US President Donald Trump’s latest trade announcements have left investors wondering if the promised tariffs will actually materialize. The markets’ recent surge to record highs has fueled hopes that Trump will back down from imposing high tariffs, dubbed the “TACO” (Tariffs And Copper Openness) trade. However, experts warn that this optimism may be misplaced.
Trump’s proposed 35% tariff on Canada, as well as a 50% levy on copper imports and a potential 200% charge on pharmaceuticals, have sparked concerns about the impact on global markets. Despite these fears, stock prices in affected sectors remain complacent, with drugmakers trading at 11.8 times forward earnings and carmakers averaging around 8 times.
The TACO trade implies a seductive predictability, but Trump’s history of policy errors suggests that this may not be the case. His previous actions, including hyping dubious remedies for Covid-19, demonstrate that his government is prone to mistakes. Furthermore, Thursday’s statement from Trump, which suggested that buoyant stock markets proved his tariffs had been “well received”, raises concerns about his willingness to proceed with more damaging levies.
Markets are not yet pricing in the true impact of a trade war, and the U.S. has barely concluded any trade deals. The announced tariffs will only start to affect consumer prices this month, and some affected sectors look complacent. However, buoyant markets make capitulation from Trump less likely, making it harder for investors to anticipate a potential reckoning.
As the situation unfolds, experts urge caution and warn that the TACO trade may be masking deeper concerns about Trump’s willingness to engage in a full-blown trade war. The global market’s stability is at stake, and investors must remain vigilant in response to any further developments.
Source: https://www.reuters.com/commentary/breakingviews/trump-taco-trade-contains-seeds-own-unravelling-2025-07-11