TACO trade — how investors are playing Trump's policy fluctuations

Financial markets often react sharply to political decisions with sudden drops or rises. However, some speculators have learned to use these fluctuations to their advantage. This phenomenon was described in a Financial Times article by journalist Robert Armstrong, who introduced the term “TACO trade,” which has become popular among market participants trying to profit from unpredictable trade policies.

What is a TACO trade: origin of the term from Financial Times

The term “TACO trade” comes from a regular column by Financial Times author Robert Armstrong, who specializes in analyzing investment trends and political influence on financial markets. This name was given to one of the most interesting investment strategies of recent years — trading based on predicting changes in trade policies.

TACO trade is often called “trading on anticipation of cancellation”: investors buy shares of companies whose prices have fallen due to negative market perception, hoping that the political decision will be reviewed or canceled. This strategy works especially well in unstable trade environments where promises of new tariffs are often not fully implemented.

How the TACO strategy works: from tariff announcements to market rebound

The TACO trade mechanism can be broken down into several sequential stages. First, the president announces the imposition of high tariffs on imported goods, especially from China and other strategic partners. This announcement immediately impacts market sentiment.

Second, the market reacts negatively to this news. Shares of companies dependent on international trade begin to decline. Sometimes this drop is significant, as investors fear reduced profits due to higher import costs or decreased exports.

Third, savvy speculators catch this moment. They assume that the announced policy will be partially or fully canceled — through negotiations, political compromises, or business community appeals. Therefore, they start actively buying these undervalued stocks, betting on a possible rebound.

Fourth, when the political decision is actually changed or relaxed, the market recovers. The prices of the stocks bought at low levels rise, and speculators make a profit.

Why do speculators bet on TACO trade: the logic of “Trump always backs down”

The abbreviation “TACO” stands for “Trump Always Chickens Out” — “Trump always backs down.” The name aptly reflects the logic behind this trading strategy.

Historical context shows that despite aggressive tariff announcements, they are often not fully implemented. Negotiations, pressure from industry, diplomatic decisions, and other factors frequently lead to compromises. Traders betting on TACO trade rely on this pattern.

For example, during his first term, oscillating between imposing and canceling tariffs, Trump repeatedly changed his decisions, creating many opportunities for speculation. This pattern repeated at the start of his second term in 2025, when new announcements of high tariffs again caused market declines, followed by partial retreats.

Risks and criticism of TACO trade: does this strategy always work?

Despite its appeal, it’s important to understand that TACO trade carries significant risks. First, not every political decision will be reversed. If tariffs are actually implemented, stock prices of affected companies may continue to fall instead of rebounding, leading to losses for speculators.

Second, the timing is uncertain. Days, weeks, or even months may pass before a policy is canceled or changed. During this period, stock prices can fluctuate unpredictably, not always in favor of traders.

Third, dependence on one person and their decisions makes this strategy highly volatile. Unpredictable behavior by political leaders complicates forecasting.

In conclusion, the TACO trade is an interesting but risky way to profit from predicting policy changes. It demonstrates how investors adapt to political uncertainty, but also shows how unpredictable trading can be when based on political decisions.