The TACO Trade strategy , or “Trump Always Chickens Out,” acronym has become popular among financial commentators and investors. It is used to explain a pattern in the markets where U.S. former President Donald Trump issues aggressive tariff statements, which induce market uncertainty, only to later relax or reverse them and leading to relief rallies.
The term was coined by Robert Armstrong, a commentator for the Financial Times. It describes the mechanism by which traders bet on Trump’s threat of tariffs being diluted before they are completely imposed so that they can profit from volatility in the markets.
How the TACO Trade Works
The strategy is based on a cyclical mechanism:
Trump threatens tariff dramas – Markets decline in reaction, fearing economic mayhem.
Investors hope for a reversal – Traders purchase or hold at cheaper levels, instead of panic-selling.
Trump lowers or delays tariffs – Markets rebound, compensating buyers of the dip.
Recent Examples of the TACO Trade
There have been several instances that have reaffirmed the TACO Trade pattern:
China Tariffs: Trump first imposed a 145% tariff on Chinese imports, frightening markets. In weeks, he cut it to 30%, and that was the trigger for a stock market rally.
EU Goods Threat: May 24, Trump threatened to tax 50% on imports from Europe. Two days later after talks, he postponed the deadline to July 9, sending a surge in U.S. stocks.
Global Reciprocal Tariffs: On April 2, Trump imposed blanket tariffs, which went into effect on April 9. Within hours of going into effect, he temporarily suspended them for 90 days, with one exception, China, leaving the S&P 500 to have its best day since October 2008.
The TACO Trade has imparted a unique rhythm to financial markets:
Traders buy the dip – Instead of freaking out, investors anticipate tariff reversals.
Bond markets respond – Yields spike on tariff announcements but recover when Trump backs down.
Algorithmic trading adjusts – Hedge funds, as well as artificial intelligence-driven trading algorithms, now factor in Trump’s tariff influence.
Trump’s Response to the TACO Trade
In response to the word, Trump dismissed it, explaining, “You call that chickening out? It’s called negotiation.” He argued that imposing huge, high tariffs was a maneuver aimed at pushing other countries into making concessions.
The TACO Trade Strategy is concerned with how political uncertainty affects financial markets. Although it has been viewed by some as a profitable trend to trade and by others as one that destabilizes the economy, investors have learned to leverage it, hence volatility in tariffs being an opportunity.
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