President Donald Trump finds himself at the center of two market-moving headlines this week: a federal court decision blocking key parts of his tariff agenda, and the rising popularity of what Wall Street is now calling the “TACO trade”—a strategy based on the idea that Trump consistently backs down from his own trade threats.
What Is the TACO Trade—and Why Is Trump Furious About It?
TACO stands for “Trump Always Chickens Out,” a tongue-in-cheek reference to a now-familiar pattern: Trump makes an aggressive tariff threat, markets tumble, and then he either delays or walks back the policy—sending stocks rebounding.
Wall Street traders have started profiting from this pattern by “buying the dip,” anticipating that Trump’s bluster won’t translate into hard policy.
The phenomenon gained traction after Trump threatened a 145% tariff on Chinese imports earlier this year, only to lower it to 30% following backlash from corporate leaders, supply chain experts, and foreign governments. Similarly, he announced a 50% tariff on European Union goods, only to postpone it following a call with European Commission President Ursula von der Leyen.
Trump’s Reaction: “Nasty and Unfair”
Trump has publicly criticized the TACO acronym, calling it a “nasty label” and claiming it undermines his negotiation strength. “These tariffs are leverage,” Trump said in a Truth Social post. “Smart businesspeople understand you don’t show your whole hand. The weak ones don’t get it.”
But Wall Street doesn’t seem to agree. Financial analysts say the market has adapted to Trump’s tactics, and some investors have made sizable returns by following this tariff-then-pullback rhythm.
Court Blocks Trump’s Tariffs: A Legal Blow to Presidential Trade Powers
While Trump grapples with mockery from Wall Street, a more serious challenge emerged from the judiciary.
On May 28, the U.S. Court of International Trade ruled that President Trump exceeded his legal authority when imposing a sweeping set of tariffs under the International Emergency Economic Powers Act (IEEPA). These tariffs, dubbed the “Liberation Day Tariffs,” had targeted imports from China, Canada, Mexico, and parts of Europe under the guise of addressing national security and drug trafficking concerns.
Key Takeaways from the Court Ruling:
- Overreach: The court determined that Trump’s use of IEEPA to unilaterally impose tariffs violated the act’s scope, which was never intended to give the president blanket economic control without Congressional oversight.
- Rollback: The ruling halts enforcement of several tariffs still in effect, and companies may now seek reimbursement for duties paid.
- Precedent: Legal experts argue this could sharply curtail the executive branch’s ability to enact broad economic restrictions without legislative backing.
Trump’s Response
Trump’s legal team has already filed notice of appeal. In a press briefing, a campaign spokesperson claimed the decision was “judicial activism” designed to undermine Trump’s America First trade agenda. “These judges are unelected bureaucrats trying to destroy our leverage,” he said. “This will not stand.”
What It Means for Investors
Markets initially reacted with cautious optimism. The Dow Jones Industrial Average rose over 300 points the day after the court ruling, as investors saw the decision as a de-escalation of trade tensions.
More broadly, both the TACO trade and the legal ruling signal a possible return to more predictable trade policy—at least for now. But volatility is likely to remain.
Winners:
- Multinationals: Companies heavily reliant on global supply chains, such as Apple, Ford, and Caterpillar, may benefit from the removal or rollback of tariffs.
- Retailers: Firms like Walmart and Home Depot, which import consumer goods from Asia, are breathing easier.
- Emerging Markets: Less threat of tariff escalation could lift investor sentiment across Asia and Latin America.
Losers:
- Protectionist Plays: Domestic manufacturers that had benefited from tariffs on foreign competitors could see pressure on margins.
- Political Risk Funds: Those betting on tariff escalation as part of geopolitical hedging may need to revise positions.
Trump’s Trade Legacy Under Fire
President Trump has long touted tariffs as a tool to reshape global trade and revive American manufacturing. In 2018 and 2019, his administration imposed tariffs on hundreds of billions of dollars in Chinese goods, sparking a full-blown trade war. While some industries saw temporary gains, long-term benefits have been murkier.
Now, with the court ruling and the rise of the TACO trade narrative, even former allies are questioning the effectiveness of tariff-heavy policy.
Larry Kudlow, Trump’s former economic advisor, noted in a recent interview: “Tariffs were supposed to be tactical, not permanent. When they’re left in place without a clear objective or outcome, they become a drag.”
The Political Dimension
The court ruling plays into the hands of critics who argue that Trump governs by impulse, not strategy. Meanwhile, the TACO trade meme is a PR embarrassment that could weaken his standing with business leaders and market-focused voters.
Polling from Morning Consult shows that 52% of swing-state voters believe tariffs “raise consumer prices without improving American jobs.” That sentiment could be weaponized by opponents.
Could This Be the End of the TACO Trade?
Not so fast. While the courts have dealt a blow to Trump’s power to unilaterally impose tariffs, he still wields enormous influence through rhetoric alone. As long as his statements can move markets, the TACO trade—buying the dip when Trump talks tough, and profiting on the rebound when he backs down—remains alive.
Analyst Tom Essaye of Sevens Report Research cautions: “Even if the courts rein him in, the mere threat of tariffs or retaliation can still trigger short-term volatility. That makes political prediction a key input for risk management.”
What Investors Should Do Now
- Don’t Overreact: The legal ruling limits Trump’s authority, but it doesn’t eliminate trade risk. Congress could still pass new powers.
- Watch Asia-Pacific Markets: Reduced tariff threats could re-open trade flows. ETFs focused on Southeast Asia or India may benefit.
- Stay Tactical: Traders exploiting the TACO pattern should be nimble. This is not a long-term investing strategy—it’s momentum riding with political risk.
- Diversify: The ongoing legal and political turbulence makes a strong case for diversified international exposure and reduced dependency on single-country supply chains.
- Follow Court Developments: If the appellate courts reinstate the tariffs, the situation could reverse quickly.
Will Trump Adjust Strategy Or Double Down?
Trump’s frustration over the TACO trade and the federal court’s smackdown of his tariff powers is more than just political drama—it’s a moment of reckoning for U.S. trade policy. The markets have adapted to the chaos, but the risks haven’t disappeared. Whether you’re a long-term investor, short-term trader, or policy watcher, the message is clear: volatility is back, and political headlines may matter more than fundamentals in the months ahead.
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