In the face of escalating trade tensions with China, investors hoping for a “TACO trade” to stabilize stock markets may need to reconsider. The White House has indicated that it is not planning to alter its course based on market reactions.
The term “TACO trade,” which stands for “Trump Always Chickens Out,” has become a popular notion among investors who have observed the former president’s pattern of backing down from tough trade stances due to market pressures. However, Treasury Secretary Scott Bessent has made it clear that any stock market fluctuations will be treated merely as the cost of doing business.
Speaking at CNBC’s Invest in America Forum, Bessent stated, “We won’t negotiate because the stock market is going down. We will negotiate because we are doing what is best economically for the US.”
This week, the “TACO trade” notion was put to the test. The S&P 500 experienced a nearly 3% drop on Friday following Trump’s announcement of potential new tariffs on China. In response, the former president attempted to calm investors on Sunday with a message on Truth Social: “Don’t worry about China, it will all be fine!” He added, “Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!! President DJT.”
Stocks rebounded at the open on Monday, recovering a significant portion of Friday’s losses. While Bessent’s remarks centered on stock markets, it’s essential to remember that earlier this year, the bond market played a critical role in pausing the trade conflict for 90 days. After “Liberation Day,” bond market volatility caused the 10-year Treasury yield to soar by 45 basis points.
At that time, Trump commented, “The bond market is very tricky,” adding, “I thought that people were jumping a little bit. They were getting a little bit yippy, a little afraid.”
