Investors have come to view Trump’s more extreme trade policies as bluffs.
But if there’s no financial market to check Trump, will trade backfire?
GMO’s Ben Inker says a weak response to tariffs could burn Trump.
Buying dips during recent tariff volatility this year has been a profitable strategy, but are you sure the backfire of trade with so-called TACO investors will always be retreating?
It didn’t take long for investors to realize that Trump doesn’t always mean what he says when it comes to trade policy. Taco Trade – Abbreviation for “Trump Always Chickens Out.” This is a phrase coined by Robert Armstrong of the Financial Times, which explains Trump’s habit of retreating from the Roil Markets proposal.
Investors have begun not to take Trump that seriously, believing his more extreme policy proposals, such as tariffs on blankets and firing the Federal Reserve Chair, are merely bluffs.
However, Ben Inker, co-head of asset allocation at GMOs, argues that this approach could backfire.
The market has been acting as a Trump check this year. The president suspended tariffs in April after a historic sale of both stocks and bonds, and he retreated from an idea that the market balked on prospects after firing Jerome Powell as the Fed chief.
Now, investors don’t seem to want to sell after all the bold proposals Trump makes, so he may have little incentive to retreat from his trade war. The president fired the letters throughout the week, including 25% tariffs in Japan and South Korea, 50% tariffs in Brazil and 35% threats in Canada.
Shares fell on Friday as Trump reinstated a trade war, but it wasn’t like an April sale, despite the tariffs announced over the weekly, which were more steep than expected.
“What we’re seeing today is that Trump is far more aggressive,” Inker said.
He said Trump’s recent announcement on a 50% tariff on Brazil is “a proactive attitude that assuming you can do whatever you want, and this is completely different from the setback from the tariffs on the release day when the bond market goes crazy.”
“If the financial markets are telling him to retreat, he won’t retreat,” he added.
Investors have not recently placed negative side risk prices. The S&P 500 and Nasdaq scored their all-time highs on Thursday, with a high rating
Inker said the benchmark index is probably overvalued by nearly 40%.
The story continues
