What is the Taco Trade? Why investors have a favourite new phrase linked to Trump’s tariffs

The investing world loves an acronym and there’s a new one in town thanks to President Trump: The Taco Trade.

As Wall Street has rallied after its tariff-induced slump, investors have coined the phrase as a way to capitalise on the the US President’s mercurial behaviour.

Coined by Financial Times journalist Robert Armstrong, Taco stands for ‘Trump Always Chickens Out.’ 

The trade involves buying stocks after markets go down due to Trump imposing or threatening tariffs or other measures, then selling them as their value recovers when the president declares a pause or retreat.

After initial fears that he might not back down on his hardline policies, traders are now back to betting that Trump will reverse course if the economic fallout from his tariff policies becomes too severe and obvious.

It’s a bold trade, considering Trump’s unpredictable ways, but it paid off with the 90 day pause on his initial Liberation Day tariffs and then again recently on short-lived measures against the EU.  

Near the end of May, President Donald Trump warned that he would slap a 50 per cent tariff on goods imported from the European Union starting from the beginning of June.

He said negotiations were ‘going nowhere’ with the trading bloc, which sold more than $600billion of goods to the US last year.

Yet after shares spiralled and the EU said it would not make a deal based on ‘mutual respect, not threats,’ Trump backed down just two days later.

He said the tariffs would instead be imposed from 9 July. US stocks subsequently soared the following Tuesday.

It was not the first time Trump has backtracked on tariffs; he agreed to lower taxes on imported Chinese goods from 145 per cent to 30 per cent last month for 90 days after China raised their own levies on US products to 125 per cent.

And on 9 April, the US president suspended ‘reciprocal’ tariffs – higher import taxes on dozens of nations – announced in his ‘Liberation Day’ speech the previous week.

As Armstrong wrote: ‘The US administration does not have a very high tolerance for market and economic pressure, and will be quick to back off when tariffs cause pain.’

Trump unsurprisingly reacted badly when asked about the acronym by a reporter, calling her question ‘nasty.’

He remarked: ‘I think we really helped China tremendously because, you know, they were having great difficulty because we were basically going cold turkey with China.

‘We were doing no business because of the tariff because it was so high. But I knew that.’

More recently, the president reignited uncertainty into the global trading system as he warned of his intentions to double tariffs on steel and aluminium imports to 50 per cent.

And on Monday, China accused the US Government of ‘seriously violating’ the trade deal agreed last month in Geneva, Switzerland.

Tom Hibbert, multi-asset strategist at Canaccord Wealth, said ‘there is an element of negotiating strategy’ in Trump’s approach to tariff policy, ‘although it relies more on blunt force than measured diplomacy, which has introduced huge uncertainty.’