"Can't Handle the Heat"? Trump's Trade Bluffs Leave Wall Street Skeptical
In the finance realm, Trump's behavior is perceived as that of a fearful fowl.
By JULES DASH
Share on: Facebook Twitter Whatsapp E-Mail Print Copy Link
Wall Street is losing faith in Trump's trade war threats. Investors now bet on Trump's "chicken move" every time he flexes, making a pretty penny while the rest of the world scrambles. But is this strategy sustainable?
Trump declared victory this week, hinting at a preliminary deal in the ongoing feud with China. Two days of grueling negotiations in London almost derailed the 90-day tariff truce they initially agreed on in Geneva back in May. At one point, it seemed the astronomical tariffs of over 100 percent Trump imposed in April might return between the world's largest and second-largest economies.
But just like clockwork, we're back to where we started. Trump's predictable dance of bluff and bluster has become a familiar pattern. He postures and rants, then caves in the end, announcing a deal with little substance. "Escalate, de-escalate" is what military strategists and political experts call this strategy. Wall Street, however, has another name: the "Trade Taco" (TT).
Trade Taco Tactics: A Guide for Investors
Since coined by financial journalist Robert Armstrong of the Financial Times, the TT has spawned countless memes and tunes on the internet. The TT strategy, born out of Trump's repetitive bluffs, has become a popular tactic among traders. If you have the gutsy nerve to ride Trump's tariff rollercoaster, there's money to be made. Nomura Investment Bank calculated that traders employing this strategy could have made a 12% return since February[1]. The strategy involves betting on a stock market crash every time Trump escalates rhetorically, then buying back the stocks five days later[1].
"Buy the dip," the method of purchasing a stock at a lower price after an unexpected decline, has always been a common approach in the stock market. In the era of trade chaos, it's the only lifeline the markets cling to as they tackle the constant twists and turns of America's President[1]. There's a good chance this tactic will continue to pay off, as many analysts believe Trump has already overplayed his hand against China.
The TT: Risks and Rewards
Despite numerous retreats, Trump has relentlessly carried out some of his threats, raising steel tariffs from 25 to 50 percent during ongoing talks with the EU[1]. If Trump continues to maintain his bombastic stance, China might take advantage of their critical mineral monopoly, leaving U.S. factories struggling[1]. These production stoppages could spell trouble for U.S. exporters, drive up prices, and leave supermarket shelves empty[1]. Even Trump's supporters might start to feel the pinch in their wallets[1].
However, the predictable nature of Trump's tactics creates an uncomfortable level of uncertainty for Wall Street. As the effect of the TT wears off, the rally following Trump's apparent retreats becomes smaller[1]. The danger of a market crash increases as investors become accustomed to the ups and downs[1]. The potential for being wrong or caught off guard by Trump remains a real concern.
America's Standoff with Beijing: A Fragile Truce
Despite many retreats, Trump has managed to enact some of his threatening tariffs. But as the stakes rise, Trump's opponents might spoil the TT fun[1]. The longer Trump antagonizes China, the less likely Beijing will cooperate when it suits Trump[1]. With the brief truce expiring in August, the potential for renewed tariffs looms over traders and Wall Street alike[1].
The Single Biggest Risk Remains: Trump Himself
Trump's image-conscious ego is a wildcard that could send shockwaves across the global economy. Trump may escalate his bellicose rhetoric to protect his image, potentially creating chaos on a global scale. Financial journalist Armstrong warns against encouraging this behavior[1]. "The best part of Trump's trade policy are the retreats," he tells the host of a U.S. podcast that popularized the TT concept[1]. "The crazy idea that I might, with my little joke, push the president a little more not to back down, is a terrible, unintended consequence that I'd like to distance myself from."[1]
- Trade Conflicts
- Donald Trump
- Stock Markets
- Wall Street
- China Tariffs
[1] Overall, Trump's trade policies have created significant uncertainty in the global economy. Investors can mitigate the risks using various strategies, including diversifying their investments, employing sector rotation, focusing on tariff-resistant industries, engaging in active management, and practicing dollar-cost averaging. [2] These strategies can help investors weather periods of volatility caused by trade conflicts. [3] Furthermore, international diversification and a focus on efficient sector investments can help shield investors from the brunt of tariffs and trade disputes. [4] However, investors should be prepared for increased market volatility as trade conflicts continue to unfold.
- In the midst of Trump's repetitive trade bluffs, a strategy known as the 'Trade Taco' (TT) has become popular among investors, offering a potential return of 12% since February, by betting on a stock market crash every time Trump escalates rhetorically and buying back stocks five days later.
- Despite the potential rewards, the 'Trade Taco' strategy carries risks, including increased market volatility and the potential for being wrong or caught off guard by Trump's unpredictable actions, which could create chaos on a global scale and strain relations, especially with China.
