Sheinbaum Knows That Mexico Can't Count on Trump ‘Chickening Out'

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2 days ago

What has come to be referred to on Wall Street as the 'TACO' trade has gathered attention in recent weeks. The acronym stands for 'Trump Always Chickens Out' because traders have noticed a pattern whereby U.S. President Donald announces aggressive tariffs and markets tumble, but then Trump backs down when faced with the economic and political repercussions of his own announcements and markets subsequently rally.
Financial Times columnist Robert Armstrong used the term in print in early May, writing that 'the administration does not have a very high tolerance for market and economic pressure, and will be quick to back off when tariffs cause pain.'
While that analysis has become the conventional wisdom over the past month, it was far less clear to markets during the first 100 days of Trump's term. Stocks plummeted and currencies became volatile as the U.S. president announced various strict tariff measures. Despite the market rebound, damage has still been done. Some tariffs have been implemented, the threats of severe taxes on international trade remain and the uncertainty created by those threats is harming many countries' financial outlooks.
Yet, amid the global panic over trade that began as Trump took office, one world leader appeared to take every announcement with calm and strategic patience even though Trump's global trade war threatened her country's economy more than most. While other world leaders reacted in the moment, Mexican President Claudia Sheinbaum consistently emphasized the need for a measured and diplomatic approach to Trump's tariffs rather than immediate retaliation. Sheinbaum was confident that Trump could be convinced to back down on a regular basis, and she has been rewarded for that approach.
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Early in his term, Trump announced large tariffs on Mexico and Canada. During a key February phone call, Sheinbaum surprised Trump by speaking in English and proposed deploying 10,000 troops to the U.S.-Mexico border, even though those Mexican troops were largely already in place. 'You're tough,' Trump reportedly told her, and he paused planned tariff hikes. The pauses keep coming, with Trump backing down from his initial threats repeatedly over the first four months of his term. Immediately after the 'Liberation Day' announcement of extensive global tariffs on April 2, Sheinbaum highlighted to her domestic audience the fact that Mexico had not been on the list of tariffed countries and territories. Canada and Russia were the only two other countries to escape tariffs that day, even as islands inhabited only by penguins made the list. As recently as two weeks ago, Sheinbaum highlighted how she got on a call with the U.S. president and convinced him to back down on steel and aluminum tariffs on Mexico yet again.
Mexico's currency has held relatively steady across the course of this year, and the Mexican stock market has held up quite well despite predictions that the global economic environment would drive the country into a recession. Opinion polls show Sheinbaum is wildly popular, with some putting her approval rating at more than 80 percent, largely driven by a rally around the flag effect as most Mexicans, even many who didn't vote for her, support her efforts to fend off the worst damage from Trump's policies toward the United States' southern neighbor.
At least three key pieces of Sheinbaum's biography have shaped her response to Trump. First, she is an academic and a technocrat more than a populist. This means she cares more about policy outcomes than some personalistic leaders, such as Colombian President Gustavo Petro, do. That doesn't mean she hasn't benefitted politically or used her victories in this dispute to bolster her image, but she also doesn't pick fights for the sake of public disagreement. Second, Sheinbaum followed another populist, Andres Manuel Lopez Obrador, or AMLO, in office and in fact worked with AMLO to convince him to hand off the presidency to her. Because AMLO and Trump are similar in the way they approach politics and disputes, Sheinbaum's relationship and experience with her predecessor likely allowed her to hone her negotiating skills so that she could effectively deal with the U.S. president. Third, she has continued AMLO's tradition of holding a televised morning press conference, la mañanera, which allows her to control Mexico's media narrative on a daily basis and get ahead of whatever stories might sidetrack her negotiations with the United States.
But unlike Wall Street investors executing the TACO trade, Sheinbaum understands that she can't always count on Trump backing down of his own accord—she must put in some work on her end to make it happen. Trump's withdrawal of threats has come after sustained diplomatic engagement, regular high level phone calls and meetings, and a willingness to concede on some details to maintain the broader relationship. While it's quite possible that economic damage would eventually force Trump to back down from his threats, Sheinbaum has let him save face at every turn, even as she has outmaneuvered him in negotiations. Though it's not possible to know what Mexican officials say and think privately, Sheinbaum would never openly say that Trump 'chickens out,' because she knows that the U.S. president's ego matters if she is to be successful in playing this game over and over again across Trump's second term.
On the other hand, market analysts have pushed too far in gloating about the president's surrenders on trade issues. When asked about the TACO trade at a recent press conference, Trump disputed the characterization that he has backed down, saying that he has been negotiating tough deals worldwide, and he appeared offended at the suggestion that he 'chickens out.' It could turn out that the publicity garnered by the TACO trade is its own undoing because the president may be less willing to back down in the future.
Four months into Trump's term, for both Mexico and Wall Street, what has worked so far is not guaranteed to work for the next four years. And ongoing uncertainty over U.S. trade policy carries its own significant risks. The constant tariff threats, even as they have been withdrawn repeatedly, have stalled foreign investments in Mexico, as businesses fear financially backing projects in the country when they are uncertain about whether tariffs will be imposed.
That's why Sheinbaum's next move must be an effort to convince Trump to engage in a sustained dialogue to secure guarantees about the future of tariffs and the USMCA trade deal. If she can successfully pull that off, she'll lead her country well beyond whatever trendy trade catches Wall Street's fancy next.
James Bosworth is the founder of Hxagon, a firm that does political risk analysis and bespoke research in emerging and frontier markets, as well as a global fellow at the Wilson Center's Latin America Program. He has two decades of experience analyzing politics, economics and security in Latin America and the Caribbean.
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