Amid all the hullabaloo about Donald Trump, Greenland and his latest tariff threats, the Taco trade – Trump Always Chickens Out – continues to rule markets.
Almost every flare‑up from tariff threats to territorial fantasies has been met with murmurings of fright followed swiftly by relief rallies once Trump has softened his stance. Even before Trump’s tariff climbdown, Rosenberg Research’s David Rosenberg was noting that belief in the Taco trade “has proven time and again to be very difficult to break”.
BCA Research’s Marko Papic was similarly nonchalant, framing the bond market as the “constraint mechanism” that ensures the Taco trade sticks, rather than turning into a “messy enchilada”.
Markets treated the subsequent retreat from Greenland‑by‑force as exactly that: another Taco moment, with stocks rebounding and volatility easing. Not that volatility was ever that escalated; note that the Vix, Wall Street’s fear index, barely exceeded its long-term average of 20.
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All this shores up the short‑term view that political noise doesn’t necessarily translate into sustained market damage. However, beneath the surface, the narrative is shifting.
Swedish economist Anders Åslund says the US has become “out of bounds” and that no one can take the country seriously or trust in any kind of agreement as long as Trump is president.
Bond giant Pimco is more polite, saying we are in “a multiyear period of some diversification away from US assets”, referring to “unpredictable” policies.
Even firms that remain overweight in the US admit the biggest danger isn’t earnings but political risk, with Goldman Sachs saying the greatest threat to the US is the “degradation of the rule of law and the system of checks and balances”.
The danger is this becomes a “cumulative process, a little bit like a mound of sand”, says high-profile Allianz economist Mohamed El-Erian. “You keep on adding particles of sand, nothing happens – and then suddenly, the shape of the mound changes completely.”
Investors may still be comforted by the Taco trade, yet with each added grain of sand, the US’s once‑taken-for-granted reliability edges closer to a reckoning.
