What is “Taco” theory and how it helps explain Trump's tariff strategy

The last withdrawal of the US president generated debates among specialists, as well as memes of Internet users, about the “taco theory”, acronym in English of Trump Always Chickens Outwhich could be translated as “Trump is always back.”

The term was originally coined by Robert Armstrong, columnist of financial markets of the British newspaper Financial Timeswho observed that in the bags of the world, what the “Taco business” had emerged: investors who took advantage of Trump's apparent setbacks to earn money.

An example was what happened in April, when Trump announced his release day, imposing tariffs on practically all US business partners in the world.

In the following days, US bags collapsed in fear that Trump's tariff policy would cause a recession in the USA.

However, many investors and speculators bet – and they were right – that Trump would back down and bought assets at low prices.

The following week, Trump reculbred and the bags went up.

Those who bet Taco Taco “made money, as Armstrong pointed out in their column Financial Times. And that pattern was repeated on other occasions.

In July, Trump began a new tariff offensive against the world, sending letters to international leaders with threats to impose tariffs from August.

Some countries and blocks, such as Japan and the European Union, negotiated agreements reduced by US tariffs on their products, even remaining well above the percentages prior to the president's offensive.

The questions that many analysts are asked now are: Is Traco's “Taco Moment” ended? Will the tariffs that promised the world really impose, or will he back down?

For the British economist David Lubin, senior researcher of the Global Economics and Finance Program of the Chatham House Institute, the “Taco” has already been incorporated as a Trump negotiation strategy: to make great threats, many of them impossible to execute, only to force the other side to give in the negotiation.

The Chatham House (or Royal Institute of International Affairs) is one of the main independent public policies of the United Kingdom.

Lubin believes that there was, in part, a bit of “taco” by Trump in his reverse back to Brazil and that the recoil was due to the fact that, ultimately, the high taxes would begin to harm the US economy in an unwanted way.

“It can be said that there was a kind of 'reverse' because the exemptions for aircraft, orange juice, iron and oil seek to limit the economic damage that these tariffs would cause to the US economy,” he says.

The incorporation of “Taco” into the Trump negotiation strategy is also observed in negotiations with other countries such as China, according to the specialist.

“To some extent, the taco is already part of the use of tariff policy, because Trump sees it as a negotiation process,” explains Lubin to BBC News Brazil.

“If moderating a negotiating position can be described as 'back', then yes, the taco is, somehow, incorporated into Trump's negotiation strategy,” he adds.

The economist emphasizes that in the days after the so -called 'Liberation Day' “the dollar collapsed and the interests of American bonds rose a lot.”

“The extension of the negotiations on April 9 was the true moment Taco, because Trump moderated its tariff policy for fear of the damage that it could cause in the financial markets,” he says.

Lubin believes that the US president “was surprised by the firmness with which China responded to the original tariff escalation, which reached 145%.”

“It was China's ability to exert pressure on the US through its dominance in the supply of rare earths that forced Trump's government to sit down to negotiate, first in Geneva in May, then in London and now in other places,” he adds.

Asked about the effects of the controversial negotiating strategy of Trump, the economist believes that “a tariff -based commercial policy and the destruction of what we used to affectionately call the international order based on rules is detrimental to the world and for the United States.”

“I think that what Trump is trying to achieve does not benefit anyone, except his electorate, and that in a very limited sense already very short term. Therefore, I think the world is losing with this policy,” he says.

He points out, however, that the American leader “has half -mandate elections on the way, an internal electorate to which he needs to support and a kind of political project that he wants to promote, which includes, among other things, support right -wing leaders and supporters in other countries.”

“I think, perhaps, in some cases Trump is right to argue that, in many ways, this was always part of a plan. I am not sure that Trump has seriously considered imposing 145% tariffs on China. That would completely destroy trade between the US and China,” he adds.

On the political implications of tariff policy outside the borders of the United States, the expert compares the cases of Canada and Brazil

“If we take the example of Canada, Mark Carney became eligible (politically) due to the hostility of the US to the previous Canadian government and towards Canada in general. In some way, it is repeating what happened with Canada: by expressing anger against the Lula government, in an ironic and paradoxical way it is doing a political favor to Lula,” he says.

Despite the latter, the US president seems to be equally determined to move forward with his offensive.

“President Trump is willing to accept the cost of that self -inflicted wound in order to express his anger against a political antagonist,” says the economist.

With the high tariffs, the sanction to the Brazilian Minister Moraes and the exemption to almost 700 Brazilian products, Trump would be achieving two simultaneous objectives, according to Lubin: to give political support to former president Jair Bolsonaro and limit the impact of the price increase for the US consumer.

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