Taco tradeback fire as Trump charges tariffs
Wall Street thought President Donald Trump understood everything in his trade war, but last week raised concerns that investors might be wrong.
The market was dismissing the risk of tariffs under the assumption that Trump would follow previous patterns and retreat. The so-called tachtrate.
This allowed the stock to recently reach new record territory, marking a spectacular rebound from the collapse caused by the mutual tariffs of his “liberation date” in April.
But Trump seized the exact same stock market highs to justify pushing for his aggressive tariff rate.
“I think the tariffs were very well received. The stock market has reached a new high today,” he said. He told NBC News on Thursday.
He also proposed a baseline rate of 15%-20%, higher than the current level of 10%.
It came when he continued to publish letters to US trading partners throughout the week and laid out the tariff fees he would face by August 1st if he did not reach a trade agreement. On Saturday he threatened The European Union and Mexico are priced at 30%.
On the other hand, letters are primarily seen as a Tactical negotiationsstocks were pulled back from their all-time highs as doubts about the taco trade creep up.
“The market seems to believe Trump will retreat again,” Capital Economics said in a memo Friday. “We’re not that sure.”
On his part, Trump did not reimpose his mutual tariffs on Wednesday, when the 90-day suspension expired. However, his new August 1 timeline offers a breathing chamber for several more weeks to reach trade deals that avoid the high fees included in his dozens of letters.
Meanwhile, Trump is pushing sector-specific obligations, announcing a 50% tariff on copper, warning that imported drugs could face a 200% share.
For now, the stock has not experienced repeated April meltdowns when the S&P 500 crashed nearly 20% from an affair from a previous high on the bare market. The relatively muted response is probably due to TACO’s trading.
“But it creates a dangerous cycle. The main reason Trump was forced to shelve the original release day plan is because it sells out not only in the stock market but also in the financial market,” Capital Economics said. “Without that pressure, Trump may feel more encouraging throughout this time, especially since, it appears that, at least up until now, it has had little impact on the price of the ultimate consumer goods, and claims that the economy will enter a recession.”
JPMorgan CEO Jamie Dimon also warned. That investors appear to be satisfied with Trump’s tariff risks, and UBS has similarly flagged the “paradox” between the taco trade and Trump.
Bank of America’s economists emphasized that markets that did not revolt in Trump’s new tariff blitz have called it a “non-end game.”
And they added that if stocks ignore the latest shocks, consumer confidence is unlikely to be affected. But that also means the Trump administration has more incentives to recapture. Because the marginal cost of doing so is low.
“The next issue is tolerate how much lower compensation assets are willing to endure compensation, and how much Trump will endure until escalation occurs, as happened in April,” Bofa said. “In other words, the game between Trump and the market is subject to multiple equilibriums.”
Otherwise, Trump and Wall Street can continue to roam.