 "What is TACO trade and how 'Trump chickening out' helps investors profit")
The ‘TACO trade’ has become Wall Street’s snarky shorthand for navigating the unpredictable tariff policies of US President Donald Trump, and it’s starting to get under his skin. But what does this mean and how are investors using the TACO trade as a trading strategy?
What is TACO trade?
‘TACO’ is an acronym for ‘Trump Always Chickens Out’. The term was coined by Financial Times columnist Robert Armstrong to describe a pattern in Trump’s trade strategy. It reflects a cycle where Trump makes sweeping tariff announcements that shake global markets, only to roll them back or delay them shortly afterwards in response to economic or political pressure.
It’s a cycle that has played out repeatedly since Trump’s return to the political spotlight and his aggressive approach to tariffs, especially against China and the European Union.
How does the TACO trade work?
This approach has led to a recurring trading strategy on Wall Street:
- Trump announces punitive tariffs — markets tumble.
- Investors buy the dip, anticipating Trump will backtrack.
- Trump delays, reduces, or withdraws the tariffs — markets recover.
Traders who play this cycle profit from the bounce-back, thus giving rise to the ‘TACO trade’.
The TACO trade pattern: Threat, panic, retreat, rally
On April 2, dubbed 'Liberation Day' by Trump, the US imposed sweeping tariffs on imports from more than 60 countries, prompting panic in global equity markets. The S&P 500 lost over $6 trillion in market value in just two days. Yet, less than a week later, Trump announced a 90-day pause to allow time for negotiations. Nearly two months on, concrete trade deals remain elusive.
This volatility has become the hallmark of Trump-era trade policy. “The recent rally has a lot to do with 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,” Armstrong wrote. “This is the Taco theory: Trump Always Chickens Out.”
The pattern repeated as recently as last week, as noted by Barron’s. On May 23, Trump announced 50 per cent tariffs on EU goods starting June 1, sending major US indices into the red. But by Sunday night, he had delayed the move to July 9 following a call with EU Commission President Ursula von der Leyen. By Tuesday, markets rebounded sharply, reinforcing confidence in the TACO trade logic.
IG Group’s chief market analyst Chris Beauchamp told Barron’s, “TACO trade triumphs once again.” In a post on X, he also wrote: “Please note, ‘Turnaround Tuesday’ has been supplanted today by ‘TACO Tuesday’.”
Trump responds to TACO: ‘It’s called negotiation’
Asked about the term during a press conference on May 28, Trump bristled: “Oh, I chicken out? Isn’t that nice? I’ve never heard that.” He insisted that his moves are part of a strategic negotiation process, not indecision. “You call that chickening out? That’s called negotiation,” he said, pointing to examples such as China agreeing to open trade talks after he scaled back tariffs, and the EU requesting urgent meetings after his latest threat.
Trump has made over 50 separate trade and tariff announcements since returning to office, according to an analysis by The Washington Post, many of which were swiftly revised or reversed. Analysts argue this unpredictability is causing turbulence in global trade while creating short-term tactical opportunities for market-savvy investors.