A bad wrap: An angry Trump blasts the ‘TACO Theory'
Donald Trump's tariff rhetoric, once a source of market volatility, has since been viewed as reversible and unreliable, tempering investor reaction. (EPA Images pic)
WASHINGTON : President Donald Trump made no pretense at hiding his irritation this week when he was asked by a reporter about 'TACO' – an acronym that has been gaining traction among Wall Street traders who believe that 'Trump Always Chickens Out.'
The so-called 'TACO Theory' was coined by Robert Armstrong, a Financial Times writer seeking to underline the US president's tendency to backtrack on policies when they start to roil the markets.
Investors have come to realize 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,' the journalist concluded.
'This is the TACO Theory: Trump Always Chickens Out.'
Armstrong was writing earlier this month, after stocks had just rebounded sharply on Trump's announcement of a pause in massive tariffs imposed on the rest of the world by the Republican leader.
Worsening the whiplash, Trump announced last week that tariffs of 50% on imports from the European Union would come into force on June 1 – but two days later declared a pause until July 9.
At the heart of Trump's flip-flops is an acute sensitivity for the ups and downs of market trading that he honed as a brash New York property developer and business magnate in the 1980s.
During his first term in office, a sharp reaction on Wall Street could sometimes be the only way to change the billionaire's mind.
Beyond the columns of the Financial Times, the 'TACO Theory' is having a viral moment, and has entered the lexicon of investors who see it as more than just a snarky in-joke, according to analysts.
'TACO trading strategy gets attention again,' blared the headline on a podcast released Monday by John Hardy, head of macroeconomic strategy at Danish investment bank Saxo.
The phrase eventually found its way back to the 78-year-old president, who furiously denied on Wednesday that he was backing down in the face of stock market turmoil.
'I chicken out? I've never heard that… don't ever say what you said, that's a nasty question,' the mercurial tycoon thundered, rounding in the journalist who had asked for his take on the expression.
Far from caving, Trump said he was merely engaging in the high-stakes cut and thrust of international dealmaking, he snarled — adding, with a sardonic edge: 'It's called negotiation.'
For Steve Sosnick of Interactive Brokers, the TACO Theory is a 'nonpolitical way of the markets calling the administration's bluff.'
Sam Burns, an analyst at Mill Street Research, told AFP he has noticed a new equanimity in Wall Street's reaction to each new tariff announcement, with traders' responses initially 'much larger and more direct.'
Where they once convulsed markets, Trump's tariff talk now tends to be viewed as 'easily reversible or not reliable,' said Burns, and investors are accordingly more willing to ignore the instinct to act rashly.
This new calm was evident among traders at the New York Stock Exchange who held steady in the face of Trump's EU tariff threats, and again when they did not overreact to successive court rulings blocking and then temporarily reinstating most of the tariffs.
But Hardy, the Saxo analyst, warns that the vagaries of Trump's day-to-day announcements should not distract from the protectionist bent of his broader political outlook.
'Trump might 'chicken out' at times,' Hardy wrote in a recent commentary on Saxo's website.
'But the underlying policy moves are for real, and a deadly serious shift in US economic statecraft and industrial policy that is a response to massive instabilities that have been growing for years.'
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