WEFC | TACO Tuesday, Every Day: Wall Street Bets on Trump’s Tariff Retreats [PDF Download] | Blog

Wall Street’s latest term is the “TACO” trade — short for “Trump Always Chickens Out.” It refers to Trump’s habit of announcing bold tariffs, then retreating after market backlash. That pattern is being tested again.

On May 28, a U.S. trade court ruled several Trump-era tariffs exceeded presidential authority and ordered them revoked. The next day, a federal appeals court temporarily reinstated them. Meanwhile, Trump said steel and aluminum tariffs will double from 25% to 50% starting June 4. The EU, still in talks with the U.S., warned of countermeasures by July 14 if no deal is reached.

With trade policy swinging between escalation and reversal, investors are left guessing: will Trump stand firm or fold again? Is the TACO trade — betting on a pullback — still smart, or has it run its course? This week’s WEFC analysis takes a closer look.

TACO Tuesday, Every Day: Wall Street Bets on Trump’s Tariff Retreats

1. “TACO” Trade Reflects Market Confidence in Reversals

Wall Street continues to lean into the “TACO” trade — short for “Trump Always Chickens Out.” This strategy banks on Trump retreating from harsh tariffs after adverse market reactions. Recent rebounds following tariff announcements support this view, and past deals with the UK and Saudi Arabia show tariffs are often bargaining chips. Investors now view such policy moves as short-term volatility events rather than structural threats, reinforcing the TACO trade as a viable positioning approach.

2. Trump Tariffs Face Legal and Political Scrutiny

A U.S. trade court ruled that Trump’s IEEPA-based tariffs overstepped presidential authority, ordering their removal. However, a federal appeals court quickly reinstated them pending further review. The ruling introduces legal uncertainty into U.S. trade policy, raising concerns about enforcement consistency. While tariffs under Section 232 remain untouched, the legal debate signals heightened political risks for businesses and investors exposed to Trump’s tariff agenda, especially as trade remains a central theme in the 2025 election cycle.

3. India Gains Momentum from Global Trade Diversion

India’s exports to the U.S. jumped over 30% in Q1 2025 as firms rerouted supply chains away from China. The shift is supported by lower Indian tariffs on electronics, increased infrastructure spending, and major investments from companies like Foxconn and HP. India’s GDP surged to 7.4%, validating its role as a key trade partner amid global realignment. With Apple’s production shifting further into India, the country is emerging as a structural winner of ongoing tariff shifts.

4. NVIDIA Earnings Confirm AI Growth Resilience

NVIDIA posted $44.06 billion in Q1 revenue, up 69% YoY, driven by strong data center and AI infrastructure demand despite export restrictions to China. Inventory efficiency hit record levels, with days sales of inventory falling to 55 days. The company weathered an $8 billion loss tied to H20 export limits but maintained robust performance thanks to sovereign AI orders from countries like Saudi Arabia. NVIDIA’s dominance in AI hardware remains intact, fueling long-term investor confidence.

5. Dollar Weakness Reflects Tariff-Induced Uncertainty

Despite firm Treasury yields, the U.S. dollar weakened sharply amid ongoing tariff threats and global repositioning. Market confidence is shaky, with speculative long positions in the dollar declining. This resembles previous trade war periods, where short-term policy shifts created lasting damage to investor trust and dollar demand.

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