Rob Armstrong (2:45)

We call him Too late. He's too late, Jerome. Too late, pal. He's too late.

David Gura (2:50)

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 upended 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.

Rob Armstrong (3:11)

That every day is a taco day these days.

David Gura (3:13)

Is that taco trace sort of emerging here once again? The taco trade, if you want to call it that. The boy who cried Tariff.

John Authers (3:19)

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.

David Gura (3:32)

Rob Armstrong is a columnist for the Financial Times and the co host of the Unhedged podcast. He's also responsible for that taco moniker. He came up with the acronym.

John Authers (3:42)

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.

David Gura (3:56)

Since election day in 2024, many investors have been making a bet that whatever Donald Trump threatens to do, he probably won't. It's unlikely to happen.

John Authers (4:05)

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.

David Gura (4:18)

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. Bloomberg opinion columnist John Authers and Rob Armstrong, again the columnist who gave us the term taco.

John Authers (4:45)

You can identify me as Anakin Skywalker to John's Obi Wan Kenobi. John hired me at the FT 15 years ago. The professional path I currently trot at the ft, writing a daily newsletter about markets, is a path that was, of course, blazed by John. So I'm doubly indebted. And it's a thrill to just be able to be here and chop it.

David Gura (5:07)

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.

John Authers (5:15)

What's cooking? Well, looks like tacos.

David Gura (5:19)

I couldn't resist. The three of us ate 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.

John Authers (5:29)

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 joke's on everyone.

David Gura (5:57)

I'm David Gura 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 2, 2025.

Rob Armstrong (6:29)

Nice crowd. What a good looking group of people.

David Gura (6:32)

That's when President Trump made a big announcement about changes to trade policy.

Rob Armstrong (6:37)

My fellow Americans, this is Liberation Day waiting for a long time. April 2, 2025 will forever be remembered as the day American industry was reborn, the day America's destiny was reclaimed.

David Gura (6:55)

Like many of us, Rob and Bloomberg's 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 tariff rate.

Rob Armstrong (7:08)

And then it turns out that he was doing 10% plus reciprocal tariffs. And then it turned out that the reciprocal tariffs were reciprocal in a way that no other person had ever even attempted to use that word before. I was literally open mouthed and started swearing at the computer because this was ridiculous and because it meant I knew I was going to be in until midnight. I think I spoke to you at about 10 o' clock that night.

David Gura (7:31)

That's right.

Rob Armstrong (7:31)

But I just literally couldn't believe that he was doing something that stupid.

John Authers (7:36)

I mean, it was just a jaw dropping moment. It was so chaotic, it was so weird. They taxed an island with only penguins, all of this stuff. And it spoke. It was so bizarre. You were almost paralyzed.

David Gura (7:51)

Rob and John were shocked and so were markets. Stocks plunged and the bond market tanked.

John Authers (7:57)

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.

David Gura (8:10)

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.

Rob Armstrong (8:21)

I did a 90 day pause for the people that didn't retaliate because I told them, if you retaliate, we're going to double it.

David Gura (8:27)

And with that announcement that those tariffs were off temporarily, markets rejoiced.

John Authers (8:33)

Then it was just straight north. The start's taking a step back and we're on the escalator.

David Gura (8:38)

This is like paradigmatic Taco.

John Authers (8:40)

Yeah, yeah. And those, 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.

David Gura (8:51)

And a few weeks later, Rob wrote about what had happened.

John Authers (8:54)

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. Tacko was funny. I wasn't aware that I was doing something wonderfully clever at the time. It's a really simple claim underneath there that 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.

Rob Armstrong (9:34)

And that president trade on that assumption.

John Authers (9:37)

And that markets trade on that assumption. Exactly right.

David Gura (9:40)

Since Rob's first newsletter about the taco trade, we've seen that pattern over and over again.

John Authers (9:46)

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 than I do, so he'll remember.

Rob Armstrong (9:56)

There was, there was one on India for some reason that went away again. There was the Bolsonaro tariffs against Brazil that they were punishing Brazil for not being very nice to Jaya Bolsonaro.

John Authers (10:09)

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 and it worked. And it's one thing to be China and stand up and fight, but if you're Brazil and you stand up and fight, it shows that the range of people who could possibly put up meaningful resistance is much larger.

David Gura (10:31)

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 49 tariff threats or new trade investigations between the November 2024 election and January 25, 2026. They found that about 20% of those tariffs were imposed in full. Another 6% were imposed and then withdrawn. The China threats among them. That means more than 70% of the President's threats of tariffs or trade investigations did not pan out. They were either imposed in part or 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 70%.

Rob Armstrong (11:14)

Rob in the office have been referring to it as the taco story.

David Gura (11:17)

The taco story.

Rob Armstrong (11:19)

Carry on.

David Gura (11:19)

Yes, if they didn't use the term, we're branding it as such. Rob, what do you make of that when you look at that raw data?

John Authers (11:25)

Let me tell you, let me answer as if I was a taco hater, of 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 Takhoff as just an idiotic joke by a second rate journalist, you might argue what's the overall tariff rate now?

Rob Armstrong (11:56)

Which is much higher.

John Authers (11:57)

It's 15%. 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 Tacko thesis is that it's not the guy who's done nothing.

Rob Armstrong (12:19)

Right.

John Authers (12:19)

I mean, I think in a way it's more interesting to talk about where Tacko has failed to hold.

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Right.

John Authers (12:25)

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?

Tony Robbins (12:44)

Right.

John Authers (12:44)

Right. And I guess my response to that is where we are now is taco for the strong, fafo for the weak. 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, Bangladesh or Bangladesh, there is no tacos for you. You'll be fooling around and finding out instead.

David Gura (13:14)

Coming up after the break, the state of the taco trade today, where it goes from here and the consequences for everyone of Wall Street's bet the president will always back down.

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David Gura (16:05)

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 Forum's annual meeting in Davos, the President doubled down on his demands.

Rob Armstrong (16:32)

You can say yes and we will be very appreciative, or you can say no, and we will remember.

David Gura (16:42)

But only a few hours later, Trump announced he'd met with NATO Secretary General Mark Rutte and they'd agreed 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 Bloomberg Opinion's John Authors and the fts, Rob Armstrong. If the President's move in Davos could be categorized as a taco, I think.

John Authers (17:07)

It'S an ambiguous case. John May.

David Gura (17:09)

And why is that? Why is that?

John Authers (17:11)

Markets didn't move that much.

David Gura (17:12)

First of all, complacent during the speech.

John Authers (17:14)

Right.

David Gura (17:14)

Ended the day high.

John Authers (17:15)

Markets. Yeah, yeah. And, you know, markets were down. The dollar, the dollar was down one and a half or something, and the S and p was down 2% on this really serious huffing, puffing. So if he was backing off in the face of pressure, it was political pressure in the form of a more unified Europe.

Rob Armstrong (17:34)

It did look like what happened after Liberation Day, but just a tiny echo of it. Tiny, yeah. Again, you did have the combination of bond yields going up while the dollar goes down, which is a sort of classic emerging markets crisis.

David Gura (17:53)

And John and Rob emphasized it's the bond market, not the stock market, that really matters here.

Rob Armstrong (17:58)

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 the market for Treasuries, makes even the stock market look illiquid by comparison. It's very difficult to move once it has started moving against you.

John Authers (18:56)

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 addled risk monkeys. 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.

David Gura (19:20)

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.

John Authers (19:33)

Like any good economic insight, it degrades itself over time. The market incorporates it and it starts to disappear. So it, you know, these things have a half life. And I think Taco has had a lot of its half life.

David Gura (19:46)

The economist Aaron Dube at the University of Massachusetts has written about a kind of taco cycle. As markets learn to shrug off increasingly extreme statements from the president that could encourage him to make even bolder promises before he has to contend with the market reaction. I asked John and Rob about the risks of increasing brinksmanship, setting off a kind of vicious cycle.

Rob Armstrong (20:08)

I am inclined to agree with that. I guess that the. I mean, again, it's just this agonizing thing that we all have to spend so much of our time gauging the thought process of this one individual whose thought processes are idiosyncratic, reverting to the My FT training for a second. To give you some British understatement.

John Authers (20:35)

Yeah.

David Gura (20:35)

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.

John Authers (20:46)

Done, is the 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?

Rob Armstrong (21:10)

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 stimulation, 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. In Britain, where the incumbent party could choose when to go to the polls, you had the concept of stop go 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 gridlocking in Congress, that there's. There's some kind of an attempt to make that work.

John Authers (22:07)

When I talk 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. Yes. That the Lisa Cook case and of course, yeah, the, the whether he was.

Rob Armstrong (22:31)

Allowed to do the tariffs in the first place.

John Authers (22:33)

Yes. These are really in front of investors eyes and a real reason for hope and optimism. Not about politics. It's just stability, knowing the rules and being able to play by them. In the taco world, as it were.

David Gura (22:48)

Markets historically have been a guardrail. We've talked about the degree to which the taco trader, the taco theory is baked in. Now. Investors expect there to be this walk back time and time again. Rob, I'll start with you. What is lost if markets aren't providing the kind of guardrail that they have been in the past?

John Authers (23:07)

In a world where markets don't believe anything the government says, 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 going to happen if they wake up to the reality that something big has happened too late. I mean that's the risk.

Tony Robbins (23:35)

That's the risk.

John Authers (23:36)

But by the way, I believe the guardrails are in place. We just saw it in Minnesota.

Rob Armstrong (23:40)

Americans didn't like him trying to grab Greenland and they certainly didn't like, you know, civilians getting shot 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.

John Authers (24:20)

The action is at the Fed right from the point of view of us of markets people is 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.

David Gura (24:58)

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.com, subscribe today@bloomberg.com podcastoffer 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.

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