With markets largely unfazed by President Donald Trump’s latest tariff escalations and the potential economic fallout of the same, economist Peter Schiff warns that Trump may not back down this time around.
What Happened: On Tuesday, Schiff posted on X, highlighting “a classic paradox,” with the markets not reacting to Trump’s looming tariffs because they expect him to back down, but warns that this very complacency could compel him to follow through.
“Investors assume Trump will cancel the August 1 tariffs before they kick in, so stocks aren't selling off,” Schiff says, adding that since there isn’t a steep selloff in response to this, “Trump won't chicken out again.”
“The very selloff investors are sure won't happen is what makes it inevitable,” Schiff says, highlighting the paradox in this situation.
Schiff believes that unless a sharp market reaction forces Trump’s hand on the matter, he is unlikely to pull back on any of the tariff escalations in recent weeks, such as 30% duties imposed on Mexico and the European Union, or the 50% tax on all Brazilian imports.
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Why It Matters: Schiff is referring to the several instances of Trump backing down on prior claims or softening his stance on trade and tariff policies before lasting damage is done.
This has since led to a Wall Street meme called the “TACO trade” or the “Trump Always Chickens Out” trade, where investors purchase stocks right after Trump makes fresh tariff threats, knowing fully well that he won’t follow through with them.
Last month, as the deadline for the 90-day tariff pause approached, investors were unfazed, relying on the fact that once all is said and done, the tariffs will not be as harsh as they were set out to be.
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