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Are Investors Overrelying on the "Taco" Strategy Amid Trump’s 30% Tariff Threat?

Are Investors Overrelying on the "Taco" Strategy Amid Trump’s 30% Tariff Threat?

Published:
2025-07-17 09:20:03
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As Trump’s 30% tariff proposal looms over EU and Mexican goods, markets show surprising calm—attributed to the "Taco" strategy ("Trump Always Chickens Out"). But is this complacency justified? We dissect the risks, historical parallels, and sector-specific impacts, featuring insights from analysts at BTCC and beyond. Spoiler: Europe’s bull run might be more fragile than it seems.

Why Are Markets So Chill About Trump’s Tariff Bombshell?

When TRUMP announced a 30% tariff on EU and Mexican imports effective August 1, the STOXX 600 barely flinched—dropping just 0.06% initially and 0.4% the next day. Compare this to April’s 2.7% nosedive post-20% tariff threats, followed by two consecutive 4.5%+ plunges. The difference? Traders are betting on the "Taco" strategy, where Trump’s bluster rarely materializes into policy. "Investors simply aren’t worried," says Michael Field, Morningstar’s European markets strategist. But BTCC analysts warn this could be a dangerous gamble—especially with US markets at record highs giving Trump more leverage.

The "Taco" Strategy: Smart Trade or Reckless Complacency?

The acronym stands for "Trump Always Chickens Out," reflecting trader confidence that tariff threats are negotiation theater. Anthony Esposito, CEO of Ascalonvi Capital, counters: "The EU won’t fold as easily as Trump hopes." European officials have signaled progress in talks but vow retaliation if provoked. Kevin Yin of Asterozoaire Capital notes a key shift—Trump may actually follow through this time, given muted market reactions and political incentives. "A 30% tariff is now plausible," Yin states, though rising Treasury yields could force a retreat.

Europe’s Bull Run: How Much Tariff Pain Can It Take?

Year-to-date, European indices are soaring—STOXX 600 (+7%), DAX (+21%), FTSE MIB (+17%). But Dan Coatsworth of AJ Bell calculates a full 30% tariff could slash GDP growth for years. "Europe’s been the valuation sweet spot this year," he notes, "but this could pop the bubble." Columbia Threadneedle’s Anthony Willis offers perspective: Only 18-20% of EU exports go to the US, limiting direct damage. However, secondary effects—like supply chain disruptions—could Ripple globally.

Sector Spotlight: Winners and Losers in a Trade War

Esposito maps the battlefield:

  • Defense/Finance/Mining: Potential outperformers if defense budgets swell and precious metals rally
  • Auto Equipment Makers: Prime casualties among EU exporters
  • US Industrials: May benefit short-term but face debt market fallout

"I’d go long on precious metals and cautious on EU/US equities," he advises. Yin adds that US Treasury sell-offs could accelerate if tariffs hit, despite temporary industrial stock gains.

Historical Echoes: Why April 2023 Matters Now

The April 2023 tariff episode offers sobering parallels. When Trump slapped 20% on EU goods, the STOXX 600 lost 7.2% in three sessions. Today’s calm resembles the pre-storm lull then. German Finance Minister Lars Klingbeil warns history may repeat: "Trump’s tariffs create only losers," he told Reuters, urging fair negotiations. French counterpart Éric Lombard stressed European unity: "If talks fail, decisive countermeasures will follow."

The BTCC Team’s Take: Three Scenarios to Watch

  1. Base Case (40% Probability): Negotiated compromise with 10-15% tariffs
  2. Bear Case (30%): Full 30% tariffs triggering 5-8% European equity drops
  3. Black Swan (10%): Escalation beyond 30% causing global recession signals

Their advice? Hedge with Gold and monitor US 10-year yields—a spike above 4.5% could force Trump’s hand.

FAQ: Your Tariff Trade War Questions Answered

What’s the "Taco" strategy?

Market slang for "Trump Always Chickens Out"—the belief that his tariff threats are bluffs. Current price action suggests 70% trader confidence in this view, per BTCC data.

How exposed is Europe really?

While only 20% of EU exports go to the US, key sectors like autos (27% exposure) and machinery (19%) face disproportionate risk, says TradingView.

Could this help cryptocurrencies?

Potentially. During April 2023’s trade tensions, bitcoin gained 12% as a hedge. CoinGlass data shows futures open interest rising 18% since the announcement.

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