Wall Street's latest acronym has struck a nerve with the former president. "TACO" – "Trump Always Chickens Out" – is the trading floor's cheeky shorthand for a pattern they've observed: big tariff threats followed by quiet retreats.
When a reporter dared mention this unflattering nickname, Trump bristled visibly, dismissing it as a "nasty question" before quickly recasting his policy reversals as masterful "negotiations." Classic Trump. But the nickname reveals something significant about how financial markets have adapted to his particular brand of economic brinksmanship.
I've been covering the intersection of politics and markets since Trump's first campaign, and let me tell you – Wall Street eventually figures out every angle. Always does.
The pattern they've identified is almost comically predictable at this point. Trump announces eye-popping tariffs that send markets into temporary panic. Countries scramble, industries plead. Then... the walkback begins. The final policy ends up significantly watered down, Trump declares tremendous victory, and markets bounce back with a collective shrug.
Sound familiar? It should.
Look, there's a certain brilliance to this approach – at least initially. The unpredictability factor gave Trump genuine leverage in his first term. Nobody knew if he'd really pull the trigger on those massive tariffs! The Chinese government, Mexico, Canada... they all had to take the threats seriously.
But here's the thing about markets (and I've seen this play out countless times): they learn. They adapt. They price in patterns.
By now, sophisticated traders have essentially turned the "TACO effect" into just another predictable market rhythm. One hedge fund manager I spoke with last month admitted they've developed a simple algorithm: wait for Trump's tariff announcement, watch markets dip, buy the dip, wait for the inevitable walkback, sell when markets recover. Rinse and repeat.
Is that what a master negotiator wants? His threats becoming so predictable that traders can profit from them?
The game theory implications are fascinating. A threat is only as powerful as its credibility, right? (I minored in economics, so forgive the occasional academic detour.) Each time you back down, your next threat carries less weight. It's why the Fed guards its credibility like a fortress – once the market stops believing you, the jig is up.
And this brings us to the great irony of the TACO phenomenon. Trump – self-proclaimed master of "The Art of the Deal" – may have undermined his own leverage by establishing this pattern. The Chinese government now seems content to simply wait out his threats, calculating (correctly, it appears) that patience often yields better outcomes than immediate concessions.
But strangely enough, markets have come to... appreciate this predictability? What initially caused stomach-churning volatility has morphed into a tradable pattern. The market now essentially expects the threats to be hollow – or at least significantly hollowed out before implementation.
That doesn't mean the approach hasn't won Trump some victories. It has. Several trading partners have made concessions they might not have otherwise. But the diminishing returns are becoming increasingly obvious to everyone except, perhaps, Trump himself.
(And honestly, who knows what he really thinks? The "nasty question" reaction suggests sensitivity around this topic.)
The wider lesson here isn't really about Trump at all – it's about market adaptation. Markets will eventually pattern-match anything you throw at them. Give Wall Street enough iterations of any behavior, and traders will price it in, develop strategies around it, and inevitably create some snarky acronym to describe it.
So will the TACO strategy continue to work? Possibly, but with diminishing returns. The smart money – literally – seems to be betting that Trump's bite won't match his bark. And in markets, perception often creates its own reality.
Maybe that's the real art of the deal.
