Trump’s “TACO Trading” Strategy Reveals His Negotiation Pattern: Threaten Extreme Tariffs to Create Panic, Then Make Concessions at the Right Time to Gain Leverage. From the Day of Liberation Tariffs to the NATO Greenland Incident, How to See Through This “Scare First, Yield Later” Script?
(Background Recap: Trump Will No Longer Impose NATO 8 Countries’ Tariffs: Greenland Agreement Reached, Bitcoin Rebounds to $90,000, US Stock Market Gains All Four Major Indices)
(Additional Context: Danish Pension Fund Announces Clearing US Bonds! CIO: Trump Worsens US Credit, Fiscal “Unsustainable”)

Table of Contents

• What Is TACO Trading?
• Trump’s Negotiation Script: From Threats to Concessions
• The Underlying Logic of the TACO Strategy
• Why Is the TACO Strategy “Effective”?
• Risks and Costs of the TACO Strategy
• Negotiation Master or Paper Tiger?

Early this morning (22nd), Trump announced that the US had reached a preliminary framework with NATO Secretary General on Greenland and Arctic security at the Davos Forum, and declared the withdrawal of tariffs originally scheduled for February 1 against Denmark and other NATO countries.

The dramatic turn once again confirms a popular saying in the market: Trump always backs down at the last moment (TACO trading). From threatening to impose tariffs, market turbulence, to suddenly announcing “consensus reached” and suspending enforcement—this script we’ve seen too many times.

In this article, we will delve into: What is the logic behind Trump’s negotiation strategy? How are countries around the world currently responding?

What Is TACO Trading?

TACO stands for “Trump Always Chickens Out,” a shorthand that has become popular in US political and financial circles since May 2025. The term originates from analysts’ observations of the behavior pattern of the Trump administration during the “Liberation Day Tariffs” period:

Trump often publicly threatens to raise tariffs, creating market panic, but repeatedly delays implementation afterward to buy more negotiation time, giving markets a chance to rebound.

Simply put, TACO trading is a negotiation strategy of “scare you first, then make concessions,” and savvy investors have started betting on this pattern to profit. Every time Trump issues a tariff threat, they anticipate some form of retreat in the end, buying during market panic and selling after rebounds.

Trump’s Negotiation Script: From Threats to Concessions

The Financial Times has systematically summarized the operation mode of the “TACO factor.” Here are some classic cases:

Case 1: Liberation Day Tariffs (April 2025)

Case 2: Dismissal of Fed Chair Powell (April 2025)

Trump publicly demanded the removal of Fed Chair Powell, raising concerns about the independence of the central bank. However, days later, he distanced himself from that suggestion, emphasizing he never truly intended to do so.

Case 3: 50% Tariffs on EU (May-June 2025)

Trump initially planned to impose 50% tariffs on EU imports but then decided to postpone the plan, leading to a strong rebound in European markets.

Case 4: US-China Trade Negotiations (May 2025)

Amid tense US-China trade talks, the US ultimately agreed to withdraw some tariffs on China in exchange for corresponding concessions from China.

Case 5: NATO Greenland Tariffs (January 2026)

This is the latest TACO case. On January 17, Trump threatened to impose a 10% tariff on 8 NATO members (raised to 25% from June), claiming to pressure Denmark to relinquish sovereignty over Greenland. However, just four days later, he announced at Davos the cancellation of tariffs, claiming a “framework agreement,” though the details remain unclear.

These cases reveal the core of Trump’s negotiation philosophy: “Extreme pressure is just the opening move; the real goal is to get concessions when the other side is afraid.”

The Underlying Logic of the TACO Strategy

Trump’s TACO negotiation pattern can be broken down into the following steps:

Step 1: Throw Out Extreme Positions

Whether demanding “full acquisition of Greenland” or “145% tariffs on China,” Trump always starts with the most extreme stance. This strategy serves two purposes:

1. Create Negotiation Space: Retreat from extreme positions to appear “generous”
2. Test the Opponent’s Bottom Line: Observe the reaction strength

Step 2: Observe Market and Political Reactions

Trump’s team monitors stock market performance and allies’ responses. When markets plunge sharply or political pressure becomes too great, it signals a need to adjust strategy.

Step 3: Find a Way Out

Trump is skilled at finding a face-saving way out. Whether it’s “framework agreement,” “conceptual consensus,” or “ongoing negotiations,” these vague terms allow him to retreat while maintaining face.

Step 4: Declare Victory

Even with minimal actual concessions, Trump will loudly proclaim “significant progress” or “historic agreement,” framing retreat as a win.

Why Is the TACO Strategy “Effective”?

Although “TACO” carries a mocking tone, this strategy has indeed produced results in some aspects:

1. The Market Has “Gotten Used To It”

Investors have gradually learned to stay calm during panic, expecting Trump to eventually back down. This expectation reduces the actual destructive power of tariff threats, allowing Trump to gain bargaining chips without implementing truly damaging policies.

2. Opponents Are Forced to Concede

Even if tariffs are not fully implemented, the threats themselves compel negotiation counterparts to make concessions. For example, in this NATO case, European countries may have made certain commitments on Arctic defense cooperation.

3. Creates a “Winner” Narrative

Every “retreat” is packaged by Trump as a diplomatic victory, reinforcing his image as the “toughest negotiator.”

Risks and Costs of the TACO Strategy

Of course, TACO is not without costs:

1. Reputation Damage

When the world realizes Trump’s threats are bluff, his future threats will be increasingly difficult to take seriously.

2. Legal Challenges

The Supreme Court’s ruling on the legality of Trump’s tariffs under the “International Emergency Economic Powers Act” (IEEPA) is still pending. If found unconstitutional, the White House faces large-scale tariff refunds.

3. Economic Uncertainty

Repeated policy swings increase corporate planning difficulty, reorganization costs are high, and ultimately these costs are borne by consumers.

Negotiation Master or Paper Tiger?

Overall, Trump’s TACO strategy is essentially a “maximum pressure, stop when it looks good” negotiation philosophy. It exploits the vulnerabilities of modern financial markets: stock markets are highly sensitive to policy uncertainty, and this sensitivity can be turned into bargaining chips.

However, as the world learns this script, the effectiveness of TACO will gradually diminish. More dangerously, if Trump is publicly mocked as a “coward,” he might take truly destructive measures to save face.

For investors, the TACO pattern may offer a trading opportunity: buy during panic, sell during rebounds. But this strategy also carries risks—if one day Trump decides not to “chicken out,” the consequences could be severe.

For governments, the best approach may be: take threats seriously but do not panic excessively. Maintain negotiation flexibility, demonstrate unity and resolve, and let Trump know the costs of overpressure.