Tariff Tracker, June 8: What ‘TACO effect' says about Trump policies, and what's next for US-China talks

Indian Express

6 hours ago

Dear reader,
It was a particularly mercurial week for the Donald Trump administration, beginning with the US and China trading accusations over reneging on their trade deal last month in Geneva. On Friday (June 6), the US President announced that talks would be held with China this Monday.
On Wednesday (June 4), Trump attempted to suspend international admissions to Harvard University for the second time in recent weeks. A federal judge again stayed the order.
However, the rapid deterioration in the relationship between Trump and his former 'special government employee,' Elon Musk, was perhaps the most talked-about development. On May 30, the two parted on seemingly amicable terms even as the billionaire CEO sported a black eye and dismissed an explosive report from The New York Times, detailing his alleged drug use.
Come Tuesday, Musk described the 'One Big Beautiful Bill' – the Republican Party's signature policy, tax and spending megabill – as a 'disgusting abomination' that would 'defeat ' the savings he claims to have achieved while advising the government on efficiency in recent months. Trump told reporters that their relationship had deteriorated, saying he was 'very disappointed' with Musk.
Over the next two days, the disagreement reached social media – the preferred mode of communication for both Musk and Trump. They launched tirades on their respective media platforms, X and Truth Social. At its peak, Trump threatened to revoke the government contracts of SpaceX, the space tech company owned by Musk, while the latter accused the President of being featured in the infamous Epstein Files. But on Friday night, Musk had deleted his post alleging Trump's association with the infamous paedophile Jeffrey Epstein.
These multiple issues have lent credence to a buzzword that a journalist coined in jest, and is now being co-opted by both Wall Street and the Democratic Party.
On May 2, the Financial Times commentator Robert Armstrong used the phrase 'Trump Always Chickens Out' while reflecting on the aftermath of a month of Trump's Liberation Day tariff announcements. You will recall that on April 2, Trump announced a 10% baseline tariff on all trading partners, and country-specific rates on those countries with which the US has maintained trade deficits. He announced a 90-day pause in the second category on April 9, promising to complete 90 deals with 90 countries in this period.
According to Armstrong, the decline and subsequent revival in stocks (chiefly tech stocks) and the inverse trajectory followed by gold, were indicative of 'markets realising that 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.' He called this the 'Trump Always Chickens Out', or simply, the TACO effect.
The phrase seemed to explain what had ensued since April, with Trump's yo-yoing tariff announcements – first with Canada and Mexico, then the reciprocal tariffs, and ultimately China. On May 23, he threatened to increase tariffs on the European Union to 50%, but backtracked two days later.
Amidst the atmosphere of economic uncertainty, markets are learning to read into this phenomenon with every successive (tariff) announcement. Trump's back-and-forth on tariffs on the EU presented one discernible trend to market analysts, with UBS Wealth Management's Global Chief Economist, Paul Danovan, writing, 'These retreats are so frequent that investors should rationally expect them.'
Trump himself does not seem to be a fan of the acronym, which was brought to his attention by a reporter on May 29. When asked what he thought about the phrase, he called that a 'nasty question'. An analysis by The Washington Post on June 3 posits that the President might take this as an affront on multiple levels. First is the political, since it would no longer seem that he plans to follow through on his threats, making his decisions seem 'less strategic and more like bluster'. Then there is the personal, given his background as a businessman. He had compared the US to a 'giant department store' only in April, for which his administration will 'set the price' for countries seeking to do business with it.
Unlike other countries, China did not immediately seek dialogue with Trump in the wake of his tariff announcements. Every tariff threat was matched with a terse warning and reciprocal countermeasures.
Trump announced a 10% fentanyl tariff on China in February, doubling this in March, following Chinese countermeasures on Liquefied Natural Gas, coal, and farm machinery, among other products. As the trade war escalated, so did the bilateral tariffs, with the US charging 145% tariffs on imports from China, and China responding with 125% tariffs on American goods. Additionally, China restricted rare earths exports through an elaborate licensing system, citing a national security risk, and barred certain American companies from doing business in China.
When the two countries announced a truce on May 12, investors and markets worldwide heaved a sigh of relief. The truce had reduced mutual tariffs by 115% and was set to last 90 days.
However, the Trump administration has objected to the sluggish pace at which China has moved to ease its non-tariff barriers, especially in clearing rare earths mineral exports. The latest edition of our China tracker, China This Week, noted the effects of the shortfall: some European auto parts plants have suspended production, while the FT on June 7 reported that China had agreed to fast-track rare earths exports for EU businesses.
Both the US and China accused each other of not honouring the truce they achieved in May. Earlier this week, China's Commerce Ministry alleged that the US imposed several restrictions against it, including AI chip export control guidance, limiting sales of chip design software – electronic design automation (EDA) – to China, and announcing the revocation of visas for Chinese students. It also protested US Defence Secretary Pete Hegseth's remarks at a defence conference in Singapore, accusing him of trying to 'sow division.' Hegseth had described China as an 'imminent' threat.
Trump has long expressed interest in connecting with Chinese President Xi Jinping over a call to iron out the differences, which ultimately materialised on June 5. In a social media post, he said that the two had a lengthy and 'very good' phone call for about 90 minutes. A day later, he confirmed in a social media post that Treasury Secretary Scott Bessent would lead the American delegation meeting with their Chinese counterparts in London on Monday for renewed trade talks.
There is little clarity on what the upcoming round of talks may yield. A CNN analysis indicated that China's response to Trump's economic sanctions has been to view these in the context of their overall bilateral relations. China's export control regime, which it announced in April, will likely remain in place, even as it chooses to expedite rare earths exports depending on the friendliness between the two nations, it said.