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President Trump’s threat to impose high tariffs on foreign countries has sparked a phenomenon known as the ‘TACO trade,’ where markets tumble after threats are made, only to rebound sharply when deals are reached.
When a reporter from CNBC asked President Trump about the recent term circulating on Wall Street, known as the ‘TACO trade,’ which stands for ‘Trump Always Chickens Out‘ when it comes to carrying out his threats to impose high tariffs on foreign countries, Trump responded angrily.
The origin of this term is credited to Financial Times columnist Robert Armstrong, who described it in a May 2 article.
In 2018, the United States imposed tariffs on Mexican goods, including avocados and tomatoes, in response to a surge in migrant arrivals at the US-Mexico border.
The move was seen as an attempt by President Donald Trump to pressure Mexico into stemming the flow of migrants.
However, the tariffs had unintended consequences, including higher prices for consumers and potential losses for farmers.
The tariffs were eventually lifted after Mexico agreed to increase its efforts to slow down migration.
The Pattern Behind the TACO Trade
According to Armstrong, the ‘TACO trade’ refers to the pattern in which markets tumble after Mr. Trump makes tariff threats, only to rebound sharply when he relents and gives countries more time to negotiate deals. This phenomenon has been observed on multiple occasions, including when Trump threatened to impose 50% tariffs on goods from the European Union effective June 1 before postponing it to July 9.
In 2018, President Donald Trump imposed tariffs on imported steel and aluminum, citing national security concerns.
The tariffs were set at 25% for steel and 10% for aluminum.
This move was met with opposition from trading partners, including Canada, Mexico, and the European Union.
The tariffs led to retaliatory measures, resulting in a global trade war.
According to the US Census Bureau, the tariffs imposed by Trump resulted in a 12% decline in US imports of steel and a 7% decline in aluminum imports.
The tariffs also had a significant impact on US businesses, with many companies reporting increased costs and reduced profitability.
Trump’s Response to the TACO Trade
At a White House press briefing, Trump was asked by CNBC correspondent Megan Cassella about the ‘TACO trade.’ Trump responded defensively, saying he had never heard the term before and that it was a ‘nasty question‘. He explained that his approach is called ‘negotiation‘, where he sets a number and gradually reduces it to give countries more time to negotiate deals. Trump also pointed out that his initial tariff on China was set at 145% but has since been reduced to 30%.
Negotiation vs. Threats
Trump’s response highlights the difference between negotiation and threats. While some may view his approach as cautious, others see it as a lack of resolve. The ‘TACO trade’ suggests that Trump’s tariffs are often used as a negotiating tool rather than a genuine threat to disrupt global markets.
A Complex Issue
The ‘TACO trade’ is a complex issue that reflects the complexities of international trade and diplomacy. While some may view it as a negative phenomenon, others see it as a pragmatic approach to navigating the complexities of global trade. As the situation continues to unfold, it remains to be seen how the ‘TACO trade’ will impact markets and economies around the world.
Global trade complexities arise from various factors, including tariffs, regulations, and logistics.
Tariffs, imposed by governments to protect domestic industries, can increase costs for importers and exporters.
Regulations, such as those related to product safety and environmental standards, also pose challenges.
Logistics, including transportation and customs clearance, can be time-consuming and costly.
According to the World Trade Organization (WTO), non-tariff barriers account for 80% of global trade restrictions.
