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So far this week and it's only Wednesday, President Trump has threatened to raise tariffs on South Korean exports to twenty five percent. He said he's okay with a weakening dollar, and Trump announced a massive armada is heading to Iran. Last night, at a speech in Iowa, the President once again criticized the Federal Reserve chair.
We call him too late. He's too late, Durham, too late, Pal, He's too late.
Trump's latest attack on the Fed's independence came in the middle of a two day meeting on interest rates, and as expected, policymakers decided not to lower them. It used to be any one of these announcements could have upbended global markets, but in the second year of President Trump's second term, investors seem to be shrugging them off.
It is Taco Tuesday, but it seems that every day is a taco day these days.
Is that taco trade is sort of emerging here once.
Again, the taco trade, if you want want to call it that.
The boy who cried.
Tariff taco, of course stands for Trump always chickens out. And this is the theory that Trump is not powerfully committed to any policy position in general.
Rob Armstrong is a columnist for The Financial Times and the co host of the Unheedged podcast. He's also responsible for that taco moniker. He came up with the acronym.
So when he makes an extreme threat and he is faced by resistance, either from markets or from the body politic, he turns around and walks the other direction. The guy folds is what it says.
Since election Day in twenty twenty four, many investors have been making a bet that whatever Donald Trump threatens to do, he probably won't. It's unlikely to happen.
The taco trade is the smart money. When the dumb money panics and sells on the last crazy thing the president says, that's when the smart money buys.
This week, Bloomberg Economics published a report analyzing all the times President Trump threatened to raise tariffs and found that roughly three times out of four the tariff he threatened didn't materialize. In other words, the taco trade was right far more often than it wasn't. When I saw that finding, I immediately thought of two people I wanted to talk to. Bloomberg opinion columnist John Authors and Rob Armstrong again, the columnist who gave us the term taco.
You can identify me as anakin skywalker to John's Obi wan Kenobi. John hired me at the FT fifteen years ago. The professional path I currently trot at the FT writing a daily newsletter about markets is a path that was of course plazed by John. So I'm doubly indebted and it's a thrill to just be able to be here and chop it.
Up with him.
To get these two guys together in a studio on a Tuesday night when John was on deadline, I promised them we'd line up dinner.
What's cooking?
Well, I.
Couldn't resist the three of us eight, and then we talked about how the taco trade has evolved over the past year, and how it seems to be changing in real time.
More than one economist has pointed out to me that taco seems like an unstable equilibrium because you know, each time we go through the cycle, the market is less impressed with the stuff Trump says, and so in order to get the response that would make him change direction, he has to say progressively crazier and crazier stuff, and eventually you drive the car over the cliff and the jokes on everyone.
I'm David Gerrett, and this is the big take from Bloomberg News Today on the show, digging into the taco trade, Why Wall Street has come to count on President Trump backing down and what it could mean if investors keep getting rewarded for not taking the President of the United States at his word. A pivotal moment in the evolution of what FT columnist Robert Armstrong calls taco theory was on April second, twenty twenty five.
Nice crowd, What a good looking group of people will we have?
So that's when President Trump made a big announcement about changes to trade policy.
My fellow Americans, this is liberation Day waiting for a long time. April second, twenty twenty five will forever be remembered as today American industry was reborn. Today, America's destiny was reclaimed.
Like many of us, Rob and Bloomberg' John authors were paying close attention. The President had made a lot of noise in the run up to this event in the Rose Garden, and John says he was expecting more bluster and maybe a flat across the board teriffry.
And then it turns out that he was doing ten percent plus reciprocal tariffs, and then it turns out that the reciprocal tariffs were reciprocal in a way that no other and effort even attempted to use that word before. I was literally open mouthed and started swearing at the computer because this is ridiculous, and because it meant I knew,
knew I was going to be an until midnight. I think I spoke to you about got bad, that's right, but I just literally couldn't believe that he was doing something that stupid.
I mean, it was just a jaw dropping moment. It was so chaotic, it was so weird. They taxed an island only with only penguins, all of this stuff, and it spoke. It was so bizarre, you were almost paralyzed.
Rob and John were shocked, and so were markets. Stocks plunged, and the bond market tanked.
The price of bonds fell because everybody at once had the very same reaction that John and I had, where you're seriously contemplating the possibility that these people are crazy.
Rob says, it was a real moment of despair for everyone. But in the days that followed, President Trump started cutting deals and making exceptions, and eventually he took a huge step back.
I did a ninety day pause for the people that didn't retaliate, because they told him, if you retaliate, we're going to double it.
And with that announcement that those tariffs were off temporarily, markets rejoiced.
Then it was just straight north. He starts taking a step back, and we're on mesk later.
This is like peragdimatic taco.
Yeah. Yeah. And those who realized, you know, I wasn't one of them who that they don't care about any of this stuff. They made a lot of money.
And a few weeks later Rob wrote about what had happened.
I ended up writing about this pattern of big talk, huffing and puffing, strong market reaction, Trump pulling back, the market recovering. I just needed a short way to refer to this thing that just kept happening. Taco was funny. I wasn't aware that I was doing something wonderfully clever at the time. It's a really simple claim underneath there. The president doesn't really care about anything, and so if he is forced to pay costs in popularity or power
for a policy, he'll always change it. That could be false, but that's the serious underlying thesis, that there is no there there.
And the president's trade on that assum.
And that markets trade on that assumption exactly right.
Since Rob's first newsletter about the taco trade, we've seen that pattern over and over again.
It was electronics and then no, we're just kidding about that. It was almost any sector specific tariffs we've seen this. John has a better memory.
There was one on India for some reason that went away. Again, there was the Bolscenaro tariffs against Brazil that they were punishing Brazil for not being very nice to Jia.
That's a very important example because that is an example where the country on the other side of the table really stood up and fought in.
It worked.
Yeah, and it's one thing to be China and stand up and fight, but if you're Brazil and your stand up fight, it shows that the range of people who could possibly put up meaningful resistance is much larger.
I want to bring up a study that our colleagues at Bloomberg Economics did recently. They wanted to see how often President Trump has threatened a tariff that doesn't get implemented. They identified forty nine tariff threats or new trade investigations between the November twenty twenty four election and January twenty fifth, twenty twenty six. They found that about twenty percent of those tariffs were imposed in full. Another six percent were
imposed and then withdrawn the China threats among them. That means more than seventy percent of the president's threats of tariffs or trade investigations did not pan out. They were either imposed in part where they haven't been imposed, they've been withdrawn where they're still under investigation. I want to be clear here, Bloomberg Economics did not use the taco term, but I think you could argue two of you might hear that the results imply a taco rate of about seventy percent.
People in the office have been referring to it as the taco store.
Carry on, Yes, if they didn't use the term with Brandon get as such, Rob, what do you make of that when you look at that raw data?
Let me tell you answer as if I was a taco hater, which there are plenty. The taco hater says, just as the President said, this is negotiation. He starts with an extreme offer, He pulls you in his direction, and he gets something at the end of the negotiation and he looks magnanimous. That's the story anyway, And so you might if you wanted to write takoof is just an idiotic joke by a second rate journalist, you might argue, what's the overall tariff rate now? And it's fifteen percent?
We are we tariff more?
Now?
You know, has it achieved the things the president wanted that to achieve. You can have a debate, but he moved the ball forward on the economic field. So I guess that's what I have to reckon with as somebody who believes still believes the Taco thesis, is that it's not the guy has done nothing right. I mean, I think in a way it's more interesting to talk about where Taco has failed to hold right and where he
has followed through. I mean, I got very unpleasant emails after the missile strikes on Iran, and I got very unpleasant emails after Maduro was snatched up and brought to Brooklyn. And the text of these emails or these social media posts was like, who's tacoing now? Right? And I guess my response to that is where we are now is Taco for the strong faffo for the week. This is
how I've been characterizing it. If you are a country like Iran or Venezuela that is not strong enough to push back the taco or Bangladesh, yes, there is no no tacos for you. You will be fooling around and finding out instead.
Coming up after the break, the state of the taco trade, where it goes from here, and the consequences for everyone of wall Street's bet, the president will always back down. Last week, President Trump had Europe on edge. The President made it clear he wanted to make Greenland part of
the United States. His administration went so far as to say military force was not off the table, a move that would pose an existential threat to NATO, and Trump said he'd put additional tariffs on European nations that had rallied to Denmark's side in the standoff. In a speech at the World Economic Forums Annual meeting in Davos, the President doubled down on his demands.
You can say yes and we will be very appreciative, or you can say no and we will remember.
But only a few hours later, Trump announced he'd met with NATO Secretary General Mark Ruta and they'd agree on a framework for a future deal with respect to Greenland, and as the President put it, the entire Arctic region. And Trump backed off the threat of those additional tariffs. Last Blomberg opinions John Authors and the FT's Rob Armstrong if the president's move in Davos could be categorized as a taco.
I think it's an ambiguous case, John May.
And why is that? Why is the.
Markets didn't move that much? First of all, complacent during the speech in the day markets yeah, yeah, And you know, markets were down the doll the dollar was down one in a path or something, and the S and P was down two percent on this really serious soughing puffing. So if he was backing off in the face of pressure, it was political pressure in the form of a more unified Europe.
It did look like what's happened off to Liberation Day, but just a tiny echo of it. It's tiny, Like, yeah, again, you did have the combination of bond yields going up the dollar goes down, which is a sort of classic emerging markets crisis.
And Jolyn Rob emphasized it's the bond market, not the stock market. It really matters here.
The stock market, despite appearances matters less. We discovered that Donald Trump was actually prepared to look through a fairly big reverse in the stock market, and he probably recognizes that his people don't care as much about the stock market. The bond market is normally, when you're scared, you buy bonds. When you are scared in such a way that you sell bonds, that is very dangerous. That's a very unusual state of affairs, and that puts far more direct pressure
on the government itself and on the economy. So the bond market is very, very big. The market for treasuries makes from the stock market look illiquid by comparison. It's very difficult to move once it has started moving against you.
The kind of classic Wall Street way to phrase this is that the bond market is math and the stock market is a bunch of adrenaline adult risk monkeys. Yes, and so the uh so that you get these much more dramatic responses much more quickly in the stock market, but you kind of expect it from the monkeys. When the grown ups in the bond market start to freak out, then you really have a problem.
There's another dynamic, as the idea of taco is absorbed widely with more investors. Assuming Trump will walk back his threats, the taco trade loses its power, and it takes bolder threats to make markets respond.
Like any good economic insight, it degrades itself over time, the market incorporates it, and it starts to disappear. So you know, these things have a half life, and I think taco has had a lot of its half life.
The economist Aaron Do at the University of Massachusetts has written about a kind of taco cycle as markets learned to shrug off increasingly extreme statements from the president that could encourage him to make even bolder promises before he has to contend with a market reaction. I asked John and Rob about the risks of increasing brinksmanship setting off a kind of vicious cycle.
I am inclined to agree with that. I guess the I mean again, it's just this agonizing thing that we will have to spend so much of our time gauging the thought process of this one individual whose thought processes are idiosyncratic. Reverting to my ft training for a second to give you some British understatement.
In the past, markets have acted as a kind of check on policymaking. If a president did or said something unexpected that would spook Wall Street. Well, Rob wonders, if those days are done?
Is a relationship between markets and American presidential power forever changed by Trump? Is the game different now?
I don't.
I don't, but that you know, will what will the next person to sit in the Oval office? Learn about the kind of dance that presidents have to dance with the market from Trump?
And I think, okay, that's a fascinating question. Way to put it, throwing things forward. I think a lot depends on the midterms the administration. The reason markets are doing as well as they are at the moment is because there is an awful lot of stimulus and liquidity out there, and the administration, it's not being shy about this, is trying to stimulate the economy to push us through the midterms.
If it succeeds, that will be very much taken. In Britain, where the incumbent party could choose when to go to the polls, you had the concept of stop going economics, that you would prime the pump, win your election and then give people their medicine for a year or two before you prime the pump again. You might find that there is an attempt to impose that cycle again here or at least when there isn't gridlock in Congress, that there's some kind of an attempt to make that work.
When I talked to shell shocked market participants about being exhausted in the way John described and not knowing how to read this stuff and being worried about their portfolios, which is what they're paid to do, is worry all along, the topic of the Supreme Court comes up pretty quickly, that the lease a cookcase, and of course.
Yap whether he was allowed to do the tariffs in the first place.
Yes, these are really in front of investor's eyes and a real reason for hope and optimism, not about politics, and it's just stability, knowing the rules and being able to play by them. In the taco world as it.
Were, markets historically have been a guardrail. We've talked about the degree to which the taco trade, of the taco theory is baked in. Now investors expect there to be this walk back time and time again. Rob will start with you, what is lost if markets aren't providing the kind of guardrail that they have been in the past.
In a world where markets don't believe anything the government says. Uh. The worry is that markets realize too late the damage that has actually been done. So markets don't believe that the stuff he's saying is gonna happen. If they wake up to the reality that something big has happened too late, I mean, that's the risk. That's the risk. But by the way, I believe the guardrails are in place. We just saw it in Minnesota.
Americans didn't like him trying to grab greenlands, and they sent and they didn't like you know, civilians getting shots on the streets of Minneapolis. That's polling badly. It's getting you know, opposition politicians and his own politicians riled up against him, and it seems to be having an effect. Certainly, both the Supreme Court and the Republican majorities in the two houses of Congress have been less of a tight
guardrail than one would have expected ahead of time. Plainly those guardrails have been less strong or less they haven't been utilized in quite the way that you might have expected, but they are still there.
The action is at the FED right from the point of view of us, of marketspeople, the action is, can Trump bring this institution to its knees, and once he does that, it almost doesn't matter what the rate decisions are or whatever. Just the message that the federal Reserve is now responsive to the President first and foremost, that message would be a disaster. And so for markets people, that's where the guardrails need to be, and that's where the test is.
This is the Big Take from Bloomberg News. I'm David Gura. To get more from The Big Take and unlimited access to all of Bloomberg dot com, subscribe today at Bloomberg dot com slash podcast offer. If you like this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow