Wall Street is re-evaluating its assumptions about President Donald Trump’s trade strategy after a week of escalating tariff threats. Investors had previously brushed off risks, believing Trump would eventually retreat from his aggressive trade stance—an approach traders dubbed the “TACO trade” (Tariff And Compromise Optimism).
That confidence helped stocks surge to fresh record highs, rebounding from the steep declines seen in April when Trump’s “Liberation Day” tariffs triggered a near-20% S&P 500 drop. But now, Trump is using those very market highs as justification to push further.
“I think the tariffs have been very well received. The stock market hit a new high today,” Trump told NBC News on Thursday.
The president has suggested raising baseline tariffs to 15%-20%, up from the current 10%, and continues to send letters to global trading partners warning of new rates by August 1 if no deals are reached. Over the weekend, he threatened the EU and Mexico with 30% tariffs.
Meanwhile, Trump is also targeting specific sectors, including a 50% tariff on copper and a potential 200% duty on pharmaceutical imports.
So far, markets have avoided a repeat of April’s crash. But analysts warn that the lack of immediate market panic could embolden Trump to follow through this time.
“If stocks don’t fall, there’s no pressure for Trump to back down,” Capital Economics wrote. “That creates a dangerous loop.”