This week in Trumponomics: Too bad TACO isn't true
Traders have come up with a snarky shorthand for characterizing President Trump's trade policy: TACO. Trump Always Chickens Out.
Trump has whipsawed markets by threatening tariffs, imposing tariffs, raising tariffs, lowering tariffs, and sometimes backing down from tariff threats. Stock values have followed the bouncing tariff in an inverse pattern: down when Trump's tariffs go up, and vice versa. Investors who have bought the dips, betting that Trump will relent on tariffs and stocks will go back up, have generally done OK.
The only problem with the TACO trade is that the premise isn't true. Trump doesn't always chicken out. His threats are often worse than his actions, but five months into Trump's term, it is abundantly clear that taxes on imports will be considerably higher for as long as Trump is in charge.
TACO joined the financial vernacular after Trump threatened a 50% tariff on imports from Europe, then backed down after European trade negotiators picked up the phone and started talking with Trump about a trade deal that might avert the tariffs. Financial Times columnist Robert Armstrong had used the phrase TACO in a May 2 opinion piece, but it was Trump's flip-flop on the Europe tariffs on May 26 that sent the acronym viral.
Read more: What Trump's tariffs mean for the economy and your wallet
As Armstrong explained, the TACO trade is a good thing and markets generally cheer when Trump dials back a tariff threat. Tariffs are a tax on imports that raises costs for everybody who buys an import, and higher costs mean more inflation and lower profits. When Trump backs down on a tariff threat, it means less tax money going to the US Customs Bureau and more staying in consumer and business bank accounts.
Trump bristles at the taunt. When a reporter asked him about the TACO meme on May 28, Trump called it a 'nasty question' and said, "They'll say oh, we was chicken. He was chicken. That's unbelievable. Usually I have the opposite problem.'Trump squawking about whether he's a chicken is a priceless bit of ironical bravado, but in reality, Trump is right. He threatens absurdly high tariffs the way a homeowner might post an unrealistic asking price when first listing a house for sale. Trump doesn't do that because he wants to end up at the same tariff level he started at. He does it to end up at a higher tariff level and maybe get something in return.
It would be more accurate to say Trump sometimes chickens out. But TSCO isn't a pithy acronym, and if Trump happened to deescalate a trade threat on a Tuesday, nobody would get the joke if you joshed about TSCO Tuesday.
If Trump always chickens out, then he'd have the perfect excuse right now to wind down his trade war and move on to something else. Two federal courts recently ruled that Trump's claim of a 'national emergency' to justify most of his new tariffs is unconstitutional. If those rulings survive likely appeals to the Supreme Court, they will sharply curtail Trump's ability to impose any tariff he wants at any time. It's an ideal opportunity for Trump to say, well, I tried, and the courts won't let me do it.
Instead, Trump is aggressively challenging both court rulings, with one appeals court finding in Trump's favor by saying the emergency tariffs can remain in effect until it hears the case. Trump, meanwhile, is preparing new tariffs under a wide range of different legal authorities that are more defensible. Those pathways require more prep work while giving Trump less leeway on tariffs, but they could still leave the US economy blanketed by punitive tariffs that suffocate growth.
Read more: The latest news and updates on Trump's tariffs
'We continue to expect that the administration will prepare alternative means to implement its global reciprocal tariffs while the cases are being considered by the court,' Ed Mills of financial firm Raymond James wrote in a May 29 analysis. 'The on-again, off-again impact of the rulings and subsequent pause will continue to compound uncertainty and related market volatility.'
Trump, so far, has raised the average tax on imported goods from 2.5% to about 18%, according to the Yale Budget Lab. That includes the emergency tariffs that the Supreme Court may or may not allow to stand, plus another set of tariffs on steel, aluminum, cars, and car parts that are on more stable legal footing. Trump's team is also working up the justification for new tariffs on imported pharmaceuticals and semiconductors, which Trump suggests will be coming soon.
Most analysts think Trump will ultimately end up with an average tariff rate between 15% and 20%. At current levels, with the emergency tariffs in effect, the Yale Budget Lab estimates that Trump's tariffs will amount to an added tax of about $270 billion per year on American businesses and consumers, costing the average household roughly $2,800 in higher prices and foregone income.
Trump has no problem with that. He has explained away the negative impact of his tariffs by saying the US economy needs 'medicine' and that Americans can buy less stuff if imported products get too expensive.
By the time Trump's tariff regime is fully in effect, many Americans may wish that Trump had chickened out on his trade war. Higher prices and slower job growth, unfortunately, will prove that he didn't.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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