Ready for "TACO" Tuesday
Whether Trump makes concessions for a better deal or “always chickens out,” America’s new trade strategy makes it impossible to plan.
Even as you read these words, you may be missing breaking news on Donald Trump’s efforts to refashion global trade flows to America’s advantage. The question remains whether the president’s extreme demands deliver concessions that benefit U.S. businesses or whether his pattern of wild threats and rapid concessions undermines confidence in the world’s largest economy.
With sharp tariff hikes officially suspended through Wednesday, July 9, corporate executives will be looking for any patterns or principles that might guide decisions they have been delaying since the chaotic announcements on what Trump called “Liberation Day.” Investors, who have driven markets back to record highs in the 89 days since then, will be hoping for “TACO” Tuesday.
“TACO,” of course, stands for “Trump Always Chickens Out,” an acronym coined by Robert Armstrong, the redoubtable Financial Times columnist. “The U.S. administration,” in his telling, “does not have a very high tolerance for market and economic pressure and will be quick to back off when tariffs cause pain.”
Tracking threatened tariffs, actual tariffs, potential retaliation, temporary suspensions, sectoral investigations and partial court rulings has been an exhausting challenge since Trump was re-elected. That uncertainty has been a big part of the problem, as companies freeze any decisions about where to build their next factory or how to design their global supply chains.
What do we know as of this writing? Over the weekend, Trump said he has already signed letters imposing trade terms unilaterally on some countries, although he wouldn’t say which ones. Treasury Secretary Scott Bessent, as usual, signaled flexibility, suggesting Sunday that higher tariffs may now only snap back on August 1.
But even where deals have been supposedly agreed, the details are frustratingly scarce.
The United Kingdom has agreed to a limited tariff framework that gives it some relief on auto, steel and aerospace exports to the U.S., while granting lower tariffs on U.S. beef and ethanol. But many of these parameters are still conditional on details to be negotiated, and what Trump calls a 10% reciprocal tariff remains in place for most other goods.
Trump announced an agreement with Vietnam on July 2 to set tariffs at 20%, down from the 46% initially threatened. Goods transshipped from China will face 40% tariffs, although just what counts as “Chinese” remains unclear. Vietnam has apparently agreed to remove all tariffs on U.S. imports, but whether this has immediate effect or will be phased in over time is still vague.
Three separate announcements of agreement with China create more questions than answers. Chinese negotiators confirmed on June 27 an announcement by Trump the day before that a deal had been signed, which reaffirms understandings reached in London and Geneva earlier. China has shown some flexibility on rare earths in return for the U.S. loosening some tech export controls. But stiff tariffs remain in place, and there is little detail on where either side wants to land.
More deals may be close, but only close. India continues to resist opening its dairy and agriculture markets to genetically modified U.S. exports. The Japanese government wants lower tariffs on its car exports, but may have trouble making concessions ahead of Upper House elections on July 20. Talks with South Korea look stuck as Washington threatens tariffs on cars and semiconductors.
Then there’s the European Union, which is America’s largest trade partner and may involve the most complicated negotiations of all. Brussels runs the show on trade and competition policy, but must still coordinate its strategy with 27 member states. The latest reports that Europe insists on tariff exclusions for everything from steel and autos to semiconductors and aircraft look like a tall order.
What is clear is that the rules for trading with the United States will only be slightly clearer when deals are actually announced.
First, countries will worry that whatever is agreed with Trump today will not protect them from whatever threat Trump may make tomorrow. He’s unlikely to renege on his own deals, but he is clearly enamored with the leverage additional tariff threats may provide. Moreover, tariffs will be part of the arsenal of future presidents, whether Republican or Democrat, as the country’s budget grows dependent on the hundreds of billions in additional revenues.
What is clear is that the rules for trading with the United States will only be slightly clearer when deals are actually announced.
Second, these announcements of frameworks to negotiate understandings are a far cry from the details importers and investors need to make decisions. Exactly what tariff lines are covered? Will there be exemptions? What about those troublesome non-tariff measures that make trade more difficult? Even the U.K. agreement, arguably the simplest deal with the friendliest trade partner, will require months of further talks to clarify some of these key questions.
Third, and most difficult to assess, will be whether the benefits to some industries of tariff protection outweigh the costs to Americans. This includes the immediate cost of the tariffs themselves, but mostly the slow corrosive costs in lower productivity of industries that focus more on preserving their protection than providing an innovative product.
Uncertainty over Trump’s trade policy will never be as high as it was after that “Liberation Day” announcement that shocked investors and sent markets tumbling. But the hope that we are going to get much clarity soon looks forlorn, especially if Tuesday brings another TACO.