, the President said, “you can’t really watch the stock market”.
Now, Oliver believes that among the President’s top three concerns is headlines screaming “Trump’s bear market”, which the economist believes is a key reason for Trump’s trade seesaw.
“If shares went into a bear market, then that would worry [Trump]. He narrowly avoided this in April,” Oliver said.
The economist added that financial stability on home soil likely remains a key consideration for the US administration.
While economic downturns typically spell a bonds rally, recent months have also seen offshore investment pull out of the US.
“What was happening in April was that we had economic uncertainty, but investors were deserting the US bond market. I think that worries him as well, because if that garners pace, it’s going to be hard to finance the US budget deficit and make it very hard to finance his tax cuts,” Oliver said.
“The third thing that he’s worried about is recession and the impact of that on ordinary Americans, particularly those who voted for him. They didn’t vote for him to have a recession. But there were increasing fears going into April that there would be a recession.
“That, of course, comes back to politics. If you have a recession, the Republicans are probably going to be decimated in the next mid-term elections in November next year, which would be very bad news for Trump,” he added.
