U-turn after Greenland ‘deal’ revives TACO trade talk

Trump’s latest retreat from a trade war has catalyzed an international asset rally — and revived investors’ talk of “TACO” — “Trump Always Chickens Out.”

Speaking to CNBC’s Joe Kernen at the World Economic Forum in Davos, Switzerland, on Wednesday evening, Trump said he’d walked back tariffs on European allies because he now had “the concept of a deal” over Greenland, after weeks of demanding to annex it for the U.S.

He had threatened impose 10% tariffs on eight European countries that opposed his push to “buy” the Arctic island. They would have risen to 25% from June 1.

Europe vowed an “unflinching” response to any new tariffs and stocks, bonds and the U.S. dollar staged a steep sell-off on Tuesday, as investors panicked about the fresh possibility of a trade war.

But Wall Street’s major averages jumped after Trump’s walk-back on Wednesday, with stock futures pointing to an extension of those gains on Thursday morning. The rebound rippled into global markets, with equities listed in Europe and Asia also rising when regional markets reopened on Thursday.

Amid the global rally, one of the key fixtures of investing in 2025 stepped into the new year: the “TACO” trade.

The phrase refers to the president’s history of threatening to leverage intense levies, only to ease, delay or cancel them. It was coined last year after Trump’s “liberation day” announcement of tariffs in April shocked markets but investors grew skeptical of his follow-through when he eventually backed down. Market reactions to subsequent U.S. trade policy announcements were more muted or saw recoveries more quickly.

Russ Mould, investment director at AJ Bell, likened today’s market moves to those seen last year.

“Donald Trump’s TACO bell has rung once again, much to the joy of financial markets,” he said in a Thursday morning note. “Trump has form in chickening out of his threats … there are a lot of similarities with the liberation day market wobble in April 2025 and now.

“In both situations, Trump took an aggressive stance and then backed down after financial markets wobbled.”

However, Mould added that some signs of lingering caution remain at play, with markets appearing to be regaining balance rather than “moving into top gear.”

“Gold’s rally paused for breath, albeit it was notable there wasn’t a major sell-off in the metal,” he said. “That suggests investors are keen to keep some safety elements in their portfolio. Healthcare and tobacco stocks were also in vogue, which is normally what you would expect on a day of worry, not when markets rebound.”

Alan Siow, co-head of emerging market corporate debt at asset management giant Ninety One, told CNBC on Thursday that the TACO mindset was the driver of the risk asset rally seen after “liberation day” — and that it seemed to still be influencing markets.

“We don’t have any evidence yet that this has changed, but over the last 2 days at Davos, I think we have seen from the rhetoric of global leaders that something has hardened and perhaps permanently changed at the policy level, which will then feed down into wider economy via changes in business and investment plans,” he said.

“Even if the reality remains TACO in the near term, perhaps we will now see a lasting change in underlying behavior — but to be fair, given how fast moving the recent developments have been, it’s too early to tell.”

Paul Surguy, managing director and head of investment management and proposition at London-based wealth management firm Kingswood Group, said that although markets do react negatively to certain White House policies, those reactions have generally grown more muted since liberation day.

“The initial position — a worst-case scenario is announced with the view of a more palatable deal being struck later — is exactly what we have seen with comments over Greenland,” he told CNBC in an email. “As yet, scant details have been released regarding the ‘framework’ deal. That being said, with a more conciliatory tone, markets have responded positively.”

Toni Meadows, head of investments at BRI Wealth Management, struck a more skeptical tone on the TACO trade, urging investors to wait for details on the Greenland “deal” — and for Europe’s response.  

Meadows said the markets would initially “claim back some or all of the falls” before Trump announced a potential Greenland deal.

“There is relief but this is just one area of many that the U.S. president is seeking to shake the tree to see what he can get for America, based on his agenda of resource imperialism,” he added.

He noted that markets were also monitoring domestic White House policies like a proposed cap on credit card rates.

“Investors will 1769085591 likely try to get back to digesting the impact of the U.S. earnings season,” he said. “But this will only last until Trump’s next announcement.”